Part 2: Up or Out: Through the Lens of a Developer

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mC:t    2015.04.27    #makecalgarytalk

 

In a perfect world, developers and the City are aligned and working efficiently to build and grow the city. Public infrastructure is paid for through taxes and other forms of government revenue, while private infrastructure is paid for by developers with the cost being passed on to homebuyers. This is often described as “he who benefits, pays”. Simple. Easy. All good. So how did Calgary get so confused on this equation?

It turns out that it just isn’t that straightforward. What is public infrastructure? What is private? How can you determine who benefits? These are some of the questions that the City and developers seem to answer differently. To use more specific examples: new communities require service extensions and tend to use public infrastructure such as roads more than there inner-city counterparts- does this mean that suburban residents should pay higher property taxes? This is a slippery slope. If an inner-city resident uses the Riverwalk Pathway system more than a suburban resident, does this not mean they should also be paying for that benefit? These examples aren’t perfect but begin to paint the picture.

Most of the costs borne by developers are passed on to the homebuyer in some form or another. Developers, like any other business, need to have confidence they can make a certain amount of profit on a project in order to proceed. If that profit isn’t realistic, they will take their business (and investment) elsewhere. In a country (and world) where cities are competing to attract residents, this is more important than ever. Calgary must remain a competitive city for developers to operate in. This means that the City must consciously limit the costs passed on to developers because that will have an impact on the final price of the home which buyers may be comparing to other cities when looking for a place to settle.

While a city must remain competitive for developers, it must also remain competitive in terms of the affordability of housing. This is the most common argument made by developers in favour of new communities. Calgary has been Canada’s fastest growing major city over the past decade. While an increase in supply should meet this high demand and balance out prices, the reality is community building and homebuilding takes time and resources, both of which can act to restrict supply and put inflationary pressure on housing prices. Calgary has been in this situation for the last five years. While it is difficult for the City to influence the availability of tradesmen in Calgary, one area the City could help is approvals and entitlements. Developers contend that a faster approvals timeline, specifically for new communities, would allow them to manage lots more appropriately and relieve some of the pressure that has been put on prices over the past decade. While this is true, it doesn’t address the core issue of where development should happen. Faster approvals for inner-city projects, for example, could alleviate pressure on prices just as much as fast approvals in new communities. I would argue the City should be doing both, which would help keep prices down by providing supply while still allowing the consumer a wide choice of product. In a growth oriented market like Calgary, maintaining affordability and ensuring the average home price is proportionate to the average income is crucial.

In Calgary, developers are represented by the Calgary chapter of the Urban Development Institute (UDI). UDI serves as a collective voice for the development industry on matters relating to the economy, city policy, implementation, politics, etc. Traditionally in Calgary major developers have operated in the new communities markets- that is, Greenfield development. This is changing, however. So long as policy and regulation does not interfere, development will follow the market, and Calgary is no different. Calgary has experienced much higher than anticipated growth rates in the inner-city compared to new communities in three consecutive years. This trend is much more to do with demographics and consumer preference than anything the City has implemented policy-wise. This is a positive and sustainable sign. As Calgary grows closer to adulthood, this type of infill development will prove to be profitable and desirable. Developers will naturally gravitate towards these markets if that is where a profit is to be made. So, as private industry often argues, so long as government stays out of it we should be alright.

All of this analysis of the Calgary development scene is predicated on the fact that it is a growth-oriented city. With recent economic concerns surrounding the price of oil, that is not a guarantee in the short-term. From a city-building perspective, this is not the worst news. A little bit time for Calgary to catch its breath could go a long way. Allowing supply to catch up to demand should keep prices stagnant for at least a year, which will help young families and new Calgarians. But there is little doubt there will once again be a boom in this City. And how Calgary reacts and manages the next boom will be crucial to the city’s transition into adulthood.

 

 

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