Development Charges are Inequitable and Damage the Prospects for Building Affordable Housing
Memo to: CAOs, Regional Municipality of Ottawa-Carleton, Nepean, Kanata, Gloucester, Goulbourn, Cumberland, West Carleton, Osgoode, Rideau, Ottawa, Vanier, Rockcliffe, OCHBA
From: Dr. Bruce M. Firestone, Adjunct Research Professor, School of Architecture, Carleton University
Date: October 1998
Re. Your Review of Development Charges
I have become convinced in the last number of years that DCs and RDCs are an improper tax on homeowners in this region. I have been an opponent of these charges from their inception and I am more convinced now than I was then that DCs and RDCs are a) unfair and inequitable for first time homeowners, b) they represent an intergenerational transfer of wealth from first time home buyers to sitting owners, c) they stifle innovative housing by making smaller homes unaffordable, d) they discourage recycling of older structures in new locations, e) they discriminate against affordable housing styles including duplexes, triplexes, granny flats, apartments, f) they encourage urban sprawl by favoring larger homes over smaller ones and forcing home buyers to locate in communities just outside the RMOC where DCs are zero, g) they represent a tax in all but name because the DCs are not used by the Local Government Authority (LGA) to pay for direct marginal costs of new development (these are, in fact, paid by the developer) but are instead collected for soft costs or other unspecified costs or costs that can not be convincingly laid at the doorstep of new development, h) there is no justification for DCs to sit unspent in LGA accounts rather than reducing mortgages for home owners by up to $20,000.
I believe that DCs and RDCs should be scrapped as Mayor Holzman did for the City core and before a judicial review disallows these taxes as was recently done in the matter of probate taxes in Ontario by the Supreme Court of Canada (see attached). No single factor can improve the affordability of housing in this region more than this. The abolition of these taxes would improve the economic performance of the region and would better position the RMOC to compete with other city states in terms of attracting industry, growth and employment. It is not a question of removing DCs and lowering development standards. Development standards are imposed on the industry through subdivision agreements which costs are paid for by developers.
DCs are a highly regressive form of taxation. Monster homes are taxed close to or the same as smaller homes. Apartments are charged at a lower absolute rate but not proportionately less (whether measured in terms of street frontage or area of the dwelling).
The cost of DCs levied on apartments are passed forward to some extent to renters in the form of higher rents or lower quality of construction or less space. Tenants in buildings built before the early 1980s (when DCs were brought into effect in the RMOC) do not escape the implications of these taxes. Since the closest substitute for a new apartment is an old one, rents there are pushed upwards as well even though the owners of these buildings did not pay DCs.
As the population continues to age in Canada, we need to find new approaches to accommodate this demographic. Granny flats are one way to make better use of our existing infrastructure and to intensify our urban areas while at the same time providing an affordable solution to keep older persons in their communities longer. Our planning rules and regulations prohibit this sensible solution in many jurisdictions. Onerous set back rules and prohibitive zoning prevent their construction in most places in the RMOC. Rules which specify that these flats must be occupied by an elderly relative or that specify that the flats can only be constructed for a limited period of time (three years for granny flats or ten years for garden suites in Kanata) are especially restrictive; granny flats that can exist for three years preclude any substantative investment and will, by necessity, look cheap and out of character with the neighborhood. But above all, charging a DC on granny flats that impose nil or negligble new costs on existing infrastructure, provide low cost housing for residents and address family concerns about independent living for the elderly while preserving the co-location of the family is bad practice by municipalities.
DCs are based on the theory of user pay and discouraging urban sprawl. Since most of the direct costs in the form of new subdivision roads, sewers, water mains, hydro cabling, telephone cabling, storm water drainage are paid for by the developer and recovered through the sale of lots and homes to homeowners, we can say that DCs are an additional tax unrelated to direct marginal costs. If we are to argue that major upgrades for regional roads or other regional works such as the Green Creek sewage treatment facility are to be paid by DCs and not out of general taxation, we are arguing for a highly regressive tax that falls disproportionately on renters and first time home buyers.
Furthermore, we can not argue, in my view, that DCs contribute to controlling urban sprawl. To see evidence of this, the area's CAOs need only travel the Queensway west at rush hour to see thousands of commuters bypassing Kanata and Stittsville to go to more affordable homes in Carleton Place, Almonte, Arnprior and other points outside the RMOC.
It is a travesty that within the RMOC we are charging DCs that are the same for a 1,350 square foot house and a 5,400 square foot house or that a duplex with two units of 800 square feet in a single 1,600 square foot structure will attract two DCs while a single family unit next door of exactly the same size will attract a single levy.
Over the years, many pre-existing structures have been sold for reuse on other properties as urbanising lands are redeveloped. Often, this was a farm house or smaller and older home no longer required by the landowner. They were sold for relocation and reuse elsewhere. In the past, this has meant a savings of up to $20,000 since RDCs were not levied on pre-existing buildings. This exemption from RDCs is good policy from the point of view of fairness (RDC exemptions went with the building which were typically purchased by less well off persons for their housing needs) and the environment (it encouraged recycling of old buildings instead of demolition or burning).
Recently, the exemption was changed- it now goes with the land in most cases. This reduces the incentive to recycle and is another example of how DCs and RDCs are bad policy; tinkering with bad policy is not the answer.
Developer charges can be shown to have been set arbitrarily by municipalities; they are loosely (or not at all) related to marginal costs. As a result, they represent a tax not a cost recovery and they should be repealed.
I would ask each of you to think about city building- what is best for your city and for your residents, including your future residents. I realize that future residents do not vote and some of your existing residents may well be concerned that if you lower or remove your DCs and RDCs, they will be in the position of having paid them when others to follow will not. Nevertheless, it is important to look beyond and visualize a city that works better at a higher density with more affordable housing and which is more environmentally sound.
With respect,
Dr. Bruce M. Firestone