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Bad Pricing, Bad Behaviour in City Building

Because the old city is effectively subsidizing new suburban development, we end up promoting a form of growth that has a higher cost to the city as compared to inner city development and a significant negative impact on the environment.

By Gregory Ciupka
Published December 01, 2015

Dr. Pamela Blais, urban planner and author of the book Perverse Cities, addressed a standing room only crowd at Mills Hardware last week, explaining "wonky" pricing at an event titled, Shift: Changing Direction in City Building and hosted by the Useful Knowledge Society.


Full video recording of the event by The Public Record

According to this highly respected individual, the city calculates development and on going property taxes based on a citywide average per unit. As a result, a home in the lower city is assessed a similar level of property tax to a home built deep in a southern suburb.

According to Dr. Blais, the actual cost of providing services to the suburban home is approximately three times that of a similar home in what we might call an established downtown or inner city. This is due in part to the relative distance of the suburban home from the heart of the city and related services.

In order to support a distant new survey, many kilometres of roads and other infrastructure are required. This amounts to huge costs which are not fairly assessed on the suburban homes.

I first noticed this pricing wonkiness when we moved into a 21-unit residential condominium in the city. The building sat on a lot similar in size to lots of nearby individual homes, but the taxes assessed were about 21 times as high, since there were 21 units.

Thinking about the length of pipe needed to service a single property compared to 21 properties or making one garbage pick up instead of 21, or the length of road to reach one property instead of 21, it would seem that the cost of delivery would be significantly lower for the more densely populated structure.

But this efficiency was not reflected in the tax assessment, which is calculated based on "market value".

The result of this mis-pricing, in addition to inequitable allocation of costs, is the promotion of suburban sprawl. Because the old city is effectively subsidizing new suburban development, we end up promoting a form of growth that has a higher cost to the city as compared to inner city development and a significant negative impact on the environment.

In essence, we provide a financial reward for development that is less sustainable. This is what Dr Blais referred to as "wonky" pricing.

According to Dr. Blais, if we want to encourage better development behaviour, we need to improve the cost allocation of development charges and on going property taxes.

This would require reducing property taxes in established neighbourhoods and significantly increasing assessments on properties further from the downtown city cores (including Ancaster, Dundas, Flamborough, Stoney Creek and Hamilton).

At the same time, we need to recognize the efficiency of density. It costs less to service a multi-story building, and property tax assessments need to reflect this reality.

Is it OK to overcharge downtown city dwellers? Is it OK to overcharge apartment and townhouse developments? Do suburban and single family homeowners realize they are enjoying deep discounts on city services on the backs of their more established neighbours?

And finally, will City Council have the fortitude to do the right thing?

Gregory Ciupka was born and raised in Toronto, but has been firmly rooted in Hamilton for the past 20 years. He enjoys our spectacular road cycling and finds it doesn't get any better than riding Wilson, Mineral Springs, Sydenham, Snake and King.

30 Comments

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By Carole (anonymous) | Posted December 01, 2015 at 08:00:25

Well said Gregory!

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By kevlahan (registered) | Posted December 01, 2015 at 09:35:47

Even more important is that the development charges are also calculated on a per unit basis based on the average cost over the city, rather than a per land area basis, or at a steeply discounted value based on density. This discourages density.

Interestingly, Pamela Blais pointed out that Ontario municipalities already have the tools to impose development charges in a way that expresses the true costs of green field and infill development or low and high density development. Markham and Kitchener-Waterloo are already doing this and Hamilton could too.

Another point is that wastewater is charged proportional to consumption of tap water. This is a huge subsidy to surface parking lots and low density developments which don't have to pay for all the rainwater they dump into the sewers (that must be treated and must have a system large enough to handle it). Staff has proposed that Hamilton charge for wastewater partly on impermeable area, as many other municipalities do, but this recommendation was rejected once again by council in October.

Comment edited by kevlahan on 2015-12-01 09:36:52

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By jorvay (registered) | Posted December 01, 2015 at 10:08:24

I always get a kick out of those that suggest that public transit should be a fee-for-use service, without understanding the implications of that same tax model on the municipal infrastructure and services that might be more relevant to them.

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By kevlahan (registered) | Posted December 01, 2015 at 10:28:11 in reply to Comment 115259

I guess the idea is that since the municipal streets are free to use for motorists (paid out of property taxes), transit should be free to use as well.

The system we have now means that non-drivers are subsidizing drivers, similarly for free parking. A true market driven solution would charge everyone according to marginal cost. For example, non-drivers would pay for the roads necessary for delivering goods and services via the road charges built into the price they pay for those goods and services (which would theoretically lead to more efficient goods transport).

But we are very far from a market-driven solution for roads and there are other societal considerations that mean it is better for some services to be paid out of general taxes (e.g. libraries or schools), e.g. positive externalities that mean everyone benefits not just the direct consumer.

It is not obvious the best way to charge for various municipal services: general taxes, per service user fees on an annual basis, or a per use fee.

Comment edited by kevlahan on 2015-12-01 10:28:34

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By jorvay (registered) | Posted December 01, 2015 at 13:44:06 in reply to Comment 115260

I should probably clarify: I'm with you 100%. What I was trying to convey is that I find it funny that the same people that want transit users to pay the full cost of transit through fees would be screaming bloody murder if you told them they had to do the same for other municipally-managed infrastructure and services. I actually think there's a lot of potential for free/almost free transit. After all, if we're going to subsidize anything, we should start with desirable behaviours.

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By Pxtl (registered) - website | Posted December 01, 2015 at 10:47:52 in reply to Comment 115260

Yes, but motorists do pay gas taxes. Now, we can argue that those gas taxes are insufficient (particularly when you look at climate change) and they aren't allocated properly but they are a user-fee for driving.

Personally I like user fees. Let people pay for the services they use. If low-income people don't have enough money for the services they use, that's when it's time to look at restructuring the tax code and mincome supports and the like, rather than selectively and inconsistently giving away services below their value.

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By Suburbanite (anonymous) | Posted December 01, 2015 at 10:59:28

These types of divisive articles need to stop. We witness enough of this around Council's table. While I respect everyone has an opinion, and some of the points made in this article are valid (such as apartments/condos), we do not have any specific data to support this perception that the actual cost of providing services to the suburban home is 3x that for the downtown or inner city.
We cannot use Halifax numbers to validate this perception and to suggests costs are based on length of roads or pipes to those homes is too simplistic. Those same roads, in many cases, are used to dispatch garbage trucks/snow plows from the suburbs to the downtown. The lands in the suburbs are used for many public works and transit facilities in order to bring services to the downtown. The lands in the suburbs are used for waste water/water treatment facilities from the downtown. The lands in the suburbs are used for Industrial/Business Parks to employ a vast majority of Hamiltonians. The lands outside of downtown are used to provide locally grown food and brought in to the downtown Farmer's Market. I could go on and on, but when we have not been provided with the actual cost of providing services to the downtown, I believe we should stop presuming downtown subsidizes suburbs.
And please stop suggesting we are enjoying deep discounts on city services on the backs of our more established neighbours. One only has to take a look at the number and dollar value of the Capital Projects lists in the downtown Wards to see where the emphasis of the tax money is being directed and how much of the DC's are spent on city-wide projects.
We should be respectful of the give and take between everyone's wants and needs. There's pros and cons to where we choose to live, but at the end of the day, for the most part, I'm of the opinion it balances out for all of us.

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By Gregory (registered) | Posted December 01, 2015 at 17:02:55 in reply to Comment 115263

You make an important point regarding references to urban/suburban. It is the terminology used in the presentation, but I should have made the connection that we are really only talking about density, location except for extremes is a minor factor. Providing services to one person per acre will inevitably be more than the per person cost of 1,000 persons per acre. Thank you for bringing this to my attention. If I could restate my conclusion, density needs to be reflected in the calculation of cost (DC,property tax and fees) to promote more sustainable living. In addition, I realize that the calculation of cost is complex and will require some estimates and guidelines. If it was easy, it would already be done. Thank you again. Great discussion.

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By kevlahan (registered) | Posted December 01, 2015 at 11:16:23 in reply to Comment 115263

There is certainly a good case to be made for cross-subsidization and that all residents benefit from some forms of infrastructure, but I don't think that examining the cross-subsidies, or countering mistaken impressions is divisive.

The point of Dr Blais's talk was that the perception that it is the suburbs that subsidize the urban core (as your final comments suggest) are backwards. You can't just go on impressions, you actually need to measure the costs. These studies are not some sort of anti-suburban conspiracy, they are careful attempts to evaluate the true costs of providing services to different forms of land use. A high density development in the suburbs would be better than a low density development in the core.

The economic well-being of our city depends on knowing what the costs and benefits are so we can make informed decisions.

The main point was that if cities like Hamilton are serious in promoting density (which they claim they are and must do under provincial legislation) they need to reform their development charges to promote higher instead of lower density. The current cost structure encourages greenfield development and makes infill development very expensive. But that's not what we claim we want.

It is straightforward that higher density is cheaper to service than lower density (although the actual differential varies), and Halifax gives an example of how much the difference can be. Edmonton and Peel region did similar studies and came to similar conclusions. I don't see any reason Hamilton would be very different.

And we are talking about different urbanized areas of the city: agricultural lands are protected from development and taxed at a much lower level. No one is suggesting that this is not a good principle. The question is whether our development charges and tax structure promote the types of development the city claims it wants. Note that Hamilton has still not achieved its (rather modest) 40% new development in urbanized area goal!

p.s. Here is the link to the Halifax study so you can see how they arrived at their conclusions:

http://usa.streetsblog.org/wp-content/up...

They based the calculation on these services:

Roads • Transit • Water • Wastewater & Stormwater • Solid Waste • Parks & Recreation • Libraries • Police • Fire

Comment edited by kevlahan on 2015-12-01 11:25:26

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By Suburbanite (anonymous) | Posted December 01, 2015 at 11:56:43 in reply to Comment 115264

Thank you for the link. I'm going to read the study. There's no question higher density is more sustainable and going forward represents good planning. When I read the article though, DC's aside, I read that downtown dwellers feel they are currently subsidizing the suburbs and we should be paying more now. I disagree since the author hasn't taken into account cross-subsidization (or even similar densities in downtown vs suburban areas in other parts of the city).

p.s. That's twice now I've heard Hamilton has not achieved it's 40% infill goal; yet Information Reports I've read indicate we have at least a 7 year housing supply. Do you have a study/report you could point me to that shows we haven't hit the 40% goal within the built boundary?

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By kevlahan (registered) | Posted December 01, 2015 at 12:19:07 in reply to Comment 115266

The provincially mandated minimum goal under the Places to Grow Act is that 40% of new development must occur within the urbanized area (which includes the suburbs). That's not the same thing as the actual housing supply.

Pamela Blais gave the figures for Hamilton and other municipalities, where Hamilton was in the middle (I think 37%). I couldn't find an actual city reports with the figures (but I believe they are given in the city's application to remove land from the green belt for urban development). You can watch Blais's complete presentation at:

https://www.youtube.com/watch?v=md0Bzz6H...

She also shows where residential growth and employment has been increasing (and decreasing) over the past few years which gives an indication of how the incentives/disincentives are impacting growth.

I should point out that Blais's talk was all about incentives/disencentives to development (especially development charges). She didn't say anything about annual tax rates for existing development.

Comment edited by kevlahan on 2015-12-01 12:22:36

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By KevinLove (registered) | Posted December 01, 2015 at 13:02:11

A good example of infill development that hugely subsidizes the suburbs is the current project converting the former James Street Baptist Church to condominiums. When it was a church, the property was tax-exempt. As condominiums, they pay the full tax rate.

But the key fact is that the additional infrastructure required for the project is almost zero. Roads, schools, libraries, water and other utilities, etc. is already there. In the case of roads and schools, the existing infra is currently underutilized with significant spare capacity.

So this is a huge financial gain for the city. A huge financial gain which is being used to subsidize wasteful suburban development.

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By Suburbanite (anonymous) | Posted December 01, 2015 at 13:18:35 in reply to Comment 115270

This is another example of taking a good example on the merits of high density infill development in the core and turning it into a jab against suburban residents and suburban development. One could just as easily argue that the "huge financial gain" will be used to subsidize the HPS Forensic Unit's huge suburban development which benefits all residents - Wasteful?

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By ergopepsi (registered) | Posted December 01, 2015 at 13:59:58 in reply to Comment 115271

In simple terms, you have 400' of road in the suburbs. If each lot is 50' you have 8 houses / families. Somewhere else, you have 400' of road with three low rise buildings taking up 125' each with 10 families in each building. That's 30 families per 400'.

So, a snowplow drives 400' to plow the suburban area and it has serviced 8 families. It drives 400' on the low rise block and has serviced 30 families. The same concept works for pipes, power lines, police, fire, ambulance, buses, roads you name it.

This isn't a jab - it is simple math. People living downtown on their very modest properties should be concerned that they are paying taxes at the same rate as those who are reclining on their 50 or 100' foot frontages.

Comment edited by ergopepsi on 2015-12-01 14:00:12

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By Suburbanite (anonymous) | Posted December 01, 2015 at 15:00:13 in reply to Comment 115274

With all due respect, there appears to be a huge misperception that the Hamilton suburbs is made up of 50' or 100' frontages. People in the burbs also live in very modest properties and we also have high rise, high density buildings. Look to Concession St as an example and the lot sizes on those homes around that suburban area.
For those people who do live on their wider lots, the trade off is the lack of soft infrastructure, sidewalks, bike paths, social services, vibrant neighbourhoods, etc etc. Generally also combined with higher property values. Same mill rate usually, but substantially more taxes paid.
And it isn't simply math. I'm not convinced that a downtown area say 1 mile by 1 mile square, inclusive of all the cost of services provided for that area, nets out to be 3x less than a suburban area.
I live on a 40' wide lot in an area with no bus stops, no sidewalks, close to Public Works yard, close to EMS Stations, close to water treatment plant and basically no soft infrastructure within walking distance. I pay $6,000 per year in taxes so yes, I might get a little defensive when I read articles that imply people who have chosen to live in a SF home in the suburbs are not paying their fair share or that they should be paying more.
I initially responded to this article to merely try to point out that it would be nice if we moved pass the we vs them especially considering we all agree low density development is not sustainable. Either in the suburbs or in the downtown.

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By ergopepsi (registered) | Posted December 01, 2015 at 16:30:15 in reply to Comment 115279

Ok, scratch the 'in the suburbs' and replace it with 'anywhere'. The point I was trying to make is that if the people per square foot is lower - the density - the costs of servicing them is higher.

As for taxes we now have a real world example. You have a 40' lot and pay 6K. I have a 22' lot and pay 7k! What the...! I'm not making this up. My taxes are almost as much as my mortgage. And the snowplow only has to travel half as far to service my part of the street... This is not balanced. Something is not right here.

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By kevlahan (registered) | Posted December 01, 2015 at 16:13:31 in reply to Comment 115279

The point is primarily about density, whether downtown or in the suburbs. But it also becomes increasingly expensive to service the city if it keeps expanding outwards (this is just geometry). It is also about recognizing that the multi-storey apartments/condos are huge tax generators relative to the area they take up compared to any kind of single family housing.

Part of the problem in Hamilton is also that transit (and previously other services) is area weighted so newer suburban areas with low bus service pay far less. This might seem fair, but it means that it is very difficult to actually improve bus service in the newer suburbs because the area has to pay the full cost of the increase instead of spreading it out over the entire city. And it also means that many areas in the city care little about HSR service because they don't have to pay for it and don't receive much service. Hamilton is the only municipality where different urbanized areas pay different tax rates for different services.

(By the way I also pay $6k in taxes in any area close to downtown for a house that cost $180k in 1998!)

Comment edited by kevlahan on 2015-12-01 16:14:34

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By division (anonymous) | Posted December 01, 2015 at 16:06:18 in reply to Comment 115279

The problem is, the "us versus them" viewpoint has largely been pushed by suburban councillors claiming to represent suburban citizens who are "sick and tired of subsidizing downtown".

Meanwhile the facts do not support this view. The information needs to be presented, and the fact that the built forms are physically divided makes it by nature somewhat divisive.

However the way this information is received and processed by the listener has as much to do with this as the information itself. If anyone is offended by these facts, that's a problem with their outlook, not a problem with the facts themselves.

Also, concession is not really "suburban". South of Mohawk is a different story.

Building a road from downtown to the dump is different than the cul de sacs that need to be ploughed and serviced for zero commercial or municipal traffic.

There are certainly efficiencies that work both ways but in the bigger picture, the denser core does indeed subsidize the less dense residential areas. Meanwhile, suburban councillors will not let the downtown thrive and grow in order to strengthen the commercial and residential tax base to ease the burden on the current urban dwellers.

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By RobF (registered) | Posted December 01, 2015 at 23:50:13 in reply to Comment 115284

I take your point about Concession, or the Mountain north of somewhere between Mohawk and Fennell.

In truth, density varies widely across the lower city too. The built-form is overall more compact and oriented to a grid which makes it more amenable to transit service.

We need to think about density a little more precisely: in terms of people per household, private dwellings per hectare, and people per square km. Intensification has in many ways become about a different kind of density: the amount of assessment per acre or hectare.

We need to be clear about this. You can have fewer dwelling units per hectare with larger household sizes. That increases costs, yet generates the same tax revenue as a smaller household in the same dwelling unit. This is a classic problem with secondary suites if they aren't legal. More intense usage of public infrastructure and services without paying additional taxes. Legal suites clearly do pay increased taxes for this reason. The policy question is how much should they pay?

Conversely, I'm well acquainted with population stats for most Canadian cities. Most central cities or old city areas (if amalgamated) have added many more units than people since the 1970s. In other words the trend is toward smaller households, especially one-person households, living in smaller dwelling units like rental or condo apartments. To use Toronto as an example, even after the apartment boom of the 1960s the population in the old City dropped substantially as family sizes fell in houses ... more dwelling units but less people. I think in 2011 census after a substantial condo boom downtown the old City has finally surpassed the population it had in the 1951 census of just over 700,000 (it now has approx. 730,000).

Effectively, Toronto has been building feverishly just to maintain its population ... "nice" gentrified neighbourhoods like Riverdale and the Beach have census tracts that have lost something like 20-30% of their population since 1971. The households are smaller (have fewer children and lodgers), but are richer ... no one thinks of them as being in decline, because they now have richer trade areas. Meanwhile whole communities have sprouted up in condo land along the central waterfront. The effect is to standstill in terms of overall population, but to have it less evenly distributed.

Comment edited by RobF on 2015-12-01 23:56:56

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By Huh? (anonymous) | Posted December 01, 2015 at 15:06:23

Concession St. as a suburban area?

Lack of social services?

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By Suburbanite (anonymous) | Posted December 01, 2015 at 15:19:40 in reply to Comment 115280

Isn't Ward 7 on the Mountain considered the suburbs?
Or are we using 2 different terminologies which throws all my points out the window? LOL!
The lines become blurry sometimes between what one reader thinks is "downtown/core" urban vs "suburbs" (which is still urban). Rural of course is a whole different area.
The lack of social services comment was reserved for the area I live; not Concession St. Sorry to confuse the 2.

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By Suburbanite (anonymous) | Posted December 01, 2015 at 18:15:41

I wish we could all sit in a room together and perhaps see both sides of the fence. To begin with, I stopped listening to my suburban councillor years ago. Too out of touch and doesn't represent the citizen's views. Please, please don't believe what is and has been pushed as the views of people outside downtown. We absolutely need a vibrant, walkable and safe downtown so that it can be the destination it needs to be.
With regards to our taxes, and the comparisons being made, sometimes I feel we lose sight of the fact that there is more to the breakdown than simply garbage and snow removal. (although I would prefer to actually know the distance those vehicles need to travel in to downtown and the time required vs the cost of those services to the suburbs which are located closer to the yards/dumps)
Downtown residents enjoy so much more in the way of public facilities, social services, enhanced public parks (except bocce of course), etc. due to your proximity; all of which take up land and city resources.
The trade-off for not having a rec centre or a library or city-run facilities, etc in my ward, to me, is a little less residential density. Certainly not what was the built form of the 70's and the 90's too - that's not sustainable and was a huge mistake.
And the trade-off for cul-de-sacs or less density has been developments on 6 m wide roads in close quarters to Industrial/Business Parks.
I've lived in the downtown, loved it and hope to move back. I personally do not feel it is denser than some other parts of the city. Not significantly anyways. It's just a different built form inclusive of wider roads, larger parks, schools, etc.

Comment edited by Suburbanite on 2015-12-01 18:16:15

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By mdrejhon (registered) - website | Posted December 02, 2015 at 15:08:11

Excellent discussion with excellent replies. I'm lurking, but I'm glad that everyone's replies are tactful and open-minded. We have a lot of people who will never change their mind, and just accept status quo.

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By Zoë Siskos (anonymous) | Posted December 03, 2015 at 14:03:41 in reply to Comment 115313

I was thinking the same thing as I was reading the comments. What a wonderful and healthy discussion.

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