Have you heard the news? Municipalities are driving the high cost of housing?
It’s not the developers, the construction companies or the real estate industry that has driven up housing prices and rents.
Nope, the real culprits are local governments and the development charges they are levying on new home development to pay to rebuild or replace critical infrastructure.
Or so lobby groups representing the home building, construction and real estate industries would have us believe.
The fact that these industry groups are trying to shift blame is hardly surprising. What is more surprising is that they have been joined by federal and provincial political leaders, who are scrambling for cover as the price of housing becomes utterly unaffordable.
Last year, Ottawa withheld infrastructure funding from Vancouver over concerns that development charges — assessed to developers building new homes — were too high. And then, in May, federal Housing Minister Sean Fraser dropped the gloves with Ottawa over an increase to development charges, alleging they amounted to a “housing tax” that increases “the costs of homes for everyone.”
Conservative Leader Pierre Poilievre has similarly criticized municipalities for eroding affordability with development charges.
Missing from this criticism is the key question facing municipalities: if not for development charges, how can local government cover its growing infrastructure costs?
A report released this week from the Canadian Urban Institute found the average cost of critical infrastructure needed to support a single new home was more than $100,000. That’s just the upfront costs; left out of these calculations are future costs for repairing or replacing infrastructure decades down the line.
In case you hadn’t noticed, we’re not really covering those costs. Cities like Winnipeg are making progress in rehabilitating roads, but it often comes at the expense of library operating hours, repair or replacement of recreation facilities or the replacement of big-ticket items like aging bridges.
Why can’t municipalities cover their costs? There will always be questions about the quality of financial management at the local government level, but in general, municipalities have too many responsibilities and too few sources of revenue to pay for them.
What that means is that in addition to decrying development charges, federal and provincial politicians looking for cover from the housing affordability debate should be searching for a better model to fund municipal infrastructure.
The current model sees federal and provincial governments doll out infrastructure cash through three- or five-year allocations. In other words, the senior levels of government don’t want to give municipalities a set share of growth taxes (sales, income) that would allow them to cover the costs of operations and infrastructure without jacking up property taxes and development charges.
Why do they prefer a piecemeal approach?
The most obvious explanation is that if the federal and provincial governments just cut municipalities in for a slice of sales tax every year, they would lose the opportunity to claim some of the credit whenever something gets built or repaired.
Think I’m exaggerating? Last summer, in the dying days of her government, former premier Heather Stefanson took time out from election planning to attend a ribbon cutting at the Tuxedo Tennis Club for a “hitting wall” — an unadorned concrete wall that allows tennis players to practice solo — that was paid for, in part, with a $250,000 provincial grant.
Was the hitting wall consistent with the city’s overall recreational infrastructure needs? Even though it was in her riding, was it really necessary for the premier to pose for pictures in front of a concrete wall?
There is undeniable political value to granting money for infrastructure projects, both big and small. So much so that it’s unlikely that governing parties at either the federal or provincial level would give up those opportunities to grip and grin in front of hunks of concrete.
The federal politicians who are trying to hang the housing affordability crisis on municipal development charges are not just being unfair to local government officials, they are ignoring the market forces that have contributed to higher prices.
In the political arena, high prices are driven by a lack of supply. However, the final cost of housing — whether rented or purchased — is largely connected to the macro forces in the industry.
Regardless of input costs or concerns about affordability, landlords will always try to charge the highest possible rent people are willing to pay and home builders will always charge what they believe market is willing to pay.
Ask yourself this: if we eliminated development fees from major cities, would new homes in those communities suddenly become 20 per cent cheaper? Of course not. Prices will only drop when demand drops.
Truly affordable housing will never come from tinkering with things like development fees. It’s not even clear that increasing supply on its own will do the job, not with an enormous pent-up demand ready to fuel higher market rents/prices.
What will have an impact, however, is government funding for dedicated affordable housing (where prices are deliberately set below market levels) and, more importantly, a share of growth taxes for municipalities that allows for a moderation in property taxes and perhaps an abandonment of things like development charges.
dan.lett@winnipegfreepress.com
Dan Lett
Columnist
Dan Lett is a columnist for the Free Press, providing opinion and commentary on politics in Winnipeg and beyond. Born and raised in Toronto, Dan joined the Free Press in 1986. Read more about Dan.
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