This week there was a flurry of discussion around development charges (DCs) in Windsor, with the reporting that a proposal is going to Council next week calling for a 51% increase in there existing rates. The response saw an interesting debate erupt on Councilor Chris Holt’s Facebook Page between Councilors Holt and Bortolin and Developer Peter Valante. Mr. Valante’s concern of course is maximizing profit for his business and DCs are certainly a consideration when deciding to undertake new development projects within the city. Councilors Holt and Bortolin have broader concerns to their constituents, taxpayers and Windsorites as a whole.
I have done some academic and think tank research on development charges and what I have found is that there is mixed evidence that hiking charges will reduce development. A significant amount of academic research has been done in the United States on development charges and urban growth, and they have found that the impact on new development largely relates to market elasticity of demand and its mirror elasticity of supply. In non-economic jargon, it means that in cities with hot building/housing markets charges can be hiked and see little impact, the opposite is true for cooler housing markets.
A report by the City of Hamilton provides a wide appendix on available (albeit slightly dated) literature on DCs. The general conclusions are that there are a wide range of factors that impact development and growth, which include: the level of development charges, overall housing market conditions, types of development being proposed, economic conditions, population growth, the selected area of the development and others.
Race to the Bottom?
As I have written in a number of other posts, Windsor is cursed by geography. Surrounded by a number of livable communities that are in easy commuting distance, people can live somewhere else and work in Windsor. Unless Windsor wishes to enter a race to the bottom with no guarantee that our community will win, an increase in charges could put the city on the back foot when it comes to development. With no upper level government to mandate DC levels across the region there isn’t going to be a satisfactory outcome anytime soon, all that will occur is a game of chicken with various jurisdictions watching and waiting to act on DCs based on their neighbours’ position.
Of course, if we don’t take part in this race to the bottom there is the risk that the City of Windsor/Council could be branded by business or other groups as anti-development or anti-job. From my experience at the Economic Development Corporation, even if the fact isn’t true, perception ways heavily on business decisions as site selectors and planners do examine and rely on media reports and local impressions as well as financial implications in determining whether they choose a particular city or region for closer evaluation.
Charge vs Tax
As Mark Graston’s cartoon illustrated on Friday, holding the line or decreasing DCs would likely mean higher taxes for the average citizen of Windsor over the long term. Unfortunately, there is no easy correlation for any community that I have seen that shows $X of DCs = $Y or Y% in tax increase/savings. Maybe the report that will be tabled to council goes into this but I haven’t seen any calculations in my research that illustrates at which level a charge is too much or too little and when taxpayers are actually footing the bill. Are taxpayers unwilling to subsidize development at all in order to help Windsor’s overall growth? Would taxpayers be willing to pay $5 more per year in property taxes to cancel the proposed increase in charges and see dozens or hundreds of new homes built? What about $10 or $50?
Broader Impact of DCs
According to the Lincoin Institute:
for every $1.00 of impact fee [their name for development charges] increase, the price of both new and existing housing increased by about $1.60 and the price of land reduced by $1.00.
An argument could be made that higher prices for new and existing homes would not only make owners more well off but at the same time it could potentially increase property tax assessments and in turn help spur growth in the tax base without a property tax increase. Given the fragile nature of the economy of Windsor, artificially inflating home prices by $14,804.80 (assuming the 51% increase on a single family dwelling) could price some people, particularly young people, out of the market. Unfortunately, the authors also point out that in low growth municipalities these impacts would be smaller and more diluted and there is no way to tell what the impacts would be without implementing the changes and observing the results.
This also brings in the question of fairness on existing property holders. Land owners who are seeking development may actually lose out on increasing development charges as the value of their holdings decrease. This could potentially result in them being less likely to sell to developers, further holding up new development. This could also impact the city as any of their holdings that they wish to sell for development could decrease in value or see developers not interested in paying the asking prices, losing revenue for taxpayers.
Where and What Type of Development?
A lot of the discussion revolved around single family homes, but for much of the City of Windsor the large scale development of single family homes isn’t an option. From observation the City’s core and key neighbourhoods are already built up and no new single family developments of significant size could be undertaken without major demolitions occurring. There is space in South Windsor and in the surrounding communities and that is where this kind of development is already occurring. Given the city’s plans for increasing density in the downtown, what are needed in Windsor are condos and apartments.
Unfortunately, council nor developers can dictate to people where they live or in what sort of dwelling. If people demand houses, that is what will be built and developers will build those homes where they can maximize their profits, but maybe we can make it cheaper to put population dense buildings in the city centre. Dense developments (like apartment buildings or condos) require less space to build but are capital intensive to undertake, and take longer to build and be profitable. This is partially why developers tend to be drawn to family home construction. Unless market pressure or urban constraints channel them into other forms of development they will go where they can maximize profits.
In my opinion, the discussion of development charge increase is a debate about trying to use a blunt tool to deal with a nuanced issue. Of course growth needs to pay for itself, but when economic/population/construction growth is limited is that the time to raise the fees on this development?
Councilor Holt stated on his Facebook page that he was surprised that people would want to subsidize new residence for $10,000 per unit. Yet both he and Councilor Bortolin have spoken out, quite admirably, about the city “subsidizing” community centres for the broader good of neighbourhoods and the city itself. If the goal of the city is to bring density, walk-ability, and livability to the downtown and other neighbourhoods, subsidizing new development to ensure that residents move back to the core may be in order.
Yes the various CIPs in Windsor do provide development charge relief, but they are constrained geographically and in need of updating with some being drafted in the early to mid 2000s. Although these CIPs are relatively easy to complete, it can delay the development process as it can take time to draft, submit and get approval. Finally, the CIP does little to attract a single family or small scale investor who may want to build a house and settle in a neighbourhood. Wouldn’t it be simpler, fairer, and more cost effective to just make these reductions permanent for these neighbourhoods?
The Smart Growth Report examines 15 types of alternative revenue tools (including DCs) from across North America with “observations on the potential of the 15 tools surveyed to raise money for infrastructure, achieve smart growth outcomes, and be replicated across Canada” being offered. Why can’t another tool beyond DCs be implemented to fund the growth of our city? Can Council come up with an innovative solution that is within their power to implement, that can still attract development while ensuring that the city can pay for its growth?