Of geese and eggs

Posted: December 14, 2017 at 9:05 am   /   by   /   comments (1)

Is the housing market fixed in Prince Edward County? Has new homebuilding rebounded sufficiently to push already eyewatering development and building charges markedly higher? That’s the proposition being promoted by some on council, and some staff, eager to derive more one-time fees from new homebuilding. But do they risk chasing prospective builders away? Again? And at what cost?

Prince Edward County came late to the business of charging developers for the impact of growth on municipal services such as fire protection, libraries and parks. The County had had a patchwork of small charges for new connections to some municipal waterworks systems but not to others.

For a decade after amalgamation, the County financed the expansion of such services and systems from the general tax base—in effect charging existing homeowners for needs of new residents. In 2008, Shire Hall looked to fix this inequity, imposing heavy development and waterworks connection charges.

But in doing so, it widely overshot the mark. With guidance from its consulting economist, Andrew Grunda, and perhaps looking to make up for lost time, the County pegged these new charges at levels far higher than any other jurisdiction in the region. It was okay, the consultant advised at the time, our neighbours would soon raise their charges and the market would return to level.

But it didn’t happen. That autumn, credit markets froze solid. Lending came to an abrupt halt around the globe. A deep recession followed. House building in the County, and elsewhere, fell off a cliff.

But then a curious thing happened. By 2011 new homebuilding was on the rise again, rebounding nicely in Quinte West, Belleville, Brighton and Napanee. But not in Prince Edward County. New home starts kept falling.

By 2013 council conceded that its charges may, indeed, be acting as an impediment to new homebuilding. So, council cut development charges by 50 per cent. However, they left exorbitant connection fees in place. (So rich are waterworks fees in the County, that they must be levied outside of development charge rules—beyond the oversight of provincial regulation governing what could be counted as future growth needs.)

Only in the past 18 months have new homebuilding starts begun to rise again. Indeed, the trend is encouraging. By the end of September, the County had issued 140 new homebuilding permits—putting it on track to issue building permits for 186 homes in 2017—compared with just 69 new homes in 2012. Not since 2004 has the County seen this pace of new home construction.

There are growing rumblings, too, that longstagnant subdivision developments in Picton and Wellington may be coming back to life, though it is not at all clear when that means new homes will arise from the earth.

Some folks will shrug at this issue, sensing this isn’t their concern. It’s a mistake, I think.

In the County, there is is a fundamental imbalance in the supply and demand equation for homes—new and resale. We’ve done a great job of attracting folks who want to live here. But we’ve haven’t added nearly enough to the housing inventory. Inevitably, prices of the existing stock of homes rise. It is basic supply and demand economics.

Homes that may have sold for $200,000 a couple of years ago are currently trading at more than $400,000. That means young families can’t afford to live in Prince Edward County. This is death to a community like ours. To our schools. To our businesses. To our healthcare services. It is a crisis that needs to be fixed.

But structural impediments—in the form of high fees, slow processes and overreaching security costs—make the County an expensive, and ultimately uncompetitive, place to build. Earlier this year, the County’s Community Development produced a list of 39 recommendations through its development framework consultations. It will help. When they are implemented.

But in the meantime, developers in Quinte West and Belleville are marketing homes as Prince Edward County. They are eating our lunch. The tax base that should be streaming into County coffers is flowing into city halls in Belleville and Quinte West instead.

Some council members never wanted to see new homebuilding in the County under any circumstantces, and never supported reducing development charges in 2013. Others have been persuaded by the County’s finance folks that it’s time to eliminate the discount. They argue that it represents a subsidy to developers—that every dollar not raised by this discount represents a dollar that needs to be funded by the general taxpayer.

This is a fanciful way to spin an increase to these charges. The fact is that prior to 2008, the County earned zero dollars from development charges. Today every dollar raised by these fees is a dollar more than we earned before. One hundred per cent better. There is currently about $5 million in this reserve fund. Five million more than we had in 2008.

Staff would like to raise even more money. I do too.

The risk is, however, that by hiking one-time fees even higher, the County makes exactly the same mistake it made in 2008. That homebuilding comes to sudden halt—and we return to scratching out 70 homes a year or fewer.

Shire Hall seems oblivious, at times, to the concept that we compete for new homebuilding with our neighbouring municipalities—that builders can choose where to invest their money, based upon the return they hope to earn. Currently, more are choosing to market their homes as the County, but build in Quinte West and Belleville to take advantage of the lower costs.

Are development charges and connection fees the entire story of the still-lagging homebuilding sector in the County? It seems unlikely.

But why would council tinker with this, at such a precarious moment? Every new home in the County represents approximately $2,500 added to the County tax base—payable every year. Forever. This it the goose that lays golden eggs. It is the prize council must focus on. Not the egg.

This is a lesson so profound and universal it is documented in ancient fables. Yet the message of this story seems foreign to some at Shire Hall.

Even with discounted development charges, the County’s fees are much higher than its neighbours. Is the County worth a premium? The answer is, likely, yes. But double? That is the proposition before council.

Builders are going to build new homes. It is up to us to ensure the County remains competitive to attract our share of new homebuilding. And to keep our eyes on growing the tax base. And alleviating pressure on the broken supply-demand imbalance in this community.

The trends are positive. The indications are positive. Let’s nurture the still-wobbly young goose.

Comments (1)

  • January 5, 2018 at 11:21 am Kyle Lester

    Excellent article. Thanks for the info, Rick.

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