Hammers down

First quarter points to fourth year of decline in County homebuilding sector

One of the key reasons County administrators are able to claim to have wrestled the tax increase below 10 per cent so far is that in their calculation they have netted out growth in assessment from of new homes, additions and commercial structures. Over the last decade, new growth has contributed roughly $400,000 a year to the municipal tax base, helping to spare ratepayers the full effect of the spiralling cost of its local government.

County administrators may not have this cushion much longer. New homebuilding has declined steadily over the past five years. The outlook for 2012 signals yet another poor year based upon results for the first quarter.

From a peak of 165 permits generating $25.9 million worth of projects in the first quarter of 2008, the County building market has declined steadily. In the first three months of 2012, just 101 permits were issued representing only $6.4 million worth of projects. So far just nine new homebuilding permits have been issued this year.

The drop in the most recent quarter was particularly disappointing as the homebuilding numbers appeared to be stabilizing last year.

Tradespeople and contractors who haven’t set their tools down in a decade and a half are now looking for work—some are taking on projects they wouldn’t have looked at five years ago.

Our neighbours are doing much better.

Belleville saw 21 new single family homes built in the first three months of 2012, compared with nine in the same period last year.

In Quinte West building permits are up 18 per cent for the first two months of the year, over the same period last year. This includes 13 new homes compared with 11.

Builders are staying away from the County because they see it as too expensive and too hard to navigate the regulatory process.

Development charges were introduced in March 2008. Builders currently pay $7,533 for a single family home with three or more bedrooms. Waterworks connection charges were added in 2010. This year the fee for both water and sewer-serviced lots is $8,912 (a figure that is set to rise to $14,260 by 2015). A new parkland fee was introduced last year and recently doubled, adding another $1,500 to the cost of a lot before a building permit is issued (about $2,000 for a 2,000 square-foot home).

The upshot is that builders must pay nearly $20,000 in fees on a serviced lot in the County before they can begin to dig a hole. Belleville and Quinte West charge significantly less— Belleville collects $8,890 in development charges that include water connection charges, plus a maximum of $1,500 for cash in lieu of parkland. Quinte West’s development charges are lower still, ranging from $3,000 to $4,067—with no additional fees for waterworks connection or parkland development.

It is steep hurdle for builders to overcome in Prince Edward County—a challenge made worse by the County’s poor timing. While many municipalities have charged development, connection and parkland fees for many years, this municipality came late to the table. Builders said the County bit off more than the market could bear.

Peter Sage was one of the County’s largest builders of homes. In the middle of the last decade Elliott and Sage employed more than a hundred people. Now his firm is working through a plan of arrangement to keep the firm alive—and the handful of folks he has left, employed.

Sage says he warned County administrators that loading on all these fees at once would drive growth, and jobs, away.

“Is it coincidental that the decline began with the introduction of development charges?” asks Sage. “I don’t think so. I think the problem was made worse by the recession. We warned them. Graham [Shannon of Sandbank Homes] and I sat there in committee meetings for a year and a half. We told them this is not the time.”

But few on council took heed. After a decade of strong growth many didn’t believe it would end. They argued, and continue to argue, that $20,000 of fees are not meaningful in the cost of a $300,000 home.

But Sage says this reasoning reveals a misunderstanding about how free markets work.

“They believe the rich developers will pass it along,” said Sage. “But there is a bottom line margin they need to get—and if that margin isn’t attainable here—they won’t build here. It is that simple. They will build in Brighton, Quinte West and Belleville.”

Sage says, too, in its clumsy attempt to grab new fees and charges, this municipality is chasing meaningful tax revenue away.

“Every new home will be here for 100 years—generating a hundred years of taxes that flow to the municipality. Likewise for every home that isn’t built here, we lose that potential tax base. Other municipalities are waiving development and connection charges just to get tax revenue going.”

The high-profile projects—Wellington on the Lake, Kaitlin Group’s proposed subdivision in Wellington, Cottage Advisors Sandbanks Summer Village—tend to mask the fact that fewer new homes are being built in the County each year.

Sage doesn’t see this trend changing soon.

“No new homes are being built here,” said Sage. “Rather than encouraging residential development we are discouraging it. In the meantime we are seeing jobs and tax revenue go elsewhere.”