There is considerable debate in the policy community about who really bears the burden of developer charges - the developer in the form of lower profits, the new homebuyer in terms of more costly housing, or even workers in the form of lower wages. Despite this ongoing debate, there are three specific innovations that often emerge in the literature aside from a simple across the board increases in the charges.
■ Additional levies for off-site costs and future maintenance: Developer charges are applied to new developments in order to capture the costs of "on-site" infrastructure - local roads, water and sewer, and sidewalks. But new developments also imply "off-site" infrastructure as well - the need for interchanges, expanded freeways, and a variety of civic structures like fire halls. Some suggest that additional levies for these "off-site" costs are warranted because "on-site" costs do not represent the full infrastructure cost to the city. Some have also argued for additional levies to form part of the up-front charges because cities have to maintain and replace the new assets and future property taxes may be insufficient to cover those costs. A recent amendment to Alberta's Municipal Government Act provides an example - cities now have the right to apply additional levies to fund transportation infrastructure into developing areas.
If one believes that new developments should pay for themselves, such an approach would appear to make sense. However, the approach depends on current legislation and even local by-laws that could limit these types of charges, and the reaction of developers themselves may not be positive. But even more important, if developer charges become too high, it could encourage increased development in adjacent communities where the charges are lower. Cities would lose the revenue from the charges while at the same time having to provide more infrastructure for commuters who are not paying for it (Connery 2003).
■ Front-end developer charges: Increasing developer charges and including "off-site" costs presents a number of hurdles. But, there may be other ways to tap this source. The concept of "front-ending" allows infrastructure to proceed in advance of development. For example, in 2001, developers in Calgary loaned $30 million, interest free, to the City for transportation infrastructure. In exchange, the City lifted a development cap in a specific area (Heyman 2001). Edmonton also front-ends the construction of trunk sewers and associated systems in private development areas. With this approach, cities will have to stress that the desire is to secure better timing for receiving funds - the approach is not a covert plan giving developers the right to set municipal planning and land-use policies, or to exploit the city's right to issue development approvals.
■ Charge differential development fees: Lower density developments carry higher infrastructure costs than higher density developments. Projects in the inner city, such as infills and brownfield redevelopment, cost less than new development because of the existing infrastructure. An idea now catching on is to charge differential development charges to better reflect these differences in cost and attempt to direct growth to areas where infrastructure is underutilized or less expensive to provide. All of this, of course, implies a shift away from average cost pricing to marginal cost pricing. For reasons of administrative ease, many cities choose to charge average costs even though the approach is inefficient and may promote an over-supply of low density development (CD Howe 2002, Tomalty 2000).
If cities are serious about curbing sprawl and the higher infrastructure costs that it produces, then a rethinking of development charges is in order. At the same time, any discussion about adding new charges or changing how they are applied will inevitably intensify an ongoing debate. Developer charges promote "pay-as-you-go" and allow new development to help pay for itself, but some argue against the impact on affordable housing and the fact that new homeowners may actually be subsidizing existing residents for improvements that benefit everyone. Others argue that cities can borrow less expensively than private developers and so charges should be waived and costs recouped through property taxes (Canada Mortgage and Housing Corporation 1999). Finally, because the charges increase the cost of new housing, existing housing becomes more attractive as a substitute. This causes older home prices to rise, providing a benefit for existing residents at the expense of new homebuyers (Kitchen 2002a). In short, the benefits appear to be obvious, but getting there is no simple matter.