Fast-tracking homes: why lowering development fees and speeding up approvals can help solve the housing crisis

Canada’s housing market has experienced significant strain in recent years. While the story varies from region to region, affordability and availability have decreased rapidly in most markets, with prices rising significantly faster than incomes.

Experts agree that increasing output by streamlining approvals and reducing costs would help lower the price point for buyers and help ease the current market imbalance.

But efforts to increase housing supply have fallen well short of demand, hindered by rapidly increasing development fees and lengthy zoning approval processes, among other factors.

Earlier this year, the Canada Mortgage and Housing Corporation (CMHC) reported that approximately 245,000 housing units were constructed in Canada in 2024. That’s up 2% over 2023. However, while the annual increase in housing supply indicates some progress, the current pace of growth remains insufficient to address affordability challenges in urban centres.

CMHC has previously estimated that Canada has the capacity to construct up to 400,000 new housing units annually, based on the resources currently allocated to residential construction.

However, the longer we delay building, the harder it will be to get a national plan off the ground. As CIBC Economics has previously explained, the construction industry is already dealing with labour gaps, with chronic shortages in the skilled trades and nearly 300,000 construction workers set to retire in the coming decade.

All of which highlights the need for a significant boost in housing supply – and soon – to meet the growing demand and improve affordability.

Stephen Diamond, CEO of Toronto-based development company DiamondCorp, explains: “The issue is being able to produce the supply that’s available at a price that people can afford to pay, and there’s a number of different elements that go into it that are preventing that.”

Those elements include interest rates, which have been slowly coming down, construction costs, and various municipal charges that can add up to 30% of the cost of a unit.

Reducing development costs would help make building new homes more viable and the sale price more affordable. It would also incentivize construction across the country. In a similar vein, streamlining the approvals process would help get supply onto the market faster.

Looking at the costs associated with building a $1.25 million condo in Toronto, with 2022 data from Altus, government charges are the second-largest cost at between 22 and 27%, after hard construction costs at 35-45%. Land value comes in third at between 20 and 25%, while soft costs are between 12 and 20%, leaving developers with a profit of between 9 and 12%.

Ballooning costs are weighing development down

Between 2004 and 2024, municipalities in Ontario increased their development charges for single detached units, with some municipalities increasing their charges by more than 800%.

Municipalities charge development fees for sound reason: to help pay for the cost a new development demands in terms of municipal services, such as roads, transit, water and sewer infrastructure, community centres, and fire and police facilities.

However, while these fees serve an important purpose, they have become one of the biggest barriers to getting new projects off the ground. Diamond believes this is the most significant thing the government could move on.

Anecdotally, we’ve also heard frustrations from leaders in the development sector that fees are being used for purposes other than infrastructure investments that would help address housing needs.

Municipalities have often been unwilling to reduce development charges, out of fear of losing revenue. However, as CIBC Deputy Chief Economist Benjamin Tal pointed out in a recent panel discussion, “if you waive development charges, the cost is actually minimal. Why? Because nobody’s building. So, zero times zero is zero!”

Even bringing fees down to 10-15% would give buyers a significant break. Diamond suggests going even further.

“We have been suggesting to our governments that, even if it’s for a two-year period, that they should put a freeze and not charge development charges to get things moving. On an average condominium [in Toronto], that would reduce the cost by about $100,000 a unit or so. That could make a big difference.”

In this model, municipalities would continue to generate other revenues from the sale of these developments, Diamond suggests. “The city would still be getting their 4% community benefits charge, and they’d also get their land transfer tax, which is paid on every unit, and eventually, when the building is built, they’d also get their property taxes. Additionally, the parkland charge can be anywhere from 5 to 15% of the value of the property.”

Some municipalities are certainly making changes in the right direction. Until recently, Vaughan, Ont.’s development charges and fees added up to the highest in the Greater Toronto Area. In November 2024, the city council approved a plan to reduce development charges by up to 47%. This means the development charge rate for low-rise residential fell from nearly $95,000 to just over $50,000.

Supply keeps sliding

Tal estimates Canada needs to build five million extra housing units (on top of regular annual construction) by 2030 to solve the country’s affordability crisis. However, shovels aren’t getting in the ground fast enough, largely because projects are delayed while waiting on permits.

But change is possible. In Kitchener, Ont., city hall managed to get processing times down from 10-17 months in 2020 to an average of four to five months in 2023. The city streamlined approvals by, for example, hiring more planners, streamlining internal reviews, shortening notices to the public, and deploying new software.

For Caivan co-founder and co-CEO Frank Cairo, the gold standard would be development approvals on time and at scale. Caivan, through its Advanced Manufacturing arm ABIC builds a wide array of home designs in its Ottawa factory—an innovation that can be part of the basket of solutions for Canada’s housing shortage. But Cairo says that the manufacturing cost profile breaks down without scale.

“The lack of land development approvals, is far and away the single largest factor that precludes robust and scalable manufacturing in our sector,” he said. “A patchy and unpredictable flow of development approvals mitigates the extent to which capital can be dedicated to large scale manufacturing.”

Cairo suggests that building sites be considered part of the broader housing supply chain, as the “cost profile quickly breaks down” for projects that can’t achieve scale.

Cairo draws a comparison to postwar Canada, when tens of thousands of so-called “strawberry box homes” were pre-approved and in many cases, built in factories, ushering in an era of democratized access to home ownership and, in turn, prosperity.

“The government was involved to make sure that housing was delivered with a priority placed on action over red tape,” he said. “Today, generally speaking we’re simply not seeing the bold leadership required to really drive an approval framework compatible with housing requirements.”

As an example, in Alberta, Canada’s fastest-growing province, Edmonton is trying something new: same-day automated approvals for new detached and semi-detached houses under specific zoning conditions. As of September, developers can submit a permit application online, get approval within a day and begin building almost immediately, in the interest of saving time and money.

The urgency of now

Looking ahead to the next couple of years, housing affordability may get even worse in Canada because at today’s prices, construction of new homes has slowed to a crawl.

“I think it’s going to become, in two years or so, worse than it is today. There’s not much coming on the market in 2026,” Diamond says.

Indeed, recent research by real estate analysis firm Urbanation suggests that by 2027, the number of newly built condos hitting the Toronto region market could be cut in half and then hit 20-year lows in 2028.

After a record 31,404 completed condo deliveries in 2024, there could be as few as 10,000 in 2028. Urbanation’s research reports that just 497 condo units started construction in the Greater Toronto Hamilton Area (GTHA) in the first three months of 2025, the lowest number in 29 years and down 79 per cent from the same period a year ago.

Addressing Canada’s housing crisis is critical for our country’s economic growth and stability. The path we’re currently on could take us down a dark road, where more people can’t secure a stable, affordable living arrangement, hindering their participation in economic and civic life.

It’s time for a major rethink, to come to the table with wide open minds to solve this national crisis.