Three items on the Built and Natural Environment Committee on Monday are likely to pose a dilemma for the committee and the council as a whole. They all deal with the current council’s favourite theme: growth, growth growth.
The first is a consent item (#11) which provides a report on building activity in the city of London to the end of August 2011.
The only encouraging part of this report is that the construction value of all projects for which building permits were obtained in the first eight months of the year was up by 6%. Other indicators were in the opposite direction. Especially telling was the decrease in permits issued for residential units. This was down by 42%. So far this year only 524 building permits have been issued for single family detached homes in contrast to 828 such units last year. Home renovations too, in the wake of the loss of the federal tax credit program, are down and so is the number of multi-residential units being built. All in all, not a rosy picture for a council hoping to freeze taxes by using increased revenues from assessment growth.
The second item (#14) addresses the step before you get to before issuing the building permits: readying the land for development. This is an expensive undertaking, putting all that infrastructure—watermains, sanitary sewers, storm sewers, as well as roads, bicycle lanes and sidewalk—in the ground. And the further on the periphery the potential lots are, the more expensive the project. How to pay for it all, especially when it may take years before the homes that will pay for it are built and purchased? Where does the upfront money come from?
This is where the reserve funds come in. As development charges are paid when building permits are issued, these are allocated to the City Services Reserve Fund (CSRF) and, for smaller projects, to the Urban Works Reserve Fund. The CSRF is subject to the budget process. If there isn’t enough money in it to cover all the projects you have in mind, then you will have to postpone some things or take on additional debt which will have to be repaid from taxpayers’ pockets. And, given that some projects don’t provide any development charges revenue, industrial development for example, it’s not easy to maintain the cash flow.
To maintain some kind of balance between paying for servicing of land and the actual monies coming in from development in the form of building permits and house sales, council adopted a Growth Management Implementation Strategy (GMIS) which ensures that there is not too much disparity between the money coming in and going out for new development. Projects are scheduled over a 20 year period that takes into account the cost of the work as well as the anticipated population growth which affects the demand for more housing.
On tonight’s agenda for BNEC is an update on the accuracy of the growth projections. It should come as no surprise to anyone who has been paying attention that actual uptake on housing in the form of building permits has fallen short of the mark. Based on past history, the planning department had originally projected population increases at 1% resulting in potential construction of 1,270 new homes. But the latest figures suggest that 1,000 may be as much as we can anticipate.
For the coming year, things look not too bad, even promising. That’s because expenditures in some years are relatively light because the bills don’t come in until the following year. In 2011 there were many development applications, resulting in some 900 potential additional lots at a time when demand is falling. Also over the past year, there has been significant infill construction in the form of townhouses and apartments. These add to the availability of choice in housing but don’t require additional servicing; the infrastructure is already there.
But from 2013 on, the cost of servicing is likely to significantly outpace demand for new housing. So we have a situation in which we will have an oversupply of lots, well in excess of the Provincial Policy Statement guideline which requires a two-year supply, and a shortfall in the revenue department.
From 2009 to 2011, the city spent nearly $100M on servicing development but received less than $64M from development charges. A few more years like that will result in significant increases in debt financing. Already, the shortfall in the reserve fund is more than $40M. Add to that the unpaid claims from the Urban Works Reserve Fund (UWRF) and you’re talking about a debt that exceeds $100M right now. For a refresher course on the UWRF, see Where the rubber hits the road.
The beauty of the GMIS is that it provides information to council about what is happening in the development of land and its uptake as well as ensuring that council understands what is happening to its financial picture prior to developing a new budget. That allows council to make timely decisions about its servicing plan, whether to increase servicing or to defer some projects.
Staff has provided the committee with three options to consider: 1. Stick with the general servicing plan but consider phasing in projects especially in areas outside the urban growth boundary where actual development won’t happen for a long time; 2. Delay some planned major projects which means some areas won’t be built out right away; 3. Service areas that are attracting developer interest and let the debt mount.
Staff is recommending the first option, sticking with the plan but keeping an eye out for projects that are ready to go and which build on existing infrastructure rather than opening up a lot of new areas. It’s a message that is not likely to be popular with a committee and council and mayor that only months ago spoke of 2.5% assessment growth and identified major growth projects not even on the current schedule.
It’s also not likely to be favoured by the development community. The very next item on the agenda (#15) is a request from Sifton that council let its subdivision in Old Victoria to progress ahead of its scheduled time of 2015, and well ahead of other scheduled works and subdivisions already in the GMIS.
But then, it wouldn’t be the first time that the committee or the council contradicted itself in its recommendations and decisions.
Unless you don’t believe that a levy is a tax.
Ontario Municipal Board (OMB) Update
I am happy to report that the OMB supported the decision of the previous council that required owners of 1 to 4 rental units in a building to take out a license, to register their properties, and to meet specific building codes. The challenge to council’s by-law was made by the London Property Managers Association (LMPA) represented by Joe Hoffer, formerly chair of the Polices Services Board. The result of this ruling will be better maintained and safer housing for tenants and improved property values in the neighbourhoods where the units exist. A more detailed account of the issue can be found in a previous blog, Landlord licensing.