Rising DCs in Ottawa are the Canary in the Coal Mine for Future Tax Increases
Development charges are the symptom of a bigger problem. Ottawa's unsustainable growth plan.
DCs are obscuring the real issue
This week, Ottawa City Council approved an increase in development charges — the $50K or so that City Hall levies on new home construction to pay for growth.
DCs pay for hard infrastructure, such as roads and sewers. They also pay for soft services over the following decade, such as fire, police and libraries.
There was an outcry from housing advocates. Higher DCs mean higher home prices.
That’s true.
However as I argued last week, DCs are an important source of revenue for cities. If you cut DCs, you have to make up that lost money. Presumably through increased property taxes.
DCs are a formulaic calculation of our growth plans. If DCs are high, it’s because that is what our growth plan costs.
The real issue is our growth plan and why it’s so expensive.
‘Growth pays for growth’ is not what you think
Ottawa’s 10-year growth plan is funded with $3.7 billion in development charges.
According to Ottawa’s 2024 DC background study, over the next decade, we plan to build 82,000 new homes. (Note that this is out of sync with the more recent agreement with the province to build 150,000 homes).
The DC Background Study assumes 57% of population growth will be outside the greenbelt (OTG). Only 46% of new homes, however, will be built OTG, as the number of people per suburban home is higher than inside the greenbelt homes.
Growth is supposed to pay for growth. But what actually happens is that DCs collected throughout the city ending up paying for growth wherever that growth happens. In the case of Ottawa, this means infill development is subsidizing the growth of sprawl outside the greenbelt.
While it is not reported in the DC Background Study, here is my estimate of where DCs are collected and where they are spent. DCs collected is calculated based on the number of expected new housing units inside and outside the greenbelt and their differentiated charges. DCs spent is primarily a function of where net population growth is expected to happen.
This is consistent with the 2021 City analysis of the annual property tax increase generated by new homes compared to the costs of servicing those homes. A new infill development creates a $606 surplus for the city per person per year, while each suburban greenfield development requires a $465 subsidy per person per year.
$1 billion on roads
To clearly see how infill development is subsidizing urban sprawl look at spending on roads.
Of the DC-funded $3.7 billion growth plan, new residential homes will pay $3.1 billion.
One-third of growth costs are for roads.
Over the next decade, residential DCs are funding $1 billion to expand or widen the road network.
Most roads are considered “City-wide” and therefore, can be paid for with DCs collected anywhere. But look at the map below, put together by It’s Jamie on Twitter. These “City-wide” projects are roads that no one inside the greenbelt is asking for.
These roads all cater to suburban priorities. Below is the list that corresponds to the map. “City-wide” projects like this is how infill development pays for suburban sprawl.
We don’t even know the real cost
Here’s the concerning thing. The costs reported are not even the full cost of growth over the next 10 years.
The infrastructure and transportation costs are only for 7 of the 10 years. As the City updates its Infrastructure and Transportation Master Plans over the next 18 months, updated costs for the full ten years will be incorporated.
We also know that the Background Study does not include the costs of Tewin. Earlier this year, we heard that the costs of getting water and sewer pipes out to Tewin would be $600 million.
It’s hard to say how much the DC-funded growth Plan will increase from $3.7 billion. Could it be $5 billion? Whatever the increase, it will flow through directly to higher development charges.
Ticking time bomb
DCs only pay for the initial infrastructure build-out. At some point, that infrastructure will have to be repaired or replaced. Infrastructure lifecycle costs are not considered in the DC analysis.
All the growth that we have been doing in past years will come up for renewal. How are we going to pay for that?
Last week, we learned there is a $3 billion funding shortfall in maintaining our non-road, non-sewer infrastructure. Libraries, rec centres, fire stations and so on.
But this $3 billion funding gap only covers 20% of our total infrastructure. Roads and sewers, for which we do not have funding gaps reported, are additional. That could easily be another $10 billion gap.
Toronto did a similar, analysis finding a 10-year $26 billion gap for all infrastructure. The results were so shocking that the Toronto Star reported:
“Mayor Olivia Chow says the numbers, contained in a report going to her executive committee next week, are so staggering that the city needs to think twice about building anything new.”
Can Ottawa afford to build anything new?
Sprawl is slowly pushing Canadian cities to a fiscal breaking point.
Ottawa is steadily moving in that direction. The rapid rise in our development charges is the canary in the coal mine.
Our growth plan perpetuates a pattern of building new development on farmlands at the edge of the city. That model requires costly new infrastructure, which drives up development charges and makes housing more expensive. It also creates a large liability down the road, as that infrastructure needs to be repaired, with future taxpayers footing the bill.
Ottawa could meet much of its housing targets through infill in existing communities. I’ll discuss how in a future post.
But building new sub-divisions is more profitable for developers, and so they will push City Hall to keep expanding the urban boundary and make more land available.
Sprawl is slowly bleeding the city dry. If you wonder why our roads and sidewalks are crumbling, it’s because we cannot stay on top of the 6,000+ kilometres of roads we have in this city.
Our growth plan is unsustainable, and it is flowing through to development charges. Rising DCs today mean higher property taxes tomorrow.
This post fits well as a companion piece to your post on de-amalgamation.
Thanks Neil. Realism in costs & benefits, and how they are distributed, is vital. We’re missing them again in the City council’s budgeting for facing the climate emergency: helping residents get through the financing hurdles, planning new and “friendly-density” zoning & infrastructure to reduce GHGs, as well as resilience to the damaging effects of climate