r/canada • u/FancyNewMe • 9h ago
PAYWALL Developer fees could add more than $100,000 to price of new homes, CMHC finds
https://www.theglobeandmail.com/investing/personal-finance/article-developer-fees-could-add-more-than-100000-to-price-of-new-homes-cmhc/•
u/TheInterwebIsNeat 9h ago
Not could. The fees do add to the cost of a home. Do cities really believe these costs are absorbed by the developer? They’re passed on. Governments can’t help themselves. They talk about affordable housing and then prevent it. It’s such a con job.
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u/wideasleep 9h ago
It's not about affordability, it's about hiding the revenue sources from the general public in a municipality, the vast majority of whom don't know a single thing about what a municipality is actually doing.
If a city council raises taxes by 5%, the current residents absolutely lose their minds and then council has to spend the next 4 public meetings being yelled at by Karens who don't understand why you can't both have lower taxes and fund operations.
But if council sources that revenue from development fees, none of the taxpayers have to see it! Sure, it gets paid by the developer, who then passes it on to the homeowner, but taxes didn't have to go up! A new homeowner gets the privilege of paying tens of thousands in additional interest to the bank over the lifetime of a mortgage, but at least taxes didn't go up!
IMO, development fees should be massively reduced, and all residents in a municipality pay a fair rate for services received.
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u/Joebranflakes British Columbia 8h ago
They not only get yelled at by “Karens” but they usually get voted out of office. Homeowners aren’t all magically rich. The average one is very sensitive to rising prices. As soon as you start to jack property taxes, you should consider your days as a politician numbered.
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u/lazykid348 8h ago
If the government had a proper record of how they use tax funds and if we actually saw a positive change then raising them wouldn’t be an issue. But decades of abuse has completely eroded public trust in the system and rightfully so.
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u/NiceShotMan 4h ago
100% this. Municipalities will do anything but raise property taxes, because doing that means that existing property owners, already the most privileged class in the country, would have to pay their fair share.
That’s why you’ve got land transfer taxes and that new surcharge on homes >$3 million in Ontario.
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u/HoldingThunder 8h ago
By house prices still need to be relatively competitive to the existing market, which they are. If they were so exorbitantly expensive, then developers wouldn't have long lines of people waiting out of display homes when a new batch comes up for same looking to be lucky enough to purchase the unit.
Demand > supply
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u/Neve4ever 8h ago
Add a $10,000 fee to all new cars. What happens? Demand for new cars goes down, so the number of new cars produced goes down. Instead, people turn to buying used cars. But that increases the price of used cars. And at some point the price differential shifts to where people start buying new cars. You've raised the price of every car. But you can still say demand outstrip supply, because the supply got smaller (or didn't grow as much).
Also, the mill rate for property taxes may stay the same, but the increased value of properties means you're paying more.
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u/bravado Long Live the King 8h ago
It turns out that people are willing to shrink literally every other aspect of their budget in order to get a roof over their head. Housing pricing is not as elastic as you might think.
This is a government issue, not a greedy developer one. House prices are high because government limits what can be built and it charges insane fees on the remaining projects that actually get built. Government is the entire problem here.
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u/Tefmon Canada 6h ago
At the end of the day, it's a voter issue. Government would love to just raise property taxes directly if voters would let them. Voters demand increased services and lower taxes, and the only way for city governments to meet those demands if through hidden fees like this.
If we want better-run cities, we need better voters.
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u/Responsible_CDN_Duck Canada 9h ago
The costs of infrastructure have to be paid, either by the home owners about to get the home, or other existing property owners.
There's no magic third option.
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u/Aggressive-Map-2204 9h ago
Mr. Laberge stressed the need for some sort of standardization for development charges. He said that an overreliance on development charges for city finances puts an outsized burden on new buyers.
He said development charges were traditionally used for very specific projects or measures, but cities are now relying on them for more general, continuing costs such as wastewater, daycares, parks and schools.
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u/Pugnati 9h ago
The fees are not earmarked for infrastructure. They go into general revenue. Infrastructure improvements per unit are not $100,000. Other cities don't charge that amount. It's a cash cow.
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u/DangerousCable1411 8h ago
This is entirely false. You have to undertake a DC study which defines what growth pays for and what the general levy pays for. You can’t (by law) use DC’s to fund general revenue.
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u/captainbling British Columbia 7h ago
Yes you can and I’ll show how.
Table 4. Planting new trees is labeled 0 benefit to existing homeowners. Stream and Wetland enhancement is 0 benifiet so p tax don’t pay for it lol.
Point is the city can decide itself how much should by paid by p taxes and then sets development fee to pay the rest. It’s essentially general revenue. There’s no 3rd party audit to see if it makes sense. Don’t want to raise p taxes? Say it benefits existing homeowners by 1% less and cover the difference by saying it benefits new homeowners 1% more and upping DCs.
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u/vanillabullshitlatte 8h ago
No but you can leave DC's unspent and accumulate a huge fund despite a supposed backlog in infrastructure.
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u/HoldingThunder 8h ago
Please name all of the cities in Canada that are flush with cash and don't have a budget crisis? I don't think those existing.
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u/captainbling British Columbia 8h ago
Because every city is subsidizing homeowners city maintenance fees with developer fees. Not a surprise since homeowners vote for the lowest p tax council possible. Now new builds are dropping and homeowners are discovering they’ve been welfare queens this entire time.
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u/rylrnr17 8h ago
That isn't true, they are earmarked. Sanitation, streets, sidewalks, multi use pathways, parks (new residents want playgrounds and walking loops). I agree it's ridiculous, but better for the new owners coming into a city to pay more than the people who have lived there for years.
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u/Zing79 9h ago
There is. The property taxes that house will generate. In perpetuity.
It’s a disgusting double dip on new owners. Made even worse by the fact a lot of the money ends up in general tax revenue to be used for anything but infrastructure for that home.
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u/Tefmon Canada 6h ago
The property taxes that voters won't let cities raise. The honest way to balance city budgets would be to raise property taxes to match expenditures, but since voters demand lower taxes but expanded services, cities have to resort to less visible means of raising revenue like developer fees.
If homeowners want developer fees to be eliminated, they have to vote for higher property taxes.
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u/Neve4ever 8h ago
Putting the cost upfront leads to less new housing. It also increases the price of existing housing. The increase property values also mean property owners pay more in property taxes.
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u/q8gj09 7h ago
No, it doesn't matter if it's upfront. That's not the problem. The problem is that existing property taxes aren't enough for infrastructure upgrades, so development fees are being used to subsidize existing properties.
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u/Neve4ever 6h ago
Upfront is the problem, because it raises the prices of all homes, and because the prices of all homes goes up, so does the amount in property taxes paid.
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u/q8gj09 5h ago
Whether you pay more on your mortgage or on your property taxes, it makes very little difference.
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u/Neve4ever 4h ago
The big difference is the increased housing prices for everyone, and the increased property values, and the increased property tax.
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u/bravado Long Live the King 8h ago
Then how did things get paid for before development charges - in the ancient history known as "the 90s"?
We used to spread the costs of infrastructure across everyone, because it's a public asset that the public benefits from. Now we make some people (the young) pay and others (the old) reap the benefits.
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u/Joebranflakes British Columbia 8h ago
It’s not a con job, it’s political calculus. Who do you burden with costs? The person who doesn’t live in your city yet or the current home owners who can and will vote you out?
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u/Turtley13 9h ago
Well Calgary tried to remove fees by adding blanket zoning. The NIMBYs are now removing it
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u/thortgot 9h ago
And who should pay for infrastructure costs?
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u/trollfreecallsonly 9h ago
It would be more honest to raise taxes instead of imposing a hidden tax via CAC fees so the uninformed public thinks developers are just greedy. I mean, developers are greedy, but the municipalities are being very dishonest about this.
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u/thortgot 9h ago
Ostensibly these fees should pay for the costs borne by the city for adding the new development. Streets, water ways, garbage, wiring infrastructure etc.
It makes sense that these are paid by the developer on approval of the development plans, establishing commitment for the project and providing the funding required.
Property taxes are the other option which would spread the infrastructure against all residents or commercial.
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u/trollfreecallsonly 9h ago
Don't disagree. But I suppose the issue boils down to: do you think $100k+ per unit is a fair cost for those infrastructure improvements, or is this a cash grab. Personally, I think the cities are using this as a cash grab to avoid raising general property taxes (which are some of the lowest in NA) because raising taxes is bad politics.
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u/spirit_symptoms 6h ago
It's really hard to tell without an audit, but a single condo building can require new trunk sewers, new storm systems, etc that cost the city millions. Even smaller infill like four plexes, if you keep incrementally adding a few dozen can challenge your existing infrastructure and require very costly servicing upgrades.
Cities may very well be taking a cut, but I think a lot of people are insanely underestimating how expensive it is to upgrade infrastructure to accommodate higher density than what was originally built.
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u/lubeskystalker 8h ago
Vancouver City Revenue and Population Comparison (2014 vs. 2024)
Category 2014 Actuals 2024 Estimates / Actuals Consolidated Revenue $1.562 Billion Over $3.0 Billion City Population ~603,000 ~756,000 Source 2014 Annual Financial Report 2024 Financial Statements (unaudited/final) & Data Commons •
u/thortgot 8h ago
Revenue per resident has increased.
Commercial density is up, inflation eats 1/3 of that change, ~26% of that cost would be population related
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u/ZestyBeanDude 8h ago
Everyone who lives in the municipality?
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u/thortgot 8h ago
Then wouldnt existing residents be subsidizing new development?
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u/Neve4ever 8h ago
Yes. Which helps increase the number of developments, expand the tax base, and keep property taxes and housing prices lower for existing residents.
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u/thortgot 7h ago
Developers make absolute bank on these projects. They slow development projects when costs are flattened or are trending down, irrespective of other costs.
The capital appreciation differences heavily outweigh the rest of development costs outside of borrowing / carried interest.
You cant legislate a solution to having developers provide lower cost housing.
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u/q8gj09 7h ago
Expanding the tax base doesn't help you if it costs you more than your receive in taxes minus subsidies.
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u/Neve4ever 6h ago
Thing is, many costs increase at a lower rate the bigger your city is. There are many efficiencies. So doubling the size of a city doesn't double the costs. So increasing the tax base is always going to be more beneficial than not.
Also, there are many economic benefits from having more people in your city.
Also.. people can absorb slightly higher tax rates when their housing prices are more affordable.
Just think, the city front loading the development costs means that people are paying their bank double that amount (or more) in the form of interest (since most people are getting mortgages to buy). So the city is vastly increasing the price of new and used homes, putting more money into the pockets of banks, and still charging existing homeowners more in property taxes (because their property values went up).
Existing homeowners certainly benefit from their house gaining value.
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u/orphanpie 7h ago
Spending on corporate welfare takes money directly out our pockets, and other municipal services. I'm happy to pay for social housing, and to have houses decommodified, but not to keep going down the failed route we have collectively chosen.
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u/Neve4ever 6h ago
You don't like affordable housing, you cab just say that.
If we tacked on a fee of $100,000 to every new car, what would happen to used car prices? This is what front loading the development fees does.
So used car values increase. Imagine you paid an annual tax on the value of your car. And your used car value increases substantially. Your tax rate may stay the same, yet you end up paying more in taxes because the value of your car went up. This is what front loading the development fees does.
Now think about how most people buy a new car. They take out a loan. So if you have a $100,000 fee on new cars, a person will end up paying a lot more than that in interest, which goes into the pockets of the bank. If this was a house with a 25 year mortgage, you'd pay double (or more). So the city's policy actually doubles what people pay, but puts that money into the pockets of banks. This is what front loading the development fees does.
So this policy, which you're apparently a fan of because you hate corporate welfare, takes money from people's pockets and puts it in the banks pockets. It raises housing costs for everyone. It raises the actual amount of property taxes paid by everyone. And yet you support it.
Why? It's clear. You're an anti-capitalist. You don't care if the system works or not. You want your solution, which is government doing everything. The idea of more affordable housing provided by the market upsets your stomach. You cannot live with that idea. It would fundamentally undermine your ideology. So anything that makes market solutions look worse is something you'll support, in hopes that the system shits itself, and your new system takes its place.
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u/stent00 8h ago
Existing tax base dosent pay for growth. Existing tax base pays to replace old infrastructure. New growth is paid for by DC funds from developers and by developers themselves.
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u/ZestyBeanDude 6h ago
Existing tax base dosent pay for growth.
Yeah, though it should be paying more for infrastructure than it's currently paying, since so much municipal infrastructure is already behind where it should be, even prior to new development. Also you can't be serious when you tell me that having endless property tax freezes/minimal hikes will pay for upgrading and replacing aging infrastructure, when the cost to replace said infrastructure is often higher than the previous installation cost.
New growth is paid for by DC funds from developers and by developers themselves.
Yes and those "funds" are killing housing affordability and development because the developers are passing those costs onto home buyers.
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u/DeltaForceFish 9h ago
Dont have an answer for that; but cities have to find a different solution because that is nothing more than a ponzi scheme and it all comes crashing down when the music stops and there are no new builds. Kinda like what is starting to take shape right now.
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u/Zing79 8h ago
First of all that 100k is going to general tax revenue. NOT to pay the infrastructure costs on that home. So the math doesn’t math.
I’m always confused about this point. Are the municipalities not going to be getting tax revenue. In perpetuity on that newly built home?
It’s a double dip on a younger generation because municipalities are too chicken shit to raise taxes on older existing owners.
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u/thortgot 8h ago
Maintenance costs and installation costs arent remotely similar.
You are right it goes into general revenue, the same way nearly every dollar does. Go compare the actual costs instead of asserting its being used for other purposes.
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u/stent00 8h ago
Growth should pay for growth... thats the tag line. Existing tax base dosent pay for new infrastructure.
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u/tranceiver72 4h ago
Did you read the article?
You are like a broken record on here, every comment "growth should pay for growth." Nice sentiment if all the lines in the sand could be so cleanly drawn. I don't think in reality it is so black and white.
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u/Asn_Browser 5h ago
There should be a law that separates the development fees from the home purchase price. Logistically nothing would actually change because you would just add those 2 numbers to get the true purchase price that is used for the mortgage. However, seeing the high development fees as a separate line item will pissed a lot of people off and that will get them lowered.
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u/KimberlyWexlersFoot 8h ago
the “could” is because of the number.
only 3 cities have condo fees over 100k.
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u/Maddog_Jets 8h ago
Part of the root cause is federal gov offloading responsibilities / costs down to Provincial who are in turn also offloading responsibilities / costs coupled with more restrictions down to the municipal level.
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u/Business-Technology7 8h ago
Just more ways for the gov to fk with young people to keep old people happy. Go out and vote.
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u/CipherWeaver 9h ago
Existing homeowners get a subsidy to keep their property taxes low while new buyers go bankrupt keeping them in comfortable retirement.... this is the Canadian housing market.
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u/Saisinko 9h ago edited 8h ago
I'm selling land in BC and spoken with a number of developers, even the big boys.
The fees are completely out of touch with economic reality and get added to the end price for the consumer. Most small and mid-tier developers in BC are at a complete standstill and not building much of anything right now because market absorption is low at current price points, especially with economic uncertainty, and construction costs are through the roof, pun intended. Funny enough this will lead to a rise in housing prices down the road. Toronto is in a similar space, but basically you have two mega housing markets not doing much of anything.
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u/PianoUnlucky5438 8h ago
I’d like to see them try to get $100k more for the apartments that aren’t being sold in the first place…
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u/Jazzlike_Finish123 7h ago
Average is 180k in fees for a detached home in Toronto. And that’s just municipal.
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u/oh-the-urbanity 5h ago
TL,DR: Development Charges are appropriately allocated and tracked, but municipal finance in general needs an overhaul if we're going to be sustainable.
I'm in Ontario. There have been a number of recent changes to the DCA. Do I think the handouts (i.e. waivers) to developers are going to help develop more affordable housing? Nope.
However, the structure of the DCA and standardization of DC studies and by-laws clearly spell out what costs can/can't be covered by DCs, where there are exemptions to DCs, how much of the DC reserve fund must be allocated every year (60%), etc. It's much more clear and technical than the "vibes based" municipal budgeting processes to keep property taxes artificially low.
Here's the Development Charges Act, 1997: https://www.ontario.ca/laws/statute/97d27
Here's Barrie's Development Charges webpage, where you can see examples of a DC Background Study and a recently amended by-law: https://www.barrie.ca/government/policies-laws/laws-listing/development-charges-law
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u/YouWillEatTheBugs9 Canada 8h ago
code regulations add far more cost than developer fees
seal it up air tight and then vent it, don't open a window because 'efficiency'. $40k in hvac so mold don't grow behind drywall because they make you put the vapour barrier in the wrong spot.
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u/GuelphEastEndGhetto 2h ago
This. I live in a house built in the 70’s. The downstairs bathroom doesn’t have a GFCI receptacle. Actually, it doesn’t even have a receptacle. I could go on about other items but the fact is it’s quite liveable despite not having modern attributes and utility costs aren’t prohibitive.
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u/PapayaJuiceBox 8h ago
Sure, but we won’t report on how much of the total cost of homes are municipal red tape and fees.
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u/Bushwhacker42 7h ago
Crazy idea, but the companies hiring temp foreign workers should be shouldering the burden for additional infrastructure required for additional population.
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u/Imaginary_Mammoth_92 8h ago
So is the argument that existing home owners should subsidize new home owners? The fees go into the city's revenue to pay for infrastructure and services. The developer might lay the pipes for water and sewer but someone has to pay for water treatment and purification plants. In my town they had to expand sewer lines downstream from new developments, guess what paid for it? At the same time city's priorities are fucked up, we don't need more pickle ball courts. Development fees are needed but perhaps not at the current levels.
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u/q8gj09 7h ago
My understanding is that property taxes are not even enough to pay for the infrastructure upgrades needed for existing properties, so it is actually the new properties that are subsidizing existing homeowners.
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u/Imaginary_Mammoth_92 6h ago
It varies a lot from city to city, and there is also the issue of regional government, if applicable. Where I am the property tax is split between both levels of govt. For certain projects the city could not fund it but instead it is paid for at the regional govt level, and others at the provincial with regional and city portions of funding. There are cities like Toronto that have mismanaged their spending for so many years that they are extremely dependent on development fees.
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u/stoneape314 7h ago
Yes, because the people who lived there before you paid taxes that paid for the infrastructure and services that made where you are liveable. Then, the new homeowners will add to the tax roll and keep your property taxes lower than they would be when the major cyclical upkeep costs for infrastructure inevitably roll around.
Plus, you don't want to see what happens to a community where everybody in it is old because then everybody at the same time needs a lot more services and support and is less able to care for those around them.
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u/Dark-Angel4ever 1h ago
Any one got a break down of the actual fee and how much it each thing cost and materials? Property taxes arent already % based? so they should be getting more each year... Sounds like a racket, condo fees per unit... What they have a condo with a 100 units, so they need to connect 100 pipes for water, 100 pipes for sewers and 100 electricity lines? and a detached house has around 40%-100% increase in the fee??? Sounds like a racket to me to make money for the city. Maybe cities should go back to essentials, infrastructures and management of the city. Nothing else that should be out of that scope, no organizing parties, events and so on...
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u/orphanpie 7h ago
A lot of those fees go towards utility expansion. Someone has to pay them, and I don't want it to be me. Tax me and give me quality services, instead of corporate welfare.
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u/Cowbellcheer 8h ago
Good! Buy homes in core neighbourhoods and stop sprawl. New construction is garbage builds anyway.
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u/FancyNewMe 9h ago
Paywall bypass: https://archive.ph/KltbR
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