Rollin Stanley is the former chief planner of Calgary, where he also led three city departments. He previously led planning efforts in the Maryland suburbs of Washington, D.C., worked as the head city planner for the Mayor of St. Louis, and spent 21 years in Toronto’s planning department.
Mike Bucci faces a quandary. In Calgary, a new, three-bedroom townhouse 20 kilometres from downtown sells for about $400,000. Meanwhile, Mr. Bucci – the vice-president of Vancouver-based Bucci Developments who is now working on his 12th multi-unit project in downtown Calgary – is trying to deliver a condominium right in the city’s core to attract those same buyers.
This makes sense – why not add housing supply there, especially with huge office vacancy rates in the middle of downtown Calgary? And with the city’s tax base cratering as a result, multi-unit buildings can be cash cows for city tax coffers. Calgary is also being hit by a perfect storm for a real-estate crisis: Office-sector values are imploding, but city council is still banking on the market’s recovery, having recently approved $100-million for the expensive task of redeveloping these buildings. Population growth is decreasing, and the economy remains centred around the flagging oil and gas industry. The COVID-19 pandemic hit hard.
But developers such as Mr. Bucci are still finding themselves up against a long-held practice in the city that skews the playing field toward suburban development.
No number of suburban homes can replace the lost property-tax base from crashing office-building values. Other cities that have tried to do so – especially during the U.S. mortgage crisis of 2008 – know that this road eventually leads to fiscal and political crisis. So why is the city still fixated on projects that will do nothing to stabilize its budget in the short term, such as glitzy convention centres and arenas, and incentives for replacing farmland with single-family homes far from the downtown core?
Calgary is relying on these new suburban residents to pay down the debt incurred from building up services, including water and sewer systems, once those houses are occupied. But recovering these costs through water, utility and property-tax bills can take more than 30 years because the rates are so low. And with 20-plus new suburban communities simultaneously under construction, it will take decades for the homes to even be occupied. That represents an excruciatingly long wait for potential revenue to refresh the city’s coffers, with no clear time frame for when those upfront costs could be repaid. That will blow serious holes in the city’s budgets for the foreseeable future, potentially affecting the quality of city services moving ahead.
And while Calgary fronts a large portion of the suburban infrastructure costs for developers, downtown builders have to pay for any infrastructure and service upgrades when they redevelop land. They do not get subsidies to recoup their costs – even though an 80-unit Bucci development in midtown Calgary, for example, is assessed at a price 30 times higher than houses in a suburb built on the same amount of land, which adds up to a lot of revenue for the city. While this imbalance is not unique to Calgary, many cities require a much greater portion of the suburban infrastructure costs to be paid by the developer – incentivizing sprawl, rather than revitalizing city centres.
Calgary City Council could adapt an approach similar to the one taken by Denver, which in the 2000s set 57-per-cent higher tax rates for new homes built on the redeveloped site of a former airport, and let developers recoup initial expenses through fees to buyers. Developers could also be required to get financing to build the needed infrastructure, much as inner-city builders already do, and the city could implement special local taxes that could be assessed and rebated to downtown developers.
City leaders need to recognize that infill projects are a great investment and a way out of the financial crisis, especially as the assessed values of office buildings plunge. Calgary has tried to make up for that loss by raising taxes on other commercial properties – specifically, shopping centres and small businesses – but this has resulted in business closings. Meanwhile, despite small tax increases, Calgary homeowners still enjoy one of the lowest rates in the country. Residential properties in Calgary make up just more than 50 per cent of the city’s tax revenue; in contrast, that number hovers around 60 per cent in Ottawa.
Calgary can get out of this crisis. But unfortunately, the options for doing so – restructuring the tax system, requiring builders to finance development costs and potentially downloading those costs to suburban homebuyers – are not particularly palatable, politically speaking. Nevertheless, now is the time for Calgary to rethink how it can move forward to an economically and socially sustainable future.
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