The Missing Middle Just Got $200,000 Cheaper to Build
The development charge deal is the first housing policy in years aimed at the types of homes we're missing
A developer on Avenue Road recently received City approval to build an eight-storey condominium, in line with the other new buildings on the street. Now they’re back, asking the Committee of Adjustment to approve twelve storeys plus a mechanical penthouse, packaged as a minor variance. Three neighbouring residents associations, including the one where I serve on the board, are coordinating to oppose it. We’ve allocated funds for a planning consultant to present our case at the hearing later this month. I’m not in favour of this opposition, but I’m glad to have a place to make my case and hope to sway more people to thinking differently.
At about the same time, the City announced it had secured up to $1.5 billion over ten years from the federal and provincial governments. In exchange, Toronto will cut development charges on new homes by 40 to 60 per cent for at least the next three years. The deepest cuts, 60 per cent, are proposed for family-sized homes: apartments and multiplexes with two or more bedrooms, and single and semi-detached houses. One-bedroom and bachelor units would get 40 per cent. This delivers on the framework Prime Minister Carney, Premier Ford, and Mayor Chow announced back in March, which also removes the HST from most new homes, worth roughly $100,000 on an average new condo. The province estimates the cuts alone will shave about $83,000 off the cost of a new single or semi-detached home, and the City estimates the deal could help get 44,000 new homes built. Add it up with the HST rebate, and a new home in Toronto could cost up to $200,000 less in taxes and fees.
If you’re not up to speed, development charges are one-time fees the City collects on every new home to pay for the infrastructure that serves it: roads, transit, water mains, sewers, parks, libraries, fire stations. The idea is that new homes should help fund the services their residents will use, rather than sending the whole bill to existing taxpayers.
Development charges have been growing enormously for some time. In 2018, the development charge on a new single-family home was about $41,000. Today it is $137,846. The charge on a one-bedroom apartment went from roughly $10,000 in 2014 to $52,676 today, a five-fold increase in a decade. A two-bedroom apartment that owed about $25,000 eight years ago now owes $80,690. According to CMHC, these charges and related fees make up 8 to 16 per cent of the price of a new condo. Think about what that means for a young family buying an $800,000 unit: tens of thousands of dollars in municipal fees, folded into their mortgage, paid off with interest over 25 years. How did the fees triple in eight years? Between rate reviews, the charges rise automatically with a Statistics Canada index of construction costs, so when building costs surged after the pandemic, the fees surged with them.
Development charges are a common topic of debate, and there are two frequent objections to lowering them.
The first is that developers are getting rich, so why should we cut their fees? A typical condo project targets a profit margin of about 15 per cent, earned over the five to ten years it takes to assemble land, win approvals, pre-sell, and build. Contingencies run around 5 per cent, and when costs slip, as they have relentlessly, actual returns can fall to 5 to 8 per cent, on a venture where the downside is losing everything. Construction costs in Toronto rose about 80 per cent between late 2018 and 2023. Since 2024, more than two dozen condo projects representing thousands of units have been cancelled outright. Insolvencies are spreading through the industry, mostly among smaller builders, and even the city’s most famous project, The One at Yonge and Bloor, ended up in receivership after its developer defaulted on $1.23 billion in loans. If building homes in Toronto were a licence to print money, construction would not have stopped. Yet in the first three months of this year, only 246 pre-construction condos sold in the entire city, against a ten-year quarterly average of around 4,000, and not a single new project launched. The fees never came out of developer profits, because there weren’t profits to spare. They went into prices, and when prices couldn’t rise any further, they went into projects that simply never got built.
The second objection is that new development won’t help regular people because developers only build luxury condos. I understand where this comes from, but it has the causation backwards. When every new unit owes $50,000 to $80,000 in development charges, plus HST, plus land, plus construction costs that rose 80 per cent, the only units that are financially possible to build are expensive ones. We didn’t get luxury condos because developers prefer wealthy buyers. We got them because our own rules made anything else not feasible to build. It’s also worth remembering that luxury mostly means new. The concrete apartment towers of the 1960s were marketed as modern living; today they’re some of the most affordable rentals in the city. This year’s new building is the next generation’s attainable one, but only if it gets built.
Those rules gave us a barbell. On one end, detached homes that cost well over a million dollars. On the other, tiny investor-oriented condos, the shoeboxes that made sense as speculative assets and not much sense as homes, which is why tens of thousands of them now sit unsold. What’s missing is everything in between: the duplexes, triplexes, sixplexes, and small walk-up apartments that older Toronto neighbourhoods are full of, and that a family priced out of a detached home would actually want. Planners call it the missing middle. For decades it was illegal to build on most residential land, and once the City legalized multiplexes, the fees finished the job the zoning had started. Before Toronto exempted small multiplexes last year, a three-unit building owed around $150,000 in charges before a shovel touched the ground. Above six units, the charges still snap back at roughly $50,000 per unit, which is a big part of why nobody builds the eight-plexes and small apartment buildings our best streets are made of.
This is why the June deal matters more than the headline number suggests. It is the first housing policy in years aimed squarely at the middle. The deepest cuts are weighted to family-sized units and multiplexes. Stacked with the existing exemption for buildings up to six units plus a garden suite, and the HST rebate, the arithmetic on a modest apartment building starts to work for the first time in a generation. The missing middle has been missing for reasons, and one of the biggest reasons just shrank by more than half.
The remaining obstacle isn’t economics. When a fourplex or a small apartment building is proposed on a quiet street, the objections are familiar: character, parking, shadows, traffic. Those concerns aren’t imaginary, and as I wrote earlier this year, we only move forward when we’re honest about trade-offs. The trade-off here is that the look and feel of some streets will change. But I’d ask my fellow long-established homeowners to weigh what we get in return. The chance for our kids to afford a home in the neighbourhood they grew up in, instead of moving to Barrie or Calgary. Somewhere to downsize within a few blocks of our friends when the house gets too big, instead of leaving the community entirely. Enough neighbours to keep the local shops open, the bus frequent, and the school off the closure list. Density isn’t something being done to established neighbourhoods. Done gently, it’s what keeps them alive.
None of this means the deal is free. The $1.5 billion backfilling the City’s infrastructure budget comes from federal and provincial taxpayers, so the cost of growth wasn’t eliminated, it was moved. To their credit, the funders built in accountability: the money arrives in instalments tied to construction milestones, with clawbacks if the promised homes don’t materialize. The cuts are guaranteed for three years while the City’s comprehensive review of development charges runs into 2027, and when the intergovernmental money eventually ends, the revenue has to come from somewhere, which starts a conversation nobody enjoys about Toronto’s property taxes, still among the lowest in the region. And cheaper homes are not the same as affordable housing: the province has paused inclusionary zoning until mid-2027, leaving the deal’s rental stream to carry that load. Projects that include at least 20 per cent affordable units can defer their remaining charges indefinitely, which has supported over 8,000 rental homes so far, including more than 2,000 affordable ones, with 10,000 more targeted. Real, but modest against the need.
The sharpest critique of deals like this one comes from Strong Towns, the movement founded by engineer-turned-writer Chuck Marohn that I’ll write more about soon. Strong Towns has argued for fifteen years that fees like these never truly covered the cost of growth. A development charge is a one-time payment in exchange for a permanent obligation: it pays to build the pipe, but nothing to operate it, maintain it, or replace it in fifty years when it wears out. Toronto is the proof. Over the same years that development charges tripled, the City’s backlog of infrastructure repairs kept growing anyway. It stands at more than $9 billion today and is projected to more than double to $21 billion by 2033, even under the largest ten-year capital plan in the city’s history. If those fees were covering the real costs of a growing city, where did the backlog come from? This year’s budget even deferred nearly $2 billion in parks work that was supposed to be funded by development charge revenue that isn’t arriving. The fix is to align the city’s ongoing revenues with its ongoing responsibilities, and fund the maintenance of what exists before expanding what doesn’t.
The deal funds Waterfront East Transit: a 3.8-kilometre extension of the streetcar network from Union Station along Queens Quay East, down Cherry Street, and out to Ookwemin Minising, the new island Toronto created in the Port Lands by giving the Don River back its natural mouth. The City is contributing $1 billion, with the federal and provincial governments funding the rest. When complete, the line will carry more than 50,000 trips a day and enable over 75,000 new homes. The Harbourfront streetcar opened in 1990, the extension east was environmentally approved in 2010, and the approval sat unfunded for so long it expired. Toronto has been about to build this line for sixteen years. What finally unlocked the money wasn’t a transit argument. It was a housing argument. Build the transit first, and the homes follow.
So what can you do? Later this year, City Council votes on the design and phasing plan for Waterfront East Transit, and the development charge review runs into 2027, with opportunities for public input along the way. One short email to your councillor supporting the transit line, and a submission to the review when consultation opens, matter more than you might think. And the next time a multiplex or small apartment building is proposed near you, show up, or at least write in, because the loudest voices at those meetings are rarely speaking for the people who need the homes.
The question this deal really raises isn’t who pays for the city. It’s whether Toronto keeps growing and flourishing, and that starts with fixing housing. Right now we offer a young family a choice between a detached home they can’t afford and a shoebox they don’t want, and then we wonder why they leave. The missing middle is the missing answer. For the first time in years, the economics, the zoning, and three levels of government are finally taking steps to address it. The $1.5 billion doesn’t guarantee success, but it does remove a significant barrier.