■ How it works: Development charges are fees assessed to developers and redevelopers of land for both commercial and residential purposes. The idea behind the charge revolves around the notion of value capture - developers recoup an economic benefit from their activities, and part of that benefit accrues from public infrastructure. Developer charges are typically negotiated for a specific term, and a fee per hectare developed is charged. Developers are typically responsible for helping pay for major roadways that adjoin new developments, signage, parks, recreation facilities, and various utility infrastructure such as water, sewer, and storm drainage. In some instances, private developers also undertake the financing and construction of certain public infrastructure such as local streets, curbs, walkways, lanes, gutters, bus stop aprons, and smaller water, sewer and storm water infrastructure. These assets are then donated to the city.
■ Assessing the potential: Developer charges do form a significant source of financing for many cities, particularly those that are experiencing rapid growth. As such, they directly address at least one driver of infrastructure deficits. If such charges also reflect variances in the costs of particular developments, they may also help tackle part of the problem with pricing - at least some of the costs to the developer are likely passed on to the homebuyers or commercial property owners.
However, the degree to which these charges, as traditionally employed, can help reduce infrastructure deficits is probably limited. First, development charges speak only to new infrastructure required to accommodate growth, but a significant part of the problem for many cities is the renewal of existing infrastructure. Further, current development agreements are generally linked to local infrastructure provision only, and may not always capture the infrastructure needs that build up downstream. It is one thing to have the costs of hundreds of local streets directly paid by new developments themselves, but what about that new expressway or interchange that is now required two kilometers down the road or the millions required for an extension of transit? Further, while developer charges help cover the initial upfront costs for the city, the ownership of the assets eventually reverts to the city and actually creates a future liability in that it will have to be eventually replaced.
Increasing development charges to cover some of these costs is an option. It does make sense to ensure that new growth is paying for itself and also helping cover additional costs that occur elsewhere in the city as a result. The problem is, the true value of these costs is not easily quantified and provincial approval may be required. Perhaps more important, it is politically difficult to substantially increase taxes on a specific group or sector with the intent of spreading the revenue out to a more generalized group of users. It is easier, politically, to levy a very small tax on a large group of taxpayers and concentrate the spending where it is needed. While a potential negative reaction from developers should not be the final deciding factor, the potential impact on housing affordability is a different matter. In the end, increased developer charges may well be part of the solution, but they cannot carry the entire burden of fixing the problem.