February 01, 2006
What does it really mean?
Creating a new community takes a lot of work even before the first home goes into the ground. Roads, utilities, sidewalks and much more have to be provided at considerable expense.
Who pays for it all? Ultimately, the home-owners of that community pay through the price of their building lot.
The up-front cost is paid by the land developer – the company that acquires bare land for a new community, designs it, names it, shepherds the plan through city hall’s approval process, and installs the infrastructure such as roads and sewers.
This arrangement is fairly common in Canada, though details vary from one city to another, according to Robb Honsberger, vice-president for Calgary land at Carma Developers Ltd.
“It doesn’t make sense for the city to put in local roads, though they do take them over and maintain them,” he says, adding “there’d be a lot more developers if you could get somebody else to pay for your manufacturing costs.”
Developers recover their multi-million-dollar costs through the price of the only thing they sell: building lots. Home buyers generally don’t deal directly with the developer – they buy the whole package, house and lot, from one of the home builder participants in the new community.
There seems to be a widespread belief that every taxpayer in Calgary is helping pay for basic infrastructure in new communities, and that’s just not the case.
Developers install storm drains, plus water mains and sanitary sewers with service connections to each lot. All these “deep utilities” have to be dug a few meters into the ground where they won’t freeze.
Shallow utilities – gas, electricity, cable and phone – are an exception to the developer-pays rule. The utility companies install their lines and recover costs through customer billing.
All surface work – roads, sidewalks, curb and gutter, lanes and pathways – is paid for initially by the developer.
Not only residential streets, but collector roads within the community, are the developer’s responsibility. For example, when it developed Cranston, Carma built Cranston Drive, the main collector road in the community.
Street lights? Also on the developer’s tab, until home buyers put it on their mortgage. The same goes for the screening fences and sound attenuation walls that separate the community from major roads. Similarly, chain link fences along properties that back onto school sites and parks are paid for first by the developer, finally by home owners.
Ten per cent of the developable land in a new community is set aside for parks and school sites. “Out of a quarter-section there’s 16 acres that are given up for parks and/or school sites, and distributed according to a formula between school boards and the city,” Honsberger says.
The parks and school sites aren’t just handed over as bare land: the developer includes utilities connections and landscaping. “There’s irrigation already installed, and any benches, garbage cans, pathways and playground equipment are all by the developer. The city takes that over after we maintain it for a year or two,” Honsberger says.
All infrastructure – right down to the number of trees and shrubs and the specifications of playground equipment in parks – has to meet city standards. Naturally, the city inspects the work as it’s done, and charges the developer for the inspectors’ time.
The city produces and installs street-name signs and traffic signs, but the developer pays for them, and for traffic signals too.
City hall doesn’t seem to be missing many opportunities for cost recovery: it even charges for water used during construction.
Developers also pay levies to help pay for expressways, freeways and other transportation projects. These acreage assessments account for about 10 per cent of the city’s transportation infrastructure funding. (More than two-thirds of road and transit capital funding comes from the provincial government, through a one-time grant of about $900 million and a five-cent-per-litre share of fuel taxes).
Another levy helps pay for city recreation facilities, and there might be more to come.
City hall has commissioned a Cost of Growth Study, not yet completed, that will look into the total cost of providing high-quality infrastructure for an expanding population.
Already there’s talk of a $2,500 levy on each new home or condo to pay for services and amenities not provided by developers.
“Libraries and firehalls are not necessarily soft services, but they’re not pipes in the ground,” Honsberger says. “The municipal government act doesn’t recognize them as something that development pays for.
“When you create a lot and someone builds a house on it, they’re paying property taxes that should allow them to have the same level of service as anyone else in the city,” he says.
The Urban Development Institute, which represents developers in negotiating a master agreement with the city about who provides what, is discussing the issue with city hall. So far the $2,500 levy isn’t a reality, “but where it ends up I don’t know,” Honsberger says.
Schools are a crucial concern for young home buyers, and here developers can’t do much. They provide the sites, but it’s up to the school boards and the provincial government – especially the provincial government – to decide who gets a school and when.
The province pays for school construction, but it doesn’t want to over-build. As communities get older, their school-age population tends to decline, and it takes a long time for fresh new families to re-populate the old neighbourhood schools.
Busing children from newer communities keeps the old schools useful, saving money on construction and possibly making more efficient use of staff.