A new report warns that heavy reliance on upfront development charges is significantly increasing the cost of building new homes in Canada, adding tens of thousands — and in some cases hundreds of thousands — of dollars to prices. The report argues the current model discourages construction and weakens affordability.
BNN Bloomberg spoke with Colin Busby, director of policy engagement at C.D. Howe Institute, about proposals to shift infrastructure financing toward lifecycle funding models and expanded municipal borrowing tools.
Key Takeaways
- Development charges in large urban centres can add $50,000 to $200,000 to the cost of a new home, raising prices for buyers and renters.
- Financing infrastructure through upfront lump-sum charges increases sticker shock and reduces competitive pressure on existing housing supply.
- The report proposes arm’s-length municipal utilities that can issue debt and recover infrastructure costs over the full lifecycle rather than charging all costs upfront.
- Strict provincial debt rules limit municipal flexibility, but similar borrowing models already exist in sectors such as electricity system operators.
- Broader reforms, including changes to municipal finance tools and housing rules affecting missing middle and ownership models, may be needed to improve long-term affordability.
Read the full transcript below:
ROGER: A new report from the C.D. Howe Institute warns that Canada’s housing supply relies too heavily on upfront development charges, a system that drives up costs for buyers and renters and discourages new construction. For more, we’re joined now by Colin Busby, director of policy engagement at C.D. Howe Institute. Colin, thanks very much for joining us.
COLIN: Thank you for having me.
ROGER: According to your report, what kind of an impact is that having, the development charges, the upfront development charges?
COLIN: So municipalities rely very heavily on development charges in the building of new homes. And, you know, it ranges a lot across the country, but in Canada’s large, sort of more populous urban centres, it’s not entirely irregular for housing development charges to add upwards of $50,000, $100,000 or potentially even $200,000 to the overall cost of building a new home. And so it’s a substantial amount. Municipalities rely on it because they would like to fund housing-related infrastructure and the cost of housing-related infrastructure over the use of adding a new house to, for example, water and wastewater facilities. And so they charge it over the entire lifetime, all upfront, one upfront charge, and it creates a lot of challenges. Obviously, it sort of raises the cost of building new homes, and it also raises the cost of the existing housing supply because they don’t have to compete as substantially with new homes. So municipalities are sort of stuck in this habit of wanting to finance housing through one upfront lump-sum charge. And so it’s increasing the sticker shock of building new houses, it’s making housing less affordable. And we need to try to find ways to break that cycle and to find ways of financing new housing-related infrastructure in a way that’s going to promote housing affordability as well as ensure that municipalities have the revenues they need to finance housing.
ROGER: Now, is it not simply a case — I mean, it’s either pay now or pay later — when it comes to that? They have to do that work, they need the money. What other options do they have?
COLIN: I mean, so municipalities really have a choice to make, and they need to be working with the provinces on some of these issues as well. But what they could do is they could set up functioning, independent, arm’s-length utilities that would charge ratepayers for the costs of housing-related infrastructure over the lifecycle, as opposed to in one sort of upfront lump-sum charge. So, for instance, the way this could potentially work would be to have a water and wastewater utility associated with a large Canadian municipality, and they would be allowed to issue debt. For instance, they’d be allowed to issue debt and allow them to raise rates on ratepayers to pay for the costs of building that infrastructure, of maintaining that infrastructure over its natural lifecycle. But, you know, this is not an easy thing. Municipalities are certainly in the habit of relying on development charges, upfront development charges. It’s nice to have all that money in the bank. You can understand why it’s an attractive feature for municipalities. But moving away from it — how do we enable municipalities or their utilities to issue more debt? That’s a real challenge. It challenges the way provinces have done things, it challenges the way municipalities have done things. But we have to seek this out, and we have to try to find these options more attractive, because finding other ways to lower development charges just doesn’t seem to be gaining a lot of traction.
ROGER: Now, are there areas that are doing this, where they are allowed to run debt, build debt? And is there not a danger that they could end up like some provinces and the government, where we’re running deficits every year? How do you protect against that? I mean, municipalities are one of the only places they can’t run a debt, can they?
COLIN: Yeah, I mean, so one example that comes to mind in terms of an area where there are opportunities for some municipalities or municipally associated utilities to issue debt would be things like electricity and electrical system operators. So it’s not like it’s without precedent, but it’s a challenge because the way that provinces tend to oversee the finances of municipalities is they tend to have very strict rules in terms of how they can issue debt, why and under what criteria. And so I just think it’s inevitable that we have to try to work at producing options that’s going to allow municipalities to issue more debt, whether that’s debt that is potentially non-taxable debt, that could be an attractive feature for municipalities. How could we encourage utilities and the development of utilities that are themselves issuing debt and that there’s good rules and responsibilities on them to ensure that they follow through on that debt, they pay off their debt, and that those don’t essentially get passed off to higher levels of government? But it just seems like this is an inevitable frontier that we’re going to have to push through if we want to make new housing affordable in Canada and in a lot of cities in Canada, and at the same time start to reduce some of the prices on the existing resale stock as well.
ROGER: Now, could you see the provinces and the Fed open to this? It’s a complete overhaul. I mean, you also want them to change their rules when it comes to missing middle housing — duplexes, triplexes — flexible ownership models. Could you see the government willing to overhaul the system that much?
COLIN: Yeah, I mean, certainly it’s a challenge for higher levels of government to try to encourage municipalities moving in this direction. So federal government incentives to try to get municipalities to reduce their development charges really are not having the appeal perhaps that the federal government would like. So I think the things that potentially higher levels of government could do would be to make a lot of municipal debt issuance non-taxable, try to find other alternatives to allow for the establishment of forms of governance of municipal-level utilities that can issue debt in ways that are applicable, well regulated, not a source of public concern. But the toolkit is not large. I know a lot of people would want to see the federal government and the provinces start to introduce more conditional transfers to municipalities, but it’s not clear to me that that is necessarily going to be the solution. I think we need to find ways of potentially even using higher-level government expertise in establishing large-form utilities debt-issuing agencies and perhaps lending that expertise to the municipal level and showing them how it can be done might be part of the toolkit that we can use to start to improve housing affordability in Canada.
ROGER: Okay, thank you very much, Colin, for joining us. We’re out of time, but appreciate you joining us.
COLIN: Thanks for having me.
ROGER: Colin Busby, director of policy engagement at C.D. Howe Institute.
---
This BNN Bloomberg summary and transcript of the Feb. 17, 2026 interview with Colin Busby are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
