Doug Ford is Locking Ottawa and Other Ontario Cities into a High-Tax Urban Expansion Growth Model

Urban expansion is costly for taxpayers but great for developers. Ford just made urban expansion in Ontario a lot easier.

Each home built in a new subdivision at the edge of Ottawa’s urban boundary costs taxpayers about $1,000 a year more to service than that home pays in property taxes.

Ever wondered why municipal property taxes keep going up, by more than the rate of inflation, but services barely seem to improve? Or why there is little money to fix our ageing arenas, sidewalks and other infrastructure?

There’s a simple reason. In Ottawa, we have historically chosen the high-tax urban expansion growth model for building housing to accommodate an expanding population.

That model puts the emphasis on constructing new suburban homes at the edge of town, periodically expanding the urban boundary to accommodate more new homes further and further from the core. Cities are learning the hard way that urban expansion is costly.

Urban expansion is fiscally unsustainable for cities

The penny is dropping for municipalities across the country that we cannot afford to keep building new “greenfield” homes (i.e., farmers’ fields converted into new subdivisions) at the edge of the city.

Each new greenfield home outside the urban boundary requires the city to spend more to service the home than the home pays in tax revenue.

Consultants for the City of Ottawa have done the math. A new suburban home requires a subsidy of $465 per person per year. Assuming 2.3 people on average live in each of those homes, that amounts to $1,070 per home per year.

To simplify, let’s just say that a new greenfield home collects $1,000 per home per year less in tax revenue than it costs in city services.

Let me restate that. Each new home built outside the existing urban boundary requires an annual subsidy of $1,000 — paid for by existing taxpayers like you.

So for every 20,000 greenfield homes we build, we require about a $20 million annual subsidy. $20 million is about the amount that we get from a 1% increase to property taxes.

To put this in context, the City of Ottawa has a target of building 15,000 new homes each year. If we build half of those as greenfield homes, we are locking ourselves into a 0.4% tax increase every year just to subsidize new suburban homes.

At some point in the future, we’re going to have to replace the infrastructure that we built to service those homes.

We’re seeing the infrastructure installed a generation ago starting to crumble. We don’t have the money to properly repair that infrastructure, let alone properly fund a reserve account to repair or replace all the infrastructure that we have built since.

The City of Ottawa doesn't know the size of our infrastructure deficit for roads and sewers. For “other infrastructure” such as libraries and fire stations, we’ve got a funding deficit of $3 billion. Our deficit on roads and sewers will be considerably larger.

We have no plan for how to finance that deficit.

Enter the Provincial Planning Statement

As of this October, Ontario has a new Provincial Planning Statement 2024. The PPS is a province-wide land use planning document.

New in the PPS 2024 is the ability of builders to apply piecemeal for an expansion to the urban boundary at any time. Previously, municipalities would consider urban boundary expansions all at once, and typically only every five or ten years. Now, landowners can apply to include a new parcel of land in the urban boundary whenever they want.

Large developers and landowners should be delighted with this change. Building suburban homes is a predictable and profitable business. Given industry behaviour, it looks preferable to building towers or infill.

The PPS gives developers the opportunity to keep expanding the city out, and if the city rejects their request, to appeal that decision to the Ontario Land Tribunal.

Fiscal impact on Ottawa taxpayers

The problem is that all those new suburban homes require taxpayer subsidies.

A committee of Ottawa City Council considered the new Provincial Planning Statement earlier this week, with many councillors noting the implications of the new PPS for city finances.

Furthermore, some councillors noted that Council had approved a number of towers within the urban boundary, but that developers are simply not moving forward with those projects.

The new PPS will incentivize developers to build new suburban homes, and to deprioritize other forms of housing.

Everyone is trying to keep taxes as low as possible. This creates a dynamic where there is little money left for anything other than subsidizing urban expansion.

Will the province make cities whole?

The PPS is forcing cities into continuing a high-tax growth model of urban expansion, whether they like it or not.

Developers will rationally choose whatever is most profitable for them. As profit-maximizing entities, their concern is not what is best for taxpayers.

As a city, Ottawa has a target to build 151,000 new homes by 2031. Under Ottawa’s existing Official Plan, about 40% of those would be built as greenfield developments. If the PPS incentivizes developers to build 70% of new homes as urban expansion, then taxpayers will be on the hook for about $50 million a year in additional costs that the City was not expecting.

That is $50 million a year that we could be spending to fix potholes. Or help the homeless. Or provide kids with better access to swimming lessons.

That $50 million would represent a 2-3% property tax increase over the next 25 years, with zero additional benefit to existing taxpayers. Developers, on the other hand, can expect to make greater profits than they might otherwise.

Will Doug Ford recognize the financial burden he is putting on municipal taxpayers by pushing cities — whether they like it or not — into a high-tax growth model of urban expansion?

Will Ford make those cities whole?