Infill Development Levies: Don't cook the goose that lays the golden eggs!
Editor's Note: An edited version of this blog appeared in the Calgary Herald's New Condo Section on November 28th, 2015 titled "Do proposed development levies double dip on City taxes?"
Is the City of Calgary about to “cook the goose that has been laying the golden eggs?” For over a decade, Hillhurst Sunnyside has lagged behind the Beltline, Bridgeland, East Village, Eau Claire, West End and Inglewood in attracting new, mid-rise condo development. It is only in the past few years we have seen any new mid-rise condo developments in and around the Sunnyside LRT station - St. Johns Tenth Street, Pixel and VEN, with Kensington and Lido currently under construction.
Not only have and will these new condos add more diversity and density, allowing Kensington Village community to continue to thrive, but they have also provided significant new property tax revenues for the City – and at no cost to the City.
In the case of VEN, developer Bucci paid (or should I say VEN residents paid as the costs always get passed down on to the purchaser) over $500,000 in infrastructure costs (including $275,000 for new water service, $127,000 for Hillhurst Sunnyside Park, $45,000 for new sidewalks/wheelchair ramps and $20,000 for streetlights). That amounts to about $4,400 per new condo.
VEN replaced 11 older homes that paid $35,000 total in property taxes. Now, the 114 condo owners will pay $272,000 total per year - for a net gain of $237,000 annually to the City (or a whopping $2,370,000 over the next 10 years from VEN alone). If we assume a similar amount from St. Johns, Pixel, Kensington and Lido, the City will gain $1,000,000 annually ($10+ million over ten years) from new condo development.
St. John's On Tenth condo.
Why a Vancouver Model?
However, it seems the City isn’t satisfied with the millions of new property tax dollars that it is getting from new inner city condo development. It is now working on a new density bonus levy based on a Vancouver model to pay for local public realm improvements like new and renovated parks, plazas and streetscape improvements. The monies will not be eligible for things like sewer and water pipe upgrades.
For example, Pixel paid about $80,000 to the existing bonus levy (yes, there is already a levy in place) when it was built in 2014. However, over the past year, the Planning Department has been considering a major increase in the “public realm improvements only” levy. In one scenario, a project like Pixel would pay as much as $2.1 million; in a second scenario, $700,000. The calculation of the proposed new Hillhurst Sunnyside density bonus levy is currently still being reviewed, but in all likelihood the cost per unit for the “public realm improvements only” levy could increase from $800 to between $7,000 and $21,000/unit. This could easily drive purchasers to the suburbs where they can get more for their money.
As stated earlier, the City will net about $237,000 each year from increased property taxes, so after three years a new condo project like Pixel, will contribute an estimated $700,000+ in new tax revenue - the same amount as in scenario two of the proposed new public ream levy. Does the City really need both the increased “public realm” levy AND new property tax revenue for public realm improvements?
Why too would the City of Calgary use a Vancouver model for development levies given Vancouver has the highest housing costs in Canada and some of the highest in the world? Why too is it that so many of Calgary’s urban condo developers are Vancouver-based (e.g. Anthem, Bucci, Concord Pacific, Embassy Bosa, Grosvenor, Landmark-Qualex)? Is it in part because Vancouver’s excessive development levies have caused them to look elsewhere for development opportunities?
Perhaps we should be asking the fundamental question, “Why does the City need more money for public realm improvements in established communities?” It would seem - given both residential and commercial property owners in Hillhurst Sunnyside have been paying taxes for many decades - there should already be money set aside for upgrading parks, tree planting, sidewalk replacement as part of an ongoing maintenance program. Why should the burden be placed on the new residents to fund the cost of community improvements?
Pixel condo with crane for Lido condo under construction.
Did Somebody say “Cash Grab?”
Another document emailed to me illustrates how suburban developers currently pay a development levy of about $350,000/hectare for off-site regional infrastructure, but no levies for public realm improvements projects. Depending on the scenario Council chooses for the Hillhurst-Sunnyside the public realm levy, it could work out to between 4M and $14M/hectare. Is somebody saying “Cash grab?” If not, they should be!
City Councilors, Administration and Community Associations love the density bonus levy as it gives them access to new dollars for specific public space improvements that make living in the community more attractive.
On the flipside, landowners hate it because it decreases the value of their property. Developers have to pay the City more to develop the land, which in turn means they have to deduct the same amount from their offering price. Developers who have already assembled land and paid a price based on the old development cost formulas will now have to increase the pricing of their new projects - or delay construction given the current housing market won’t bear the new pricing. Potential new condo owners also don’t like it as the cost to live in established neighbourhoods will rise, making suburban homes and condos more cost effective than established communities ones.
While the City’s Municipal Development Plan (aka its vision/master plan) and Councilors with strong urban agendas have been strongly encouraging growth in established communities for Calgarians of all ages and backgrounds, increasing development levies will have the opposite effect. As the cost of inner city condos increases, fewer and fewer Calgarians can afford to live established communities, accelerating the gentrification of these communities. Nobody wants that!
Last Word
In 2013, the Hillhurst-Sunnyside Transit-Oriented Development Proposal Activity Snap-Shot listed 16 potential projects with over 1,000 dwelling units. Four were under construction (now completed), two are now under construction and the other 10 are in various stages of planning.
All Hillhurst-Sunnyside developers are now waiting until the density bonus levy program is finalized. If the levy increase is too high, it may be years until there is any new condo development. That would be a real shame as Hillhurst-Sunnyside should be Calgary’s signature transit-oriented urban village given it sits next the city’s first urban LRT station built back in the ‘80s. It shouldn’t take 30+ years!
You can also bet the Vancouver-based levies won’t stop in Hillhurst-Sunnyside but be applied to all new condo developments (maybe even to new single and duplex homes) in all established communities, driving more development to the suburbs and fostering urban sprawl. Exactly the opposite of what the City wants.
I am all for public realm improvements but “cooking the goose that lays your golden eggs” is not the way to pay for it.
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