Special Report: Light Rail

The Cost of LRT Uncertainty

By prolonging the uncertainty over its outcome, the LRT opponents are playing political games with millions of dollars in foregone tax revenue. They are costing the residents of Hamilton access to new businesses, jobs and investments.

By Nicholas Kevlahan
Published October 12, 2016

The next time an LRT opponent talks about potential risks of a $1 billion provincial investment in Hamilton's Light Rail Transit (LRT) project and infrastructure upgrades, think about the real risks of losing a $1 billion provincial investment in LRT and infrastructure upgrades.

Those few City Councillors and residents who are desperately trying to nurture uncertainty about whether LRT will actually go ahead are costing the City and property owners real money right now. And the cost will only increase if they manage to keep the confusion going for the next few years.

Evidence from other cities shows that LRT significantly increases property values along the transit corridor. As long-term owners of under-utilized buildings sell to new owners with real business plans, the ownership also shifts to people who will actually invest and create jobs, rather than sit on empty buildings.

As property prices rise, the City collects more money in taxes. As new owners build new buildings and renovate old ones, this also increases tax revenue for the city. This means people in other parts of the city are under less pressure to see their taxes increase.

Project Needs Certainty

The catch is that this virtuous cycle of investment and property value increases only starts once investors and owners are sure that the LRT project will definitely happen. As developer Darko Vranich wrote earlier this year:

[I]it is very hard for any private sector person investing in Hamilton such as myself to understand why some on Council is contemplating turning their backs on $1 billion in provincial investment in our City.

Be assured that many developers, myself included, are watching the LRT initiative very closely.

Likewise, the Hamilton-Halton Home Builders Association (HHHBA) also expressed deep concern about the prospect that Council might turn down the money:

As the City invests in its downtown, as it has with incentive programs to bring residential and [industrial, commercial and institutional] development to the downtown CIPA, waterfront, Barton/Tiffany and other areas, we must look at opportunities to further facilitate that development.

The province's complete investment of over $1 Billion dollars is a gift to the City, one the City lobbied for and worked hard to achieve. It is shocking that an injection of this type of investment by others into the City would be reconsidered or potentially turned down.

LiUNA Local 837, which recently broke ground on a new purpose-built student apartment building on James North, also warns that rejecting LRT would be disastrous:

LiUNA has been following with dread the ongoing battles of City Council about the project's merits. We are reminded once again that City Council repeatedly chooses to over-debate matters, often to the misfortune of the hard working tax payers of this city.

By prolonging the uncertainty over its outcome, the LRT opponents are playing political games with millions of dollars in foregone tax revenue. They are costing the residents of Hamilton access to new businesses, jobs and investments.

The sooner the uncertainty ends, the sooner we will start seeing the economic benefit of LRT, even before the line is complete!

West Harbour Redevelopment

At the same time as Councillors Chad Collins, Donna Skelly and Terry Whitehead are trying to destroy the certainty that LRT will actually happen, the City is in the process of trying to put together its biggest real estate deal in recent memory.

It's been touted as a game changer — a project that could change the character of the whole North End. Now the city hopes to put the development of all nine blocks of its waterfront project into the hands of one company.

The city hopes to attract one developer — or consortium of developers — to build all nine blocks of condos and retail space on Piers 7 and 8 in the west harbour.

Portraying the city as a reliable partner will be essential to finding a good developer, and this particular development will clearly be more valuable if the LRT to the waterfront is built.

The anti-LRT faction on Council is actively working to ensure that the City generates less revenue from this project - if it even goes ahead at all in the face of a retreat from LRT - and they are doing real damage to the city's reputation as a reliable development partner that will stick to a plan.

This is yet another way that nurturing uncertainty about LRT will cost residents money and investment long before the line is actually completed: the City aims to negotiate with the developer "finalists" in early 2018 ... the year Collins pitched for his proposed LRT referendum!

Transit-Oriented Developments

The mixed-use, mixed-income 20-storey building the City is proposing to build with private partners on York at Caroline is a good example of how increased land values generated by LRT can lead to more affordable housing.

This site is currently occupied by a small two-storey building with no residences. The City is working on more of these proposals to make better use of land owned by the city (e.g. parking lots). However, these mixed-income projects only make sense if the land value is high enough and if there is demand from people will to pay market prices.

Ironically, Collins actually has the audacity to push the advantage of being close to transit:

"Being on a major bus route, on the edge of the downtown, it just seemed like an obvious opportunity to test what resources we can squeeze out of the private sector," said Collins, who also chairs the board of CityHousing Hamilton. "For a city that is land-rich but cash-poor, this is an obvious opportunity to explore."

Yet he neglects to mention that the proposed project would also be just a couple of blocks from the proposed LRT line, and it is the LRT line that would be needed to increase land values to the extent that the project is viable.

Affordable Housing

The uplift potential for the entire LRT corridor is extremely positive. That corridor includes many properties which are currently either vacant lots, vacant buildings, or buildings that have been left empty above the street level for decades. This was pointed out last year during the Downtown Renewal Jane's Walk and represents an exciting opportunity to make much more productive use of these properties.

Aerial view of surface parking in downtown Hamilton (Image Credit: Anita Thomas)
Aerial view of surface parking in downtown Hamilton (Image Credit: Anita Thomas)

At present, the corridor is providing far less accommodation and business opportunities than it should. Many of the multi-purpose buildings are largely empty. For a city with a housing shortage, this is a deplorable state of affairs.

Increasing the supply and variety of rental and purchase accommodation is a much better housing strategy than making it easy and cheap for property owners to keep buildings vacant and derelict.

The rising property taxes that accompany increased development and value will be a challenge for some, but remember that taxes only increase if there is a real increase in the value of the property.

The City can respond to this by investing some of the increased tax revenue on additional social housing, as well as implementing inclusionary zoning to guarantee that new developments include affordable units.

The worst policy would be to keep Hamilton poor and economically under-performing. Not only would this take away policy levers the City can use to provide more affordable housing, it would also relegate the existing cheap housing to continue degrading until it is no longer inhabitable and falls off the market.

Nicholas Kevlahan was born and raised in Vancouver, and then spent eight years in England and France before returning to Canada in 1998. He has been a Hamiltonian since then, and is a strong believer in the potential of this city. Although he spends most of his time as a mathematician, he is also a passionate amateur urbanist and a fan of good design. You can often spot him strolling the streets of the downtown, shopping at the Market. Nicholas is the spokesperson for Hamilton Light Rail.

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By Suburbanite (anonymous) | Posted October 12, 2016 at 09:54:24

I wonder if that is some councillor's end game? - Question the certainty of LRT in order to keep values low right now while purchase negotiations are going on, in some cases, with major election campaign contributors. Take the area from RHVP to Centennial for example. It's currently going under a major rezoning via the Centennial Neighbourhood Secondary Plan for higher density. If rezoned now and purchased by developers, the land values are likely lower than they would be had the LRT gone all the way to Eastgate (and current owners likely have lower assessed values/taxes). With the uncertainty, are we, the taxpayer, missing out on more than what has been pointed out in the core?

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By stone (registered) | Posted October 12, 2016 at 09:54:25

It's almost deliciously ironic that LiUNA donated money to Skelly's campaign.

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By Suburbanite (anonymous) | Posted October 12, 2016 at 10:22:24 in reply to Comment 120258

My point exactly. How much land will be undervalued, and purchased or owned by them, while Skelly is the ringleader of the uncertainty over the next couple of years?

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By Ryan (registered) - website | Posted October 12, 2016 at 10:37:35 in reply to Comment 120259

Since LiUNA is actually putting skin in the game now, they are likely experiencing some buyer's remorse for having supported a candidate who claimed to be pro-business before actively trying to sabotage the city's economic recovery.

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By kevlahan (registered) | Posted October 12, 2016 at 10:52:34 in reply to Comment 120260

Skelly did not mention LRT at all in her platform "Seven goals for ward 7":

  • Enhance infrastructure
  • Expand Seniors services
  • Increase access to affordable housing
  • Attract investment to Hamilton that creates jobs and expands the commercial (business) tax base
  • Improve transportation routes
  • Promote Arts and Culture
  • Get things done!

She also didn't mention LRT in her Hamiltonian interview, or at various public forums leading up to the by-election:

http://www.thehamiltonian.net/2016/01/7-...

https://www.thepublicrecord.ca/2016/03/t...

No one could look at this list of priorities and guess that Skelly would make opposition to LRT the signature priority of her first year as Councillor!

In fact, these goals would seem to be completely consistent with supporting an LRT project already funded by the Province and that Council had steadfastly pursued for eight years. After all, LRT "enhances infrastructure" (at no cost to the city), improves transportation routes, and opposing LRT is the opposite of "getting things done" (it is obstructing things).

Comment edited by kevlahan on 2016-10-12 10:55:35

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By JPDanko (registered) - website | Posted October 12, 2016 at 13:24:21

There is also the argument that developers are already investing in the lower city so we don't need to waste $1B in public money since growth is already happening.

(Intentionally ignoring the reasons developers are suddenly interested in lower city development - but that's not really the point).

Seems like a backwards way of thinking to me - if I'm trying to roll a stone down a hill I want to get that sucker moving as quickly as possible - but I've heard this argument many times and its a mindset that should be addressed.

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By kevlahan (registered) | Posted October 12, 2016 at 14:01:54 in reply to Comment 120262

The investment is still very small scale, very limited geographically, and some was already motivated by LRT. Very little is happening east of Wellington, or even east of John.

Few new builds have been completed (most is lower cost renovation). This recovery is still in the early stages and would obviously be negatively impacted by the city refusing a $1 billion infrastructure investment. And don't forget that this recovery is due in large part to efforts by the city to kick-start development again downtown: the residential loan program, property tax forgiveness etc.

The other point is that if the corridor achieves the sorts of densities and economic vitality we want it to, it will mean tens of thousands of new residents and tens of thousands of new jobs from McMaster to Queenston Traffic Circle.

There is just not enough road space for all these residents and workers to drive everywhere and regular buses will not be enough: we would need to build rapid transit (i.e. LRT) to handle to volumes.

Saying we don't need LRT is really saying we will not reach the densities in jobs and residents that we claim to be planning for. In other words, it is designing for failure.

Comment edited by kevlahan on 2016-10-12 14:59:13

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By Suburbanite (anonymous) | Posted October 13, 2016 at 09:13:13 in reply to Comment 120263

Nicholas et al, are you of the opinion that we should continue to allow the Development Charge exemptions in the core even with the $1B investment of LRT? Recovering only 25% of our long term capital costs and operating costs for additional services for those residences and commercial units seems to me to be an additional burden to the existing taxpayers down the road (in light of the $1B investment). In other words, is the recovery at a point where we can charge a larger portion so that expenses related to transit, libraries, rec centres etc can be fully or partially covered by DC revenues rather than through increased property taxes?

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By kevlahan (registered) | Posted October 13, 2016 at 10:32:17 in reply to Comment 120266

I agree with Ryan, that rather than giving explicit discounts to a certain area (or implicit discounts to greenfield development) the city should try to work out the actual cost of any net increase in services for a project and charge that actual cost. Obviously, some costs should be shared across the city, but many are clearly net new costs.

One of the big obstacles to higher density is that multi-resident buildings pay a per unit cost not much cheaper than individual houses whereas the actual increased service cost does not scale with the number of residences in a building.

https://d3fpllf1m7bbt3.cloudfront.net/si...

A 1 bedroom apartment pays $17.4k, a 2 bedroom apartment pays $24.1k, townhouses and other multi-unit developments pay $28.2 while a single detached house (usually on a greenfield development) pays only $36.1k. It is obviously not true that a detached house on a greenfield costs only $8k in additional services than a townhouse or condo in a dense infill building in the urban core.

So rationalizing DCs for multi-resident buildings, and setting DCs based on the type and location of development (e.g. single house in a greenfield should be much higher than an apartment in an urbanized area) is the way to go.

One flagrant example that we discovered in the Durand is that urban infill development have to pay a special parkland dedication fee which can only be spent on new parkland (not improving existing parks). That means this money can't even be spent to improve parks that the new residents would be likely to use. On the other hand, greenfield developments can donate land for parks. This donated land often works out to be much cheaper than the fees (since the land was often purchased when it was zoned agricultural) and is directly used by the new residents. There are lots of other examples of urban infill subsidizing greenfields.

I also went to Pamela Blais's talk and she has done excellent analysis showing how much more economical dense infill is for cities compared to greenfield development. We could be changing how we levy development charges right now.

Comment edited by kevlahan on 2016-10-13 10:39:21

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By Suburbanite (anonymous) | Posted October 13, 2016 at 11:28:49 in reply to Comment 120268

This is why I previously stated I agree, for the most part. I was comparing developments within our urban boundary - ie Ward 1 vs Ward 5. Greenfield is a whole other issue that perhaps "area rating" should apply.
And although the differences between a SF home vs an apt building appear to be out of whack, the individual DC charges per unit actually make sense since most of those costs are incurred because of # of people. More people=more water. More people/drivers=more cars on the roads. More people=(hopefully)more transit. Larger footprint = more stormwater runoff. The $ value to PW for snow removal, waste pick-up etc is negligible in the total DC charge.
I also totally agree on the insanity of the parkland dedication. We ran into the same thing in our area.

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By kevlahan (registered) | Posted October 13, 2016 at 19:03:27 in reply to Comment 120270

Once it is clear that incentives are no longer necessary to make downtown developments economically viable they could be eliminated. The incentive boundaries could be shifted further east or, even better, we could move to a "true cost" DC model.

One of Pamela Blais's findings was that many costs of development do not increase proportional to number of residents, but are much cheaper per resident for denser developments.

For example, compare a 200 unit condo building housing 300 people with 100 detached houses housing the same number.

Clearly, the 100 houses will have a much larger footprint (about 30 to 50 times larger not counting access roads) than the condo, so 30 to 50 times more runoff to the sewers.

The 100 houses will require at least 1 lane km of access road at 10m per house (with associated sidewalks, lights extra utility runs). The infill condo building doesn't require anything extra.

But a 200 unit condo could generate as much tax revenue as 200 houses, if they have equivalent property values. They could generate much more if they were rental apartments with a similar value.

In fact, multi-residential buildings (i.e. rental apartment buildings) are taxed at a much higher rate (3.35%) than residential, which includes condos (1.34%). This is obviously unfair, given the lower load multi-residential places on services, but it does show that those resident living in multi-residential units are often paying far more per resident than those living in detached houses.

Because of the unfairness of taxing rental apartment buildings so highly, there is a move to lower the rate to the overall residential rate:

https://d3fpllf1m7bbt3.cloudfront.net/si...

And as you mentioned, more density means that transit and local shops and services are viable so people will drive less.

Comment edited by kevlahan on 2016-10-13 19:05:39

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By Ryan (registered) - website | Posted October 13, 2016 at 10:09:03 in reply to Comment 120266

I'd rather see us move to a system in which development charges accurately reflect the cost of development, rather than the blunt instrument currently in place. Last year, Pamela Blais explained how that could work using policy tools that Ontario municipalities already have to work with.

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By Suburbanite (anonymous) | Posted October 13, 2016 at 10:34:09 in reply to Comment 120267

Agree (for the most part). But in the meantime, should we be collecting 25% less from these developments to put towards for example the upgrades to the Woodward Water Treatment Facility, than we are collecting from a similar development located within a few kms of that facility? Maybe we're going to be missing out on millions of $'s if we're at the point where the DC exemption has already served its purpose. Maybe too, the cost recovery period for other upgrades as a result of LRT would be dramatically reduced benefiting city-wide taxpayers.

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By Suburbanite (anonymous) | Posted October 13, 2016 at 19:54:26

I think we might be overlapping 2 different things. I agree that property taxes, after the build, are disproportionate. The whole fair market value assessment isn't fair and the fact that re-sales of properties trigger higher assessments only compounds the issue.

However, it is more the Development Charges that I'm starting to question. Specifically the exemptions provided currently. The developer is provided with an exemption (75%) yet we still need those funds for reserves to accommodate projects related to the growth. Therefore, the 75% is currently coming out of our Future Fund Dividends on an annual basis and put into DC Reserves. ($3 million at last look)

With the investment of the $1B and the renaissance of our core, perhaps we should be reviewing using our dividends in this fashion. Maybe towards enhanced transit to feed the LRT?

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By JPDanko (registered) - website | Posted October 14, 2016 at 10:15:21 in reply to Comment 120272

I think you're exactly right - part of the perception problem LRT has is that there is no defined plan for the projected tax revenues. The argument is that development will fuel tax revenue but I think that a defined plan for a threshold where downtown development charge exemptions would be eliminated and how the projected revenue would be allocated would go a long way towards selling the project. Dedicated funds for enhanced transit (BLAST) and the A-line - anything that is a direct benefit to Wards that are not along the corridor - would be helpful. (We all know that this is inherently the plan - but it would help to spell it out).

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