- by David Clark
A Fairy Tale, Part 1
Rob the Builder (and others) wants to develop some land and build some houses. Rob, and the others, state no building can take place because the development charges will be too much, making the housing unaffordable for buyers, hence he won’t be able to sell them. And, the town will not benefit from a larger tax base which allows the town to spread the tax burden over more properties and at the same time raise taxes just a little bit more. The town’s trustees, a.k.a. councillors, waive the development charges so Rob (and others) will be happy and build the houses and the town will have a larger assessment base so taxes will be lower than otherwise. And they all lived happily together in their world of straw.
The town’s owners (a.k.a. taxpayers) watch these, and other amazing story telling sessions, at the weekly Mutual Admiration meetings and wondered at the logic of the discussions. After the meetings the owners head home for bread and tea, although they were told they could eat cake, but high taxes prevent this.
The Facts about Development Charges
In a submission to the Minister of Municipal Affairs and Housing (31st January 2019) regarding “Increasing Housing Supply in Ontario”, the Association of Municipalities of Ontario (AMO), of which Owen Sound is a member, stated:
“Inadequate DC revenue will have negative consequences for the province, not just municipalities. The Association of Municipalities of Ontario urges the government to consider these three key points:
1. Development charges are not a root cause of the affordable housing and supply challenge in Ontario. Even further to the point, DCs only apply to only a small part of the housing market – new homes. DCs represent between 5 – 7% of the cost of a new home.
2. A reduction in development charge collections will increase the cost of public services for all residents. This will increase pressure from taxpayers to constrain growth and to constrain demands on the already stretched property tax dollar.
3. Municipal governments and current property taxpayers do not have means to subsidize developers in building new homes. Changes that reduced development charges has never resulted in reduced housing prices.”
“At present, development charges only cover about 80% of the costs of growth-related capital. They are used throughout Ontario and especially in high growth areas. That means property taxes are currently subsiding the cost of growth and municipalities are currently falling short of achieving the principle, “growth should pay for growth.”
(Emphasis added by author of this opinion article; not in the original)
These evidence-based statements based on research need no further explanation and can stand on their own. Remember, this is coming from an organisation that represents taxpayers through municipal membership, including Owen Sound as a member.
A recent study (2021) by the Institute on Municipal Finance & Governance in the Monk School of Global Affairs & Public Policy (University of Toronto) addressed the issue of development charges in “Development Charges and Housing Affordability: A False Dichotomy?”. What follows are the conclusions:
“Without development charges, residents would face either inefficiently high property tax rates and user fees or inefficiently low levels of municipal service or both.”
“Development charges are an efficient way for municipalities to recover an appropriate share of the costs of growth-related capital works.”
“Housing affordability does not just reflect housing production costs; in a municipal context, it is also impacted by property taxes, user fees, and the value of the municipal services enjoyed by residents.”
“Modelling shows that the introduction of properly formulated development charges improves the welfare of the average household and thus housing affordability.”
A Fairy Tale, Part 2
Over the years, grumbling spread amongst the owners of the town about how the waiving of development charges simply put money into the pockets of the developers and builders and caused their taxes and service fees to continually increase. They knew they were the highest taxed town in the kingdom and wondered why the trustees would continue to allow such a travesty to continue. They also learned that that development charges add only about 5-7% to the cost of a house. The trustees believed the myth of unaffordability of housing through development charges told by the developers and builders, and other critics.
As more evidence was gathered, about the true nature and use of development charges, the owners of the town decided to rid themselves, at the next voting for trustees, of those trustees who opposed development charges and favoured increasing taxes and fees to cover the forgone revenue.
Economics 101
The council has failed the taxpayers of Owen Sound. Basic economics states that the money has to come from somewhere and the choices council have are to: a) increase taxes and user fees, b) eliminate or reduce services, c) or both, to cover the lost development charges. This gives council an F- on Economics 101.
One study (2019) stated: “Effective use of [development charges] in conjunction with user fees and property taxes ensures that growth pays for growth related capital works in the most efficient and equitable manner reasonably achievable.” (Institute on Municipal Finance & Governance in the Monk School of Global Affairs & Public Policy (University of Toronto) addressed the issue of development charges in “Development Charges in Ontario: Is Growth Paying for Growth?)”.
An Opinion
The two studies and AMO policy statement referenced below and cited above, provide evidence for rejecting the waiving of development charges (DC). Critics of DCs, many of whom are developers and builders, will continue to argue that they hamper development. I prefer to default to evidence-based research that proves the contrary. I believe, also, that voice of the AMO in supporting development charges is important for Owen Sounders to consider in October.
I believe that council, in this matter, is both dysfunctional in its thinking, and submissive. Dysfunctional in that it has failed to understand its role in serving the taxpayers of Owen Sound, by ensuring sound fiscal and fiduciary management; it has no role in aiding developers’ and builders’ with making money. Submissive because it bowed to pressure from the building industry.
David Clark
MA, BES, BA (H), MAd(Diploma)
David Clark Research Consultant
Member: Canadian Economics Association
Owen Sound
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References
Association of Municipalities of Ontario. (2019).The Importance of Development Charges. Submission to the Minister of Municipal Affairs and Housing on “Increasing Housing Supply in Ontario” consultations. 31st January 2019.
Found, Adam. (2019). Development Charges in Ontario: Is Growth Paying for Growth?. Toronto: Institute on Municipal Finance and Governance, Munk School of Global Affairs and Public Policy, University of Toronto. IMFG Papers on Municipal Finance and Governance, No. 41.
Found, Adam. (2021). Development Charges and Housing Affordability: A False Dichotomy? Toronto: Institute on Municipal Finance and Governance, Munk School of Global Affairs and Public Policy, University of Toronto. IMFG Papers on Municipal Finance and Governance, No. 56.
