As the federal government pushes cities to build the new homes needed to address the country’s housing shortage, municipal politicians are finding themselves in a financial conundrum: Even though the housing crisis is a national problem, many of the costs of solving it are entirely local.
Cities are responsible for building the roads, sewers and other infrastructure necessities that new housing construction depends upon. In the absence of long-term, reliable funding to meet the federal demands, local councils across the country have been left to pursue their own strategies.
A tussle in Metro Vancouver, the only place where local politicians have publicly defied Ottawa, is being watched closely by other cities and towns.
In late October, Metro Vancouver’s regional board of directors voted to begin charging real estate developers for 99 per cent of the costs of infrastructure for new housing, with some exceptions for affordable homes. The move is expected to triple the municipal fees, known as developer cost charges, that builders pay on each new unit of housing. Critics say those costs could be passed on to buyers, potentially making homes even less affordable in one of Canada’s least affordable cities.
Federal Housing Minister Sean Fraser had asked the district’s board to delay its phase-in of the fees for a year, and to consider waiving fees on a broader range of lower-cost housing. The minister is now threatening to withhold from Vancouver tens of millions of dollars from Ottawa’s relatively new Housing Accelerator Fund, which provides money to local governments for housing initiatives.
Other cities face similar pressures, but are pursuing different solutions. In Calgary, city staff estimate the population increased by about 3 per cent – or roughly 40,000 people – between April, 2022, and the same month this year. The city has said this would be the largest one-year jump on record. Politicians and planners expect an increase of at least 108,000 more in the next four years.
The city is planning to house 60,000 residents in four new developments on its northern edge. It’s the kind of increase in housing supply that Mr. Fraser and others have been asking for.
But that supply comes with a gigantic infrastructure bill. In response to a request from The Globe and Mail, the city for the first time provided a detailed breakdown of what it would need to spend: from $315-million to $375-million for water, waste water and stormwater systems; $35-million to $50-million for road interchanges; $15-million to $20-million for pedestrian overpasses; $20-million for a new fire hall; and $150-million over the years for parks, public transit, community centres and libraries.
For now, Calgary has chosen to stick with using offsite levies to pay a portion of those bills. In Calgary’s proposed 2024 bylaw update, the city’s taxpayers will fund approximately 45 per cent of the cost of new growth, and fees charged to housing developers will cover the other 55 per cent. The thinking is that existing residents also benefit from many of the new amenities.
For local politicians throughout Canada, finding ways to pay for growth can be like trying to solve a city-sized Rubik’s Cube. Cities have less ability to levy taxes than higher orders of government, and must often turn to other means.
“People don’t just live in a building. They live in a community,” Halifax Mayor Mike Savage said. But coming up with the money to build a whole community is not easy.
Cities, he said, “control 60 per cent of the infrastructure in the whole country but we collect only 10 per cent of the tax revenue.”
“We need some kind of funding structure to pay for the growth.”
Mayors and councils have typically faced a choice: Raise taxes for everyone, or charge big fees to the developers that build new housing. The latter has been preferred by many local politicians for decades. The underlying principle is that growth should pay for growth.
That was the thinking behind Metro Vancouver’s decision.
The district’s senior staff had calculated that the Lower Mainland was going to need $35-billion in new basic infrastructure (sewer, water, parks and liquid and solid waste services) in the next 30 years. Of that, they found that $11.5-billion would be related to the million extra people expected to arrive during that time. The rest of the expense would be needed to serve existing residents.
Last year, those staffers recommended some tax increases for existing residents – up to 11 per cent and 12 per cent annually in future years – but also called for an increase to developer fees so that they would cover 99 per cent of the basic infrastructure costs attributable to growth. The change was expected to add as much as $15,000 in new charges on each new house or apartment in the region by the end of a three-year phase-in.
Half of the region’s politicians voted in favour of that plan, enough for it to pass, in spite of the threat from Mr. Fraser to withhold funding. Many of them have said the federal government should be putting money into needed infrastructure, instead of berating local politicians because they can’t find ways to pay those bills.
Some local politicians have pointed out that housing shortages are at least partly of the federal government’s own making. Ottawa has increased its immigration targets in recent years, and is now planning to admit 500,000 new permanent residents a year starting in 2025. Those numbers do not include the hundreds of thousands of temporary residents in the country for study or work.
“I’m not hearing solutions. I’m not hearing about any funding from the federal government based on immigration targets. I’m not hearing a lot of things,” said Eric Woodward, mayor of Langley township, which forms part of Metro Vancouver. Brad West, mayor of Port Coquitlam, called the federal government’s demands “akin to a hostage-taking.”
While mayors and councillors elsewhere have been more restrained in their criticisms, they also are increasingly saying that Ottawa needs a more coherent, less erratic system for funding necessary infrastructure in cities.
A focus this year for the Federation of Canadian Municipalities, which represents city governments around the country, is on securing a steady and increased funding stream from Ottawa – perhaps one based on population growth.
The federal government initiated a $180-billion, 12-year infrastructure fund in 2018. But many mayors say it functions like a lottery, and isn’t useful for figuring out how to pay for billion-dollar projects on 30-year timelines.
In Metro Vancouver, many projects have been deemed too large to qualify for money from the fund. In Calgary, planners say some federal grant money might be available for the city’s big new subdivisions. But they’re not counting on it, nor are many other cities, whose staff have complained of endless complications.
Their projects are too big, or not big enough, or they don’t qualify for unknown reasons. In some cases, cities don’t have the staff resources to keep up with complex, never-ending rounds of applications.
“We’re asking for some changes,” Scott Pearce said. He is the president of the Federation of Canadian Municipalities, and also the mayor of Gore, Que. His small town in the Laurentians, north of Montreal, has seen its population increase about 20 per cent from what it was before the pandemic. As a result, his council has been forced to think about adding new services.
No one is happy about having to raise taxes or development charges, he said. “We’re forced to do this. We don’t want it, but we don’t have the money to do what we need to do.”
In Ontario, Innisfil Mayor Lynn Dollin is dealing with the same conundrum. The population in her town of 45,000 has grown by almost 20 per cent since 2016. Local politicians and planners believe it is on its way to 300,000.
”We know what’s coming,” Ms. Dollin said. “We have plans in place, but the dollars to get there are significant. It’s not just water, sewer, transit. It’s hockey rinks, it’s libraries.”
Ontario’s government recently passed legislation that it has said will make “attainable” housing – a term the province has not precisely defined – exempt from development charges. The policy could leave towns like Ms. Dollin’s with even less money to provide services.
In Halifax, Mr. Savage’s council recently voted on several new initiatives intended to make room for more housing in the city. Those included allowing four homes on every residential lot. The move goes partway to meeting the federal Housing Minister’s requirements for the city to receive $79-million from the accelerator fund.
In B.C., Metro Vancouver’s chief administrative officer, Jerry Dobrovolny, has been arguing that the region’s proposed fee increases on developers are not the biggest drivers of unaffordability. The real problems are interest rates, land prices and building material costs, he has said.
He has also said that research shows development fees don’t increase the cost of housing, because developers can sell homes only for whatever the market will pay.
So far, Mr. Fraser is not backing down.
In a statement he sent out immediately after Metro Vancouver’s vote on development fees, he said he is going to talk to the province about whether the proceeds are really being used to pay for growth, “rather than to address existing fiscal challenges.”
Editor’s note: A previous version of this article stated incorrectly that the cost of new growth would be split equally between taxpayers and housing developers. Taxpayers will fund approximately 45 per cent and housing developers will fund the remaining 55 per cent. This version has been updated.