Academic journal article Canadian Journal of Regional Science

Effects of Property Taxes and Development Charges on Urban Development: Perspectives of Planners, Developers, and Finance Officers in Toronto and Ottawa

Academic journal article Canadian Journal of Regional Science

Effects of Property Taxes and Development Charges on Urban Development: Perspectives of Planners, Developers, and Finance Officers in Toronto and Ottawa

Article excerpt

City and regional planners in North America tend to agree that fostering growth is no longer their prime objective and that the peripheral expansion of cities creates a host of problems. The countryside is made beyond reach much of the time. Congestion increases, as does pollution. Services cost more. Repetitive, garage-faced streets push without end through old orchards, farmland, forests and meadows. Growth management plans have been developed in many of the coastal areas of the United States to keep uncontrolled development from "killing the golden goose" that brings the demand for more buildings. Many of the plans try to manage growth by directly affecting the development process by insisting on concurrent and inter-jurisdictionally consistent infrastructure expansion. More direct instruments include growth boundaries and development caps. Relatively little has been said in the growth management literature of the efficacy of using fiscal instruments to change the profitability of different types of development and, thereby, influence the way a region develops. This article discusses the prospects for using property taxes and development cost charges to affect urban development.

Property taxes and development cost charges can have environmental impacts by changing the extent to which developers substitute land for buildings and, thereby, the density of the built form, the spread of cities, and the mix of land uses. The schedules of rates and fees can promote city spread directly by favouring less dense projects. Fiscal instruments can have indirect effects by changing the optimal timing of development that affects the conditions under which it takes place and therefore the density with which land is developed. The reliance on property taxes and development cost charges to finance local services may induce municipal officials to encourage developers of the low density projects that are thought, perhaps erroneously, to yield the greatest fiscal dividends. The substitution, timing and fiscalisation consequences of property taxes and development cost charges are examined through interviews with Toronto and Ottawa area developers, municipal planners and finance officers. The article starts by describing the two financial instruments as they are used in Ontario. The expected consequences of the two instruments are presented next. The survey and interview methods are described, the context is set, and the findings and conclusions follow.

Fiscal Instrument and Urban Form

The Shift Toward Development Cost Charges

The history of development charges and property taxes are closely intertwined in Ontario, as revealed by the development of municipal infrastructure financing mechanisms over the 20th century. The Ontario Local Improvement Act of 1914 allowed municipalities to install growth-related services and recover the costs by levying local improvement taxes on the property owners who benefited from the service provision. Tax rates were negotiated on a site-specific basis, based on the principle that developers should pay in proportion to the benefits received. Although the taxes were structured to cover the full cost of local improvements, when developers failed financially, the costs were transferred to municipal taxpayers. In difficult times, this system threatened to bankrupt many of Ontario's financially strapped municipalities (Steele 1956).

In the 1950s, growth-pressured municipalities began to transfer the risk of on-site infrastructure financing to developers by requiring them to install roads, sewer and water facilities internal to their subdivisions as a condition of development approval. After being challenged by developers in the 1950s, the legality of this practice was established by revisions to the Planning Act in 1959. By the 1960s, most municipalities in Ontario were using subdivision agreements for this purpose. Off-site services (i.e., investments that could not be linked directly to individual developments) were originally paid for through municipal bonds supported by general municipal revenues such as property taxes. …

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