Sancton, A. (2022) Reassessing the case for development charges in Canadian municipalities. Canadian Planning and Policy / Aménagement et politique au Canada, Volume 2022, pages 137-150.
Full article: https://ojs.library.queensu.ca/index.php/cpp/article/view/15668/10504
Abstract:
“Growth should pay for growth.” This slogan —the common justification for development charges —is rarely challenged in municipal circles. Development charges evolved from post-1945 subdivision agreements and were initially accepted by most developers as a mechanism for enhancing the likelihood that current residents in a municipality would agree to new development. They now add as much as $135,000 to the cost of a new house in some parts of the Greater Toronto Area. If we wish to lower the cost of housing in our prosperous cities, we must consider reverting to the past practice of having municipalities pay for new infrastructure associated with development. Such a policy —still largely in place in metropolitan Montreal —would lead to increased levels of municipal borrowing and modest increases in property taxes. This report explores the origins of development charges in the United States and Canada, and examines how they have been assessed in the academic literature."
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To me, it seems like this article focuses on the fairness of "who ought to pay" rather than the practical "how are we going to pay" elements of municipal capital and operating costs, asset management, reserves, and financial risk.
The article states that "environmentalists sometimes argue that development charges put a price on sprawl by (in principle) eliminating subsidy of greenfield growth-related infrastructure by existing urban areas. The problem with this argument in the Ontario context is that development charges on new buildings are typically applied in infill and greenfield contexts alike, conferring little or no advantage on infill development in established areas."
A clear conclusion to this line of thinking is to structure development charges in a way where existing, denser, more compact, and walkable development proposals receive partial waivers of development charges.
With regard to financing, the article goes on to state that "[r]evenue from development charges is obviously important for municipalities. The alternative to raising infrastructure funds from development charges is for municipalities to borrow. This is where things get difficult. Different municipalities have widely different borrowing practices for capital funds and provincial legislation regulating such borrowing also varies. However, if development charges were to be reduced or eliminated, borrowing practices would have to change... A significant difference between municipal borrowing and homeowner mortgages is that for the former the rate is locked in for the duration of the loan, while for the latter rates are usually guaranteed only for a maximum of five years. Many Canadian homebuyers have variable-rate mortgages. Borrowing is less risky for municipalities than for homebuyers for these reasons. It is also true, however, that in the absence of development charges municipalities would have to borrow every year for different projects and might find that debt servicing costs would increase over time as interest rates for new bonds rise."
I'm generally of the opinion that development charges are crucial for timely and efficient infrastructure funding in the Ontario context. Developers, not municipalities, should shoulder the financial risk of their profitable projects. Also, with municipalities already competing for a finite amount of application-based grants, there may be levels of financial uncertainty if a municipality fails to qualify for the grants. There is only so much money dedicated to the province's housing-enabling infrastructure fund. The province should step in and provide further relief in addressing the widening maintenance gaps in our existing infrastructure.
Perhaps I am a bit skeptical of this artice's arguments, in that I believe that developers will not pass on any cost savings to new home buyers, and the elimination of development charges will not result in greater housing affordability.
My solution? There are a few options I can think of. Firstly, I would like provincial legislation amended such that municipalities can create new revenue sources (e.g. local sales tax, more borrowing flexibility, land value capture around future protected major transit areas, public-private partnerships, etc.)
Secondly, I think property taxes and user fee-based programs need to be re-visited for their sustainability. Property taxes have been stripped to the bare minimum by local politicians, with little room for redundacy/resilience in cases of unexpected costs. In many Ontario municipalities, I think that property taxes should be higher despite its political unpopularity among homeowners.
