Costs of Business-as-Usual Growth
The City’s Sustainable Development Department released a working draft of the Growth Coordination Strategy today.
I have not had time to digest the whole thing but the most interesting parts relate to the estimated costs of infrastructure that the City would be expected to provide in new Areas being proposed for growth (specifically in the Green areas on the map to the right).
The thing that caught my attention (and the Edmonton Journal’s) was the $1.2 Billion (with a B) projected bill (in today’s dollars) for City infrastructure that would accompany the growth in these areas. [CLARIFICATION, May 10: $1.2 Billion appears twice in the report, once is the cost for these new areas, the other and additional $1.2 Billion is the unfunded obligations for approvals for 44 neighbourhoods that are under development today in Areas previously approved, e.g Windermere Area Structure Plan in 2004, Heritage Valley in 2001, Ellerslie in 1999, Lewis Farms 1988 and so on.]
An important bit of context: a lot of people think that the City pays for the roads, sewers, water lines, etc when a new area is developed; not so. Developers front end many of those costs and pass them through to the homebuyer. That’s a big part of the cost of any lot – the value of ‘servicing’ it with utilities, local roads, sidewalks, etc. Developers/homebuyers also pay for part of the main roads (we call them ‘arterial’ roads) adjacent to a neighbourhood. Lanes 1&2 are charged to the developer on one side, lanes 3&4 are charged to the other. Lanes 5&6, if needed, fall to the City to fund. Everything thing else downstream (road widening, interchanges, etc) fall to the City.
Developers also provide land for parks, but the City has to fund their development. The City also has to buy land for recreation centres, fire & police stations, libraries and then build them. These are the type of costs that add up to the $1.2 Billion.
The City does get infrastructure grants from the province and sometimes from Ottawa that can cover some of this growth cost, but those grants are also needed to cover the cost of renewing or replacing existing infrastructure (and we are not yet adequately funding renewal in my view).
The analysis is confined to the up-front infrastructure, which is a start, but we also need to get to a full model including the operating costs and lifecycle (repair/replacement) costs of this model of growth. That’s coming, according to the report (p. 33):
Although not included in the analysis at this time, operating and maintenance costs in suburban areas represents a significant operational expenditure to the City. Also a large component of capital spending, rehabilitation and replacement of infrastructure is not included in the analysis presented either. Administration is working towards the inclusion of these expenses into future versions of the Growth Coordination Strategy, but at this time the methodology for the gathering and synthesis of the data required for this is not developed sufficiently.
I’m concerned we may not have this full picture before the next Area Structure Plans (for the North East and South West green patches) come up for debate this fall.
[UPDATED: Forgot to mention, we did get some idea of this in a high-level report last year called “Costs and Revenues for New Areas” which showed that predominantly residential low-density areas do not pay for themselves over a 30-year timeline.]
We need this full costing before Council can responsibly approve planning for these new areas of growth. I think it will help raise the pertinent policy questions, which include, but are not limited to:
- Should city-wide taxes increase to build this infrastructure because we all benefit from it directly or indirectly, or do we figure out how to match benefits to charges so growth pays for growth, or do we put off building a lot of the needed infrastructure as Edmonton has sometimes done?
- Should we continue to subsidize low-density residential neighbourhoods (as we do today, both existing and new) with higher taxes on commercial and industrial property and grants?
- Can we design moderately denser neighbourhoods that make more efficient use of infrastructure and generate more revenue per acre and can financially sustain themselves?
- And, regionally, what competitive advantages or subsidies are allowing our neighbours to accommodate growth at lower costs and does some price-signal equity need to be introduced with regional cost sharing for regional projects?
20 thoughts on “Costs of Business-as-Usual Growth”
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Don,
What you need to be asking is not what the lifetime cost of growth today is, but what tomorrows are.
Let me ask you, in 2002, if I asked you what 30 year lifetime costs would be, do you believe they would be remotely accurate if you did the same calculation today?
Let me remind you that back in 2002, no one could have predicted the huge run in oil prices. The maintenance and operation of a city may be one of the most oil intensive processes man currently does.
I remember reading a few years back that the city had 80 neighborhoods to fix up, and that they could do maybe 2 per year. (its been a long time, and i’ve lost the article now and can’t remember exact figures). So lets say roughly .. 40 years?
Also consider that the cost of living in the suburbs due to the cost of gas, etc is also not really predictable over say .. a 30 year period. Many suburbs in the U.S. have gone from upper-middle class to ghettos. Is that really where we want to put our money? The suburbs are a relatively new concept, they haven’t been around for even 100 years.
Are we confident Done, that with growing financial tensions and a global supply chain that it is foreseeable and definite we can afford to maintain what we have now?
We need to stop thinking like we’re in the 80s Don. This isn’t just “another recession”. This is the changing face of growth. The real growth, the stuff that feeds people, gets them to work and back. We need to change with it, bad planning now = exponential and unpredictable costs later. If you disagree, ask your planners what they predicted oil to be in 2002.
Honest question here… why can’t the City just make it a condition of the MDP, development permits, or whatever that developers must get that THEY pay for more infrastructure? The City shouldn’t have to buy land for fire stations from the developer!
That will raise the price of lots of course, but then the market will decide if there actually even is a market for those lots.
btw, thanks for coming out to the YESS event last night, hope you enjoyed the show we put on!
I agree with Rob that forcing projected construction costs for ALL new infrastructure onto the developer, including any upstream road widening (etc) that their new development will cause. The people who use this new infrastructure should be the ones paying for it…there’s certainly no benefit to me when someone moves into the middle of nowhere and demands a new school & fire hall.
I also think that the city should be lobbying the province to revamp property taxes so that they better discriminate between the municipal costs different types and densities of housing cause…probably in the form of a density multiplier that leads to denser housing paying less tax. It seems absurd to me that a downtown condo pays the same (or more) tax than a single family home in Summerside.
I’m curious, has the city considered adding LRT into the infrastructure developers must build into new areas? First off, it’s terrible that future LRT isn’t planned into new developments anyway (to be connected when LRT makes it there), but it’s even worse that we don’t have it paid for by the developer just like the roads.
We (Edmonton) seem to have a good handle on where LRT is and will be going. Why aren’t we planning even further ahead? When we reach the end of our current LRT expansion plans, won’t we then be at the same place we are now, where we’ll need to determine what land to expropriate and which routes make sense, when we should just be connecting to the ever-increasing network that would be built into new developments and constantly expanding upon?
Hello, Don!
Thank you for providing this web-link in your CBC radio show.
Growth for the sake of growth doesn’t means sustainable growth.
I faced an almost similar situation in Brampton Ontario. Thousands and thousands of units have been added in 2001-2006 North of Brampton for the sake of catching up with Mississauga who was double the size of Brampton and didn’t have any further expansion capabilities.
The result:
Housing prices – have been affected throughout the city and surroundings: people buying new houses (not necessarily top notch quality) were expecting their house prices to double in, say, 3years, whereas old houses were not growing at all. Not even the 6-8% what the statistics were reporting.
Traffic issues – major highways didn’t exist, only old secondary roads. Hours on end people would be stuck in traffic North HWY 410.
Schools: portable units were a common view in the school in Brampton: 5-6 per school, at least.
Day care: obviously, a big shortage of services in this area was followed by a big spike in the cost for it.
Who really benefitted: a few people who speculated on the housing market and Home Depot who was roaming with people at 10:00 PM.
The cost to the city: I didn’t stay there to wait for this cost to be assessed.
So please, do everything in your power to get this growth straight and make it sustainable.
Thank you,
Diana Ionescu
Thx for all the great info Don.
Edmonton has been growing since I was raised in Duggan and my backyard was a pasture and that was the end of the city. Growth is not the problem, the cost of growth to the city is. Not just infrastructure but schools and all the pain that comes with people building new in the SW (or NE). If we want to encourage people to repopulate old neightbourhoods and grow them again then they need to be encouraged. Adding front end costs to the new home builders and therefore new home owners is short sighted and will not work. Those new home owners will jut pay the tab and move there anyhow. Someone in the city needs to truly understand sustainable urban growth and find out what other cities are doing. Maybe the city needs to promote moving into the old “core” of the city. Use some tax incentives or some building incentives to reno the old homes. Most importantly it needs to be promoted and give people a reason to stay in the core.
Glenn
The full model review needs to also consider the additional tax revenue to the City generated by the new development – residential, industrial and commercial. By the way, let’s not forget that people who live in “new communities” pay the tax surcharge to renew “old neighbourhood” infrastructure AND pay taxes to maintain and staff all those “old” police and fire stations. The only way we have a “complete community” is to look at the City as such and stop bickering about who gets what and who pays for what. People who live throughout the City work and play throughout the City and benefit from the services provided throughout the City.
Our City Council has chosen a path for the City which supports growth. It costs money and generates money. If we continue this diatribe that “developers should pay more” we are just fooling ourselves. The only people who pay are the those who live in homes and own and operate businesses. If we make those actions too expensive, our City will lose out locally, regionally, within our country and on the world investment stage.
Richard, what you’re calling for is a scenario-based risk analysis – I’ve asked for that too. We need a working model first that you can plug the different scenarios into for testing. Costing is the first piece of that.
Rob, I agree that getting the price signals right is important; however, some of these things are of city-wide benefit and so it may be reasonable for everyone to chip in. For example, good Fire Rescue coverage keeps our insurance premiums down; and tournaments held at large parks and rec centres are attended by people across the city.
Neil, fair points but there is an equity question since some of this infrastructure has traditionally been paid for publicly because they represent a public good – like major roadways, and to shift all of that may not be fair. But full cost accounting at least allows us to make intelligent decisions about what’s a broader public good we should all contribute to and what’s primarily a local cost/benefit for a given lot.
We’ve taken land as transportation right-of-way but haven’t asked landowners/developers to chip in on LRT construction. It falls into that broader public good category in my mind and should be funded primarily by the province and feds. Besides, if we’re not building it at the time of their development then there’s not much to charge them for.
Fair points, Louise. Revenue absolutely has to be part of the model – commercial and industrial taxes grow with employment, which adds to residential growth. I’m not sure this is transparent to businesses, and some of them don’t think its equitable, but it’s connected for sure.
I agree that old vs. new is counterproductive. All low density residential development is being subsidized by other taxes and grants. That’s not sustainable on its own, which is part of the reason why taxes have risen.
And I don’t think pushing up housing prices by tacking more levies on developers is the best choice – I think building more infrastructure-efficient communities (and this is improving, by the way) will help reduce the costs per unit of land.
On the point about neighbourhood renewal costs, it’s true that everyone is chipping in for this but it’s a fund that will be there for every neighbourhood as it needs mid-life preventative maintenance and replacement when the time comes. That lifecycle cost is there for every neighbourhood, even the new ones. Nobody paid these for decades and the ‘cost’ is 100+ shabby neighbourhoods, a condition the new neighbourhoods shouldn’t deteriorate into now that lifecycle costs are funded by the neighbourhood renewal levy.
Don, thanks for positing this thoughtful look at the costs of growth. It should be noted that this is an issue in all urban centres across the province and not just in the two large cities. The core challenge is that the property tax system is a poor way of collecting revenue for the types of services and facilities municipalities are called on to provide today. Having said that, it’s the system we’ve got right now and there are things that could be done to improve it.
Commenter “Rob Davy” seemed to suggest that the city should require the developers to contribute to more/other types of infrastructure… I’d point out that what munis can and cannot collect for is guided by provincial legislation. Right now there are some cases working their way through the courts that outline the limits to this process. Check out what Okotoks is going through: http://www.westernwheel.com/article/20111116/WHE0801/311169990
Also, I’m stealing the “Costs and Revenues for New Areas” report you linked to. We are working on just such an exercise here in GP and it’s helpful background information. Thanks!
Councillor:
Please try and remember, indeed notice, UDI Edmonton and other stakeholders have been working really hard since last June on the GCS. These so-called numbers are your own admin’s FIRST stab at trying to establish capital costs of growth, which MUST include the true costs in brownfield areas, not just green.
Indeed, as an Industry we know full well the all-in-costs of developing in brownfield areas per hectare, exceeds greenfield.
Lets also never forget the tremendous amount of cross-subsidization across the Industrial – Commercial – Residential taxes/fees/costs equation.
Lets not forget the taxes paid by all to support costs of providing services to all, which is not a one for one equation.
Also lest we not forget the $$$ millions in benefits accruing to the City from job growth, property taxes, disposable income spending, indirect spending, economic mutliplier effects of Growth.
Lest we not forget, as developers, develop in the inner city and downtown! A macro view is required to ensure we see the real picture of Growth, no matter where in the City we choose to focus. This is Edmonton, a well planned city already, requiring innovation, creativity and a willingness to listen.
Mayor Given, thanks for your points about what’s recoverable and what isn’t – let us know what you come up with.
Rick, thanks for your points too. I acknowledge that the Urban Development Institute has been part of the discussion and I have learned a lot from my interaction with industry players on these questions – and I will continue to listen (had several opportunities today as this has all caused a stir). Further, I agree that the cost model should be looking at the whole city – not just greenfield growth, and if you look in my replies above you’ll see that I also think we need to distinguish between public goods and local amenities because there are lots of assets that raise up the whole city, for example a strong public library system. Fair points.
There is a lot to consider, and the average Edmontonian property owner does not have the technical knowledge as you and developers have. Your Blog entry on this topic is certainly a good source to read and I have printed off all of the above to read thoroughly. On the surface, it looks like yet another property tax hike this fall, and many property owners are going to react. I won’t like it, particularly when i see vehicle traffic influence changes and aging infrastructure affect my property values. I have to take time to read your excellent summary and those of posters to get a grasp on this issue. How is the proposed second ring road (City Transportation PLan) west of HWY 60 , etc going to affect all of this, eventually. Thanks for the info.
I have now had the opportunity to read both the Strategy report and the accompanying Strategy Appendices. Do I fully understand all the lingo and socio-economic planning language and repercussions? Of course not, and a vast majority of Edmontonians will have a steep learning curve. If the City of Edmonton can distribute a quarterly ‘waste pickup schedule’ to all households, it certainly could distribute a reduced version of this Strategy in language ordinary citizen can understand, along with the benefits and negatives of what is being proposed.
I can tell you how this Strategy might (could) impact on my ‘mature’ neighbourhood and the my property value.
The word ‘Infilling’ seems to be one of those flavor of the month business lingos used to soften impacts on mature neighbourhoods. For example, in close promixity to my residence single family dwellings are being bought by absentee landlords, renovated, and then the upper and lower floors rented, without regard to the current neighbourhood make-up of seniors, professionals, some families. Meet the neighbour is usually when the loud music, bring the sofa out on the lawn (actually happened two weeks ago), and loud behaviour starts to everyone’s dismay. Renters are usually single guys, or young couples in temporary transition who let the lawn go attended, garbage piled up, and the house slips into decline. Infilling can destroy a neighbourhood. In the meantime, the landlord (in this example) comfortably enjoys their West End quiet neighbouthood and collects the rent.
I definitely believe that a discussion on ‘new vs old’ is needed despite those who express a dismissive attitude towards this kind of communication. My point: Any infilling must be accompanied by a ‘good neighbour absentee landlord policy by-law’ (since many councillors use this route to make a statement), that requires the absentee landlord to visit his/her property at least once or twice a month, and interact with the neighbours to ensure all is going well. That is a minimum.
I trust the current infrastructure such as sewers would be reviewed in mature neighbourhoods and upgraded to accommodate any infilling so the current density of 3.4 people per household, as is the present case in my neighbourhood, does not strain the sewer capacity resulting in sewer back ups for the rest of us.
Getting back to the Strategy document itself, I think anyone involved in making a decision impacting neighbourhoods as a result of this Strategy should disclose their financial and business activities, since the document is encouraging a “25% city wide housing unit growth in downtown and mature neighbourhoods and around LRT Stations and Transit centres”. Otherwise, it opens the situation to abuse and personal gain.
Has Council looked at the idea of creating new TOWNS, rather than new ‘areas for growth’ as suggested for the Northeast, Southeast, and Southwest…with their own Mayor and Council and taxation abilities for those new suburbs?. The Greater Toronto Area is a good example, bad, good or worst, and this option should be looked at. The people moving to these new areas would see their most of the taxes applied to their local suburb. Why create a super City that will overburden present City Administration and Council.
I also believe developers should pay more. So what if housing prices climb. If infilling of my mature neighbourhood results in a devaluation of my property, I pay less taxes. Already a tag ‘Major Traffic Influence’ has been affixed to my neighbourhood resulting in a negative against my property and nieghbours. Mature neighbourhoods will suffer under this Strategy, and you are damm right there needs to be a ‘old vs new’ discussion on the matter.
I can’t say I understand fully this Strategy but I do understand (and beginning to see small changes) that will have (and already is having) a negative influence on my mature neighbourhood. And Council needs to care!
Chris Cameron has suggested towns with potentially redundant administration costs. I suggest that Edmonton try the Town Centre concept again. Edmonton has experimented but abandoned the Town Centre concept, such as Mill Woods Town Centre, as a shopping, transit and service hub for the community. It discourages sprawling shopping messes like South Edmonton Common and the drive-only shopping around the former Heritage Mall. However, what I really want to ask is why young families are choosing to live in a flimsy shoebox with no amenities nearby when my neighbourhood (Steinhauer) has large family homes, tons of shopping, services, recreation and empty schools to offer? I don’t get it. The homes don’t need major upgrading except cosmetics to taste, yet families have no interest in living here. True, the roads and sidewalks here are like an unmaintained back road but there is plenty of parking and nothing else needs replacement yet. The City is doing both families and existing communities a disservice by allowing greenfield development to lure homebuyers out to the outskirts with new housing when there are no services there. Developers upgrading an existing property inside the city can’t compete with greenfield housing. It’s a classic Catch 22. I know someone who would like to redevelop a continually half vacant old strip mall in a residential area into upscale town houses above commercial that is all the rage in San Francisco but the same city planners who made downtown a ghost town in the 1980s and 1990s are at work again in communities built between WW2 and 1980. They approve new greenfield communities and sound the death knell for existing communities.