Uncompetitive

County council wary of hiking development fees further

We are in a crisis,” warned Mayor Peter Mertens describing the collapse of the homebuilding sector in Prince Edward County. “A dramatic solution is required.”

Mertens was responding to a presentation made by Andrew Grunda of Watson and Company, a consultancy.

Every five years the municipality must review its development charges—that is charges it applies to builders of new homes and other buildings to cover costs of expanding services. In this review the municipality must reexamine its expectations of both population growth and the cost to accommodate it through expanded services. In this way it seeks to ensure that the municipality is maintaining the right balance between encouraging growth, and funding it—so that existing taxpayers aren’t paying for additions to a waterworks system they otherwise wouldn’t need.

But the opposite effect has occurred since the County adopted development charges in 2008. Growth in residential development has fallen sharply, taking with it expected increases in the tax base. Meanwhile the fixed costs of County infrastructure has continued to rise. The additional costs therefore must be borne by a smaller than expected number of residents.

Now Grunda has run the numbers again. His model assumes the County will see about 114 homes built each year for the next five years— an assumption based upon an average of new home permits issued since 2002. But the market for new homes has declined steadily since 2008—arguably making the 10-year average obsolete. In fact in the last four years the County has averaged just 81 new home permits per year. And the trend is downward.

In 2008 Grunda acknowledged that the development charges he proposed then would make the County among the most expensive places to build in the region. But he predicted that neighbouring jurisdictions, including Quinte West and Belleville, would soon catch up to the County in terms development charges. They didn’t.

Quinte West considered Grunda’s report and shelved it, fearing a big hike in development charges would discourage growth. These jurisdictions continue to offer much lower development and water and sewer connection charges.

Paradoxically these neighbours also earn more revenue from lower development charges—simply because more building is happening there.

In 2008 council decided, as a means to induce affordability, that it would offer a reduced development charge for homes with two or fewer bedrooms. Currently these homes must pay $4,508 in development charges while single detached homes with three or more bedrooms pay $7,533.

In his current analysis, Grunda recommends adopting a uniform development charge for all single detached homes regardless of the number of bedrooms. He is proposing a new development charge of $6,856—a nine per cent decrease from the old three-bedroom and up rate. But a 52 per cent increase over the two bedroom charge.

Grunda estimates about $134 million will need to be spent on capital projects in the next five years—$58 million of which should be paid for by development and connection charges.

Some on council are growing wary of Grunda’s ability to forecast the future—particluarly as building has slowed in the County and remained flat in neighbouring communities.

“Compared to our neighbours our development charges are high,” said Athol Councillor Jamie Forrester. “What if these charges drive down growth?”

Grunda pointed to research that suggests that municipalities with high development charges tend to be those with the highest growth. In any event the County will spend only what it can.

“If growth is slower, than the need for capital projects should be lower,” responded Grunda.

Of course some infrastructure renewal can’t be put off. Councillor Terry Shortt pushed for a more precise answer.

“What if we don’t achieve the growth you anticipate?” asked Shortt.

Grunda responded by reminding the councillor that it’s a continuing process.

“In five years time you update your needs again and you reset as needed,” said Grunda.

Council isn’t inclined to wait five years. They understand they have a problem. Neighbouring communities are winning the competition for new home building. Council will take a long hard look this time to determine the extent to which development and connection charges are part of the problem.