Development charges and housing affordability

Recently, one of the candidates for mayor suggested that part of the solution to building more affordable housing could be the waiver of development charges (DCs). I used social media to issue a caution, noting the important role that DCs play in building the infrastructure that supports growth.

I wanted to explore that a bit more in this post. By the end, I hope I’ll have explained why waiving development fees for deeply affordable housing may be appropriate, but a very broad commitment to waiving development fees for an undefined level of “affordable” housing may be dangerous.

DCs are one of my favourite topics and understanding them is the gateway to understanding how cities in Ontario are planned and the infrastructure built to support growth.

As a bit of background, I’ll revisit some ground I often explore when residents ask how parks or roads or libraries are built to support larger populations. It’s important stuff.

Planning: policy statement to shovels in the ground

In Ontario, Queen’s Park (which has constitutional authority over municipal planning) has told cities in Ontario how they’ll grow. As a gross oversimplification, Ottawa has as its marching orders to grow mostly through intensification, with new density concentrated near and supported by higher-order transit. This is the Provincial Policy Statement (PPS).

Cities in the province are required to produce an Official Plan (OP) that describes how the PPS will be implemented in their jurisdiction. We’re required to project the population growth, which our staff has said is likely to be around 400,000 people over the next 25 years. We’re required to describe at a high level where that residential, commercial and industrial growth will be while preserving natural features, resources and agricultural land.

In Ottawa, the OP we’ve just passed says we’ll accommodate a bare majority of those new residents in parts of the city that are already serviced and accommodate a bare minority in new lands added into the urban area. Big tall towers will go on higher-order transit lines, mid-rise buildings will line key corridors like big collector roads and traditional mainstreets, and the interior of neighbourhoods will be built at a low-rise, ground-oriented scale. In addition to the three satellite centres (Kanata, Barrhaven and Orleans) that have been planned for decades, our new Official Plan adds a fourth – the Tewin development about which much ink has been spilled of late (and which will require very significant new infrastructure).

Once an Official Plan is passed, the real work begins. We develop neighbourhood zoning plans that put meat on the bones of the high-level statements called secondary plans. And – importantly for this discussion – begin work on a bunch of master plans.

Master plans describe how specific features like natural areas will be preserved, as well as what infrastructure has to be built where in order to support the patterns of growth described in the OP. That infrastructure might be libraries, roads, LRT/bus rapid transit lines, affordable housing, waste management facilities, sewers, fire stations, pools and similar infrastructure.

Development charges: growth pays for growth

Ultimately, those master plans describe a universe of capital investments the City needs to make in order to support the growth we anticipate. In Ontario, growth is supposed to pay for growth. The new infrastructure is supposed to be paid for by the developers who pass the cost on to new home buyers. I will get notes from our planning staff, but again as a gross oversimplification we total that capital investment, divide it by the number of new houses and apartments we expect to be built, and start charging those as development charges. There is a rate for inside the Greenbelt, outside the Greenbelt, and city-wide. Money starts accumulating in reserves and when there’s enough, a capital project moves ahead.

The good news for developers and those who rent or buy new units is that development charges are highly constrained by provincial law. We can’t vote at Council to charge enough development fees that every neighbourhood will suddenly have a Sportsplex.

Two key constraints come into play. First, the charges must be related to growth. We’re not allowed to improve services on the back of development charges. Every piece of proposed spending gets put under the microscope to make sure that DCs only pay for the growth-related component. If a portion of a project is deemed to benefit existing residents, that gets carved out. The second big constraint is that provincial law largely constrains us from charging for a higher level of service than has been provided in past. If in past we’ve provided a fire station for every X number of residents, we’re not able to unilaterally start charging enough development charges that we’ll provide 1.25 fire stations per X number of residents. The historical level of service is calculated for each type of infrastructure, and we’re only allowed to collect to provide new residents with the same service.

We wrap all this up with a bow and pass a development charge by-law once every five years or so, which is subject to appeal to the Ontario Land Tribunal.

You can see the development charges now in effect and how they’re divided up here.

Now that we understand what development charges are and how they’re calculated, I think it becomes clearer why I’ve cautioned that waiving them to accomplish housing affordability could be short-sighted and impose huge costs on our children as we are forced to pay for needed infrastructure using the only other revenue source we have: property taxes. If we don’t charge new home buyers the development charges, those fees have to be spread out across the tax base.

There are times when waivers are appropriate. In order to accomplish very deeply affordable housing (social housing), Council will sometimes waive DCs. Generally speaking, though, the magnitude of revenue loss to the city to build the infrastructure that will support those residents is relatively small. Waiving the DCs on a 32-unit supportive or rent-geared-to-income development is very different from waiving the DCs on a development that might have hundreds of homes or apartments.

Affordable to who?

Mark Sutcliffe’s commitment should he be elected is to “[r]educe or eliminate development and other city charges and/or allow limited height exemptions from residential housing projects in areas targeted for intensification and where at least 20 percent of units are affordable for residents.”

But he doesn’t define affordability.

This is a problem with which Council has been grappling for the past term. It is very possible that this commitment could include waiving development fees on developments like, say, a 200-unit apartment building in which the CMHC criteria is met, that is to say at least 20% of units must have rents below 30% of the median total income of all families for the area, and the total residential rental income must be at least 10% below its gross achievable residential income.

In other words, in return for taking a 10% haircut on rents for 10 years, and with 40 units rented for what most families in the area can afford, that 200-unit apartment building could be exempted under this candidate’s proposal from development charges that will build the pools, arenas, sewers, roads, libraries and other infrastructure needed to support the new residents.

Before we sign on to development charge waivers for “affordable” housing, it’s critical that we understand the trade-off. It would be short-sighted to waive development charges on the new units that will house thousands of people near transit in return for housing that is not much less expensive than what the market would provide on its own. If we grow in Kitchissippi and the inner urban area by thousands of people without new recreation amenities, storm and wastewater facilities, and active and public transportation upgrades to handle a big new population, we will have failed to build a sustainable city. We’ll be millions shy of the cost of developing the infrastructure we need to support the growth.

A proposal to waive development charges on “affordable” housing looks like an easy way to incentivize that housing. But before we make that choice, we need to have our eyes open that we will still need the new infrastructure. How that will be paid for becomes just as critical an affordability question for all residents as the sticker price on the housing built.

5 Replies to “Development charges and housing affordability”

  1. Thanks for the info. I would point out that not all development is done by developers. My wife and I have lived in Hintonburg for 30 years; my sister-in-law for about 20. She lived in a small bungalow that was nearing the end of its life, so we decided to build a back to front double on the property. There are now 3 people living on a lot that previously housed one person. We paid more than $42K in City fees (not counting CofA); $30K of which were development fees. We also had to pay between $499 and $787 in fees to all 4 school boards. We already pay property taxes to one school board and no one has ever explained why we had to pay a fee on top of that plus a fee to the other 3 as well. As there were already city services going to the original house on the lot, it is hard for us to understand the more than 30K we paid in development fees. We were already living in Hintonburg so it’s not as if new roads, libraries, sewers, etc. needed to be built. Perhaps there should be a distinction made between property developers and those of us who are simply trying to build a residence where we can gracefully age in place in a home that is energy efficient and accessible. (My wife and I are both approaching 70)

    1. Hi Mark. Regardless of whether someone is a developer or not, the addition of new residents means the requirement for new infrastructure. Your street may not need a new sewer, but the addition of thousands of new residents may require upgrades to trunk sewers further down the line. We already have a great library, but as the number of residents inside the Greenbelt grows a new library may need to be built to handle the growth. We’re not building new roads, but there may have to be capacity added. The LRT is a major component of development charges as a new investment to handle growth. It’s very legitimate to point out that the effect of charging different stakeholders development charges is felt differently, but the needs are still there for the infrastructure.

  2. Well explained Jeff.

    A question: Would it be more affordable for the city to provide a small annual property tax rebate for multi unit buildings for each “ affordable “ unit built and rented to qualified renters for 99 years.

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