Development cost charges
Municipalities levy development cost charges (DCCs), also known as lot levies or development fees, to pay the capital costs of infrastructure associated with new residential or commercial development. Private developers are typically required to pay development fees to cover the capital costs of installing certain municipal services. The ability to set the fees is laid out in each provincial or territorial local government act, and a municipality then establishes a bylaw for the fee structure. DCCs are among the most common instruments used to finance growth-related infrastructure, but can also be used to fund projects that benefit a community or to ensure a future reserve fund for infrastructure operation and maintenance.
DCCs are usually charged uniformly, regardless of where the new development occurs, resulting in substantial differences in cost. However, some municipalities are using DCCs in new ways to achieve specific community goals through better land use, transit-oriented development, or higher-efficiency building standards. This sector or density approach can reduce DCCs per unit for high-density developments and is more efficient in delivering key services such as roads, transit, and water and sewer systems.
No province or territory provides the same municipal powers with respect to DCCs or how to apply them, and not all jurisdictions have DCC systems through provincial legislation.
Any municipal infrastructure type, e.g. water, wastewater and stormwater systems, highway facilities, developing park land, transit, etc.
- The burden of paying for general infrastructure shifts from the general public (through property taxes) to new residents or commercial tenants, assuming that the developers' costs are passed on to buyers or renters.
- In general, DCCs are an efficient use of investment because infrastructure is built only if there is a demand.
- Sector-based DCCs place the burden of infrastructure costs on buyers of new homes rather than on the general tax base.
- Sector-based DCCs provide an incentive for developers to pursue higher density and compact growth; limiting sprawl and its associated impacts.
Barriers and challenges
- DCCs typically cover only construction costs; not operating and maintenance costs, which must be met through general revenues or fees.
- With a non-sector-based approach, property owners may end up paying for developing land services elsewhere in the community.
- Higher DCCs can limit growth and affect future tax revenues.
- Care must be taken in setting sector-based DCCS, to determine how different densities impact infrastructure requirements and how land zoning can affect rates.
- In developing DCC bylaws, municipalities must consider the responsibilities outlined in their local government act as well as any exemptions that may restrict DCCs.
- Variable rates can be unpopular because politicians may not want to be seen to be favouring certain areas or constituents over others.
- DCC revenues will decline if housing starts decline.
Resources and notes
- Alternative Funding Mechanisms
- Innovative Infrastructure Financing Mechanisms for Smart Growth
- Alternative Methods of Financing Municipal Infrastructure
- DCC rate structures typically fall into two categories: municipal-wide and area-specific charges.
- To influence a municipality's desired goals, the differences in rates must be large enough to matter to developers.
- The Markham, ON, Performance Measures Document requires all new development proposals to meet set requirements including environmental, design, transit and pedestrian-supported criteria. Kelowna, BC, adopted an Official Community Plan in 2001 that proposed a new DCC structure to reflect different infrastructure costs for different development densities.
- Okotoks, AB, uses density bonuses to encourage developers to adopt indoor and outdoor water conservation measures in all new units.
- Ottawa, ON, has waived DCCs for certain downtown infill developments, e.g. The Currents, a mixed-use project with a variety of green building features, was built on a former brownfield.
- The Laval, QC, Carbon Offset Program uses a portion of development charges to fund its GHG offset program.