Lies, Damn Lies, and Development Charges
When someone tells you that there is corruption in a system, like saying ‘The construction industry is corrupt’, most people imagine a series of kickbacks and payoffs. Officials paid to look the other way on safety inspections that weren’t passed, more money paid for materials than should have been, or bids preferred because one of the bidders bought a backyard pool or a car for the members of the panel who pick the winning bid. Home construction in Ontario is deeply corrupt, but not in that way. Being Canadians, we have a much quieter, more polite and technical version of corruption, one which massively inflates the cost of housing in a way which hides itself from purchasers, and keeps other homeowners happy because it provides a lot of money to the coffers of the municipality: development charges.
At first glance, development charges appear to be a perfectly reasonable concept. A builder of homes, needing approval from the municipality for construction, must pay the municipality to have the area on which it seeks to build zoned appropriately, which the municipality can use to conduct studies to make sure construction won’t cause flooding, building the municipal services in the area, and generally paying for everything the municipality will need to do for all the new houses being built. The reality of how it works is rather different. First, all the roads, services and everything else in the area are built by the builder as a condition of approval, not at the cost of the municipality. Second, the amount of the development charges are well more in most cases than any cost the municipality incurs for the actual construction. When a new neighbourhood is built, everything is new. Roads, sewers, parks, pipes, all of it. New things don’t tend to need a lot of maintenance, but old things everywhere else certainly do.
To give you an idea of what I’m talking about, consider this scenario: In a neighbourhood in Waterloo, one of those semi-rural developments from the 1970s which cities eventually grew around, there was a house, a reasonable bungalow but on a big lot, nearly 2 acres. The owner died, and his estate subdivided the lot to sell the empty half. The empty lot was sold for $350,000, but the development charges and surveys required to get the permission to sever cost the estate $75,000. To put it on a grander scale, consider the story of Mississauga, as reported in the Globe and Mail on January 1, 2022 (Mississauga a ‘cautionary tale’ as cities sprawl out across Southern Ontario - The Globe and Mail) Mississauga sprawled for decades, but has now run out of land to develop, and without the development charges from new developments, they don’t have the money necessary to do the maintenance on the neighbourhoods they already have. Development of Ontario suburbs has become a pyramid scheme, where each new development pays for the upkeep of those behind it, which in turn need more new developments to pay for them. As sprawl continues, ever more money is needed in order to pay for the maintenance of previous sprawl. That means you need either more developments, or more money in development charges from each new house that is approved, which means either shrinking lots, or charging more per lot. In Mississauga, both occurred.
This obviously seems quite foolish, but not quite so obviously corrupt. The corruption comes in two places. First, paying for development and maintenance like this means the municipality doesn’t need to pay for it in other ways, such as taxes on properties. Politicians like doing it that way, because keeping taxes low means keeping people happy, and keeping people happy means staying in office. The money obviously needed to come from somewhere, but a way was found to keep it out of sight, and as long as people don’t think they’re paying for it and nothing is going wrong, they don’t seem to question very much. The development charges are hidden in the cost of a new house; it doesn’t show up as a line item when someone buys a new property how much the developer paid for the development charges, the house simply costs more. These costs are also hidden in yet another hard to find place: car insurance and automobile costs. Brampton has the highest insurance costs in the entire country, which is chiefly a result of poor urban planning and development. It is a car-dependent, generally unwalkable suburb which forces people to pay for car ownership, and the multitude constituent parts of that ownership. As car insurance is entirely private in Ontario, that means mandating placing more money into private hands as a direct result of hiding costs of poor development.
Development charges, as opposed to land value tax for example, create perverse incentives for inefficient land use, and as they are a one-off charge, do not respond to changes in the value of land as the decades go on.
This means municipalities have kept a huge source of revenue essentially out of the public eye, which makes them unaccountable for it in a very profound way. People aren’t nearly so exercised about how the money of others is spent as they are about how their own money is spent. This runs fundamentally against the founding idea of English Parliamentary democracy, which Canada inherited. Only the Commons was permitted to raise taxes from the common people, and that ‘power of the purse’ was translated into real political power when kings needed money (Henry VIII) and civil war when kings tried to circumvent it (Charles I). Modern municipalities have found a cute way to circumvent this system, but with the flaw of creating an ever-increasing obligation for maintenance, with a continuously decreasing ability for more development charges as the available land dwindles. It is a continuous bet on unlimited growth, which must, inevitably, fail.
The second element of corruption comes in the sort of developments which get approved. Municipalities so desperately need growth to fund themselves that developers have huge leverage in getting what they want approved. After all, if the municipality doesn’t approve it, they can always take their plans and all the charges, and the future growth, somewhere else. Whole developments of identical, soulless suburban houses are built in places like Minto and Palmerston, which could easily be mistaken for homes in Kitchener. Or, consider the proposed development in Belmont as reported in the Record on January 1: ‘Would you entertain an eight-storey’ condo tower in Belmont Village rather than 11-storeys, some councillors ask the developer | TheRecord.com. Of the 132 units, 92 of them, 70%, are one bedroom. Or this one, at Charles and Francis, 532 units, nearly ¾ of them 1 bedroom: Tallest condo tower in Waterloo Region will be ‘centre ice’ in downtown Kitchener | TheRecord.com In the midst of an affordability crisis, in the middle of neighbourhoods full of family homes, these developments are almost entirely suited only to single millennial tech workers. Why? Two reasons: first, it makes the average cost of the units lower, which makes for more ‘affordable housing units’ even if they’re of no use to a family with two children who can’t afford somewhere to live. Second, selling two 500 square foot one bedroom units is more profitable than a single, 1000 square foot two bedroom unit.
Why would a municipality approve these, or any of the other condo towers going up in Kitchener, all of which are more than half one bedroom units? They worship at the altar of unlimited growth as the solution to every problem, and the City needs the money the developments provide. This is the corruption which lies at the heart of development in Ontario, the lie we’ve all been told and that we tell ourselves about what it costs, and who should pay for it. At some point, the room for new development and growth has to end, and then we’re all going to learn the cost of keeping everything we’ve built. As it is, Canada already relies upon immigration to drive growth. Who’s going to immigrate somewhere they can’t afford to live?
