Sidewalks to Nowhere

All taxpayers subsidize the high costs of new suburbs. It doesn’t have to be this way.

By Rollin Stanley

On a cool November evening in 2012, a crowd of more than 100 invited guests, primarily land developers, gathered at a private venue in downtown Calgary. The host was Cal Wenzel, head of Shane Homes. From a stage in front of a big screen he proceeded to review each Calgary city council member and whether he or she was favourably disposed to suburban developers. Wenzel flung disparaging words at councillors deemed “unfavourable,” as well as at me, recently recruited to be the city’s general manager of planning, development and assessment.

The Toronto Star would later characterize the gathering as the development industry’s attempt to “thwart [mayor Naheed] Nenshi’s plans for the city by backing candidates in the upcoming municipal elections who will ‘swing our way.’

Wenzel quoted a colleague, calling me “a [unprintable] idiot, the guy is untenable…” He cited a chart I’d shown at a council meeting, wrongly interpreting it to mean just two areas would receive approval for city-provided infrastructure in the next 10–15 years. “The only nice part of this whole thing,” he said, “is that Rollin Stanley, it doesn’t matter how weird of an idea he comes with, he has to get eight votes on city council.” He added: “Unless we ensure we’ve got somebody who is business-orientated, we could be in for a long, hard haul. [We need] somebody in there that’s really going to be more on our side than the dark side….”

Unbeknownst to Wenzel, a participant secretly recorded his presentation. In the video, Wenzel emphasizes investing in the election to get the right councillors by donating the maximum now, and again in the new year. Otherwise, he said, “It’s maybe costing you a couple million dollars a year because you can’t get your land on.” He was suggesting that if city council followed my plan, some developers wouldn’t be able to get onto a much-coveted list to receive taxpayer-funded infrastructure such as water and sewer pipes, sidewalks and roads, streetlights and stop signs—in some cases, years before any houses are built adjacent.

It takes 30–35 years for a new suburb to generate enough property tax revenue, levies and utility charges to cover its initial costs.

Rumours about the confab began to circulate in late winter. Six months would pass before Global News published the story, complete with a link to the video, generating much water-cooler buzz among council members and throughout city hall.

It is worth noting that the Calgary Herald, long supported by suburban development advertising, ignored the story.

The pattern of growth that Wenzel wanted councillors to follow—approving kilometre after kilometre of curvy streets lined with thousands of single-family houses on the edges of the city—has been standard practice in Calgary for decades. It’s commonly referred to as sprawl. I sometimes joke that the de facto growth limits for Calgary seem to be the Rocky Mountains, Edmonton International Airport, Saskatoon and the US border.

Sprawl requires all taxpayers to front much of the significant costs of building infrastructure to accommodate new “edge” developments. It’s not the most cost-effective way to build a city, nor is it the most sustainable. People in older neighbourhoods pay taxes to replace aging water pipes and upgrade recreation centres, even as the property taxes from new single-family sprawl developments don’t cover the costs of the new infrastructure they require. In short: Existing property owners subsidize new development. Or, if you prefer, the inner city subsidizes sprawl. (This is especially ironic given Wenzel’s preferred councillors profess a commitment to “low taxes.”)

Growth is expensive. It costs the developer, the builder and the owners of homes and commercial properties. Different forms of growth cost more than others, however, and all generate varying amounts of revenue. Who pays and who benefits are important questions when a city is asked to front money to facilitate growth. Political leaders are elected to determine how much public money to spend, how much debt to incur and for how long property owners will be expected to pay for new growth.

Constantly choosing the most expensive form of growth—sprawl—is not in the public interest. In Calgary, successive councils have ignored their own staff’s recommendations and overwhelming evidence that sprawl saddles existing property owners with huge long-term debt, usually with no time frame for repayment. Don’t take my word for it: Ask any office-building owner if they want their property taxes to pay for more suburban growth. Ask any homeowner if they want to fork out an extra 10–15 per cent in property tax to pay for new homes and community centres in a sprawl development, when their own neighbourhood needs upgrades.

Every few years, the agreement between the City of Calgary and developers that determines who pays for infrastructure in new suburbs comes up for renewal. Suburban developers such as Shane Homes work publicly and privately to ensure the agreement dumps the bulk of the cost onto existing property owners. City staff spend thousands of hours researching best practices from cities that are better at balancing the cost. Calgary councils, over decades, have mostly ignored the guidance.

In the Nenshi years council did approve increases to the levies paid by developers to the City, though these still don’t cover the City’s full costs. Staff also developed a plan to rank suburban development proposals based on realistic build-out projections, to ensure property owners wouldn’t be financing infrastructure for lots that wouldn’t be built anytime soon. Developers were asked to provide a list of projects they wanted the city to service. Staff drafted evaluation criteria, such as potential costs to the City, whether a development fronted on existing neighbourhoods, whether it was serviced by existing infrastructure.

Staff were elated when council voted in favour of the ranking plan. There were winners and losers. Some development wasn’t going to be serviced with new infrastructure until existing subdivisions were built out. Unsurprisingly, developers weren’t happy, and they exerted pressure on council members and staff to change the plan. The logical vision—for orderly, responsible growth that minimized the tax costs to existing property owners—lasted only until it was time to renegotiate the agreement in 2018.

Sprawl advocates argue that developers contribute much of the cost of Calgary’s new infrastructure. For example, under a model that council approved in 2014 they pay more for services such as new fire stations. Yet their share of the costs is still much less than what it is elsewhere.

When Denver opened a new airport in 1995, the former airport, Stapleton, was sold to developers to create a new community. Stapleton covered 1,900 hectares, about the size of Calgary International Airport. About 8,000 homes have been built for 25,000 residents, with another 10,000 residents expected. Stapleton has 15 new schools and 372,000 m2 of commercial space. New water and sewer infrastructure in Stapleton is paid for through tax increment financing (TIF) revenue. TIF is used throughout the US by local governments to collect taxes from new development to pay down costs. In Stapleton, around US$1.3-billion has been spent so far; in 2017 alone, $82-million was generated for the TIF district. And the developer agreed to pay $37,000 per hectare for new parks and open spaces.

A special taxing district has been applied to the new development. The owner of a new house in Stapleton valued at $400,000 pays about 57 per cent more in property tax ($1,777) than the owner of a comparable home elsewhere in Denver. Owners of new houses and commercial properties pay that extra tax to cover local infrastructure, which isn’t an unreasonable expectation given that property owners in the rest of the city have been paying that way for years.

Stapleton developers must secure loans by making a persuasive case for their market projections to lending institutions—people expected to know the market and to better assess risk than a council or city staff member. Developers are on the hook for upfront costs and get repaid as they sell their product.

In 2018 I floated the Denver model to Calgary’s city manager at the time, Jeff Fielding, as city staff were reporting on revisions to the City’s servicing agreement. Developers would be responsible for the lion’s share of new subdivision costs. The City would impose a special levy on buyers, and that levy would be paid to developers to recoup their costs.

The Denver model never made it past Mr. Fielding. Not only that, in the next servicing agreement round, council reversed its prior approval for orderly suburban growth by approving 14 new subdivisions, way more growth than any reasonable projection justified. Suburban developers were thrilled. They had waited for a new city manager and council to get it overturned. The Wild West was back.

 Not only do developers pass off much of the cost of new suburbs in Calgary onto existing taxpayers, they say that if this subsidy were removed, new-house prices would skyrocket. But is this true? After all, developers set the price of the lots and control their release to the marketplace.

During a council meeting in 2014, I presented a chart highlighting the number of serviced lots and who owned them: thousands of lots and years of supply. Most of the lots were held by two large companies, who controlled when they would be sold to builders and at what price. Under this scenario, small homebuilders are left with few options but to pay higher prices. Voicing their concerns publicly runs the risk of their being shut out by the lot owners.

When large developers intentionally hold back serviced lots, this reduces the supply of new homes and drives up not only the cost to existing taxpayers to service new infrastructure debt (for infrastructure going largely unused!) but also the cost of new homes. This is what the Denver model avoids, since developers pay for infrastructure up front and are thus motivated to see as many homes built and sold as quickly as possible.

It doesn’t have to be this way. In Alberta, when land is rezoned from agricultural to residential, property taxes don’t change until dirt is moved. Our tax laws would better serve citizens if they reflected Ontario’s approach of assessing value based on what the land can be used for. If Calgary followed suit, developers might rethink their claims about the pace at which they can build. Plus, the City would collect higher property taxes sooner, speeding repayment of infrastructure debt. Assessing land for its true purpose is how property taxes are supposed to work.

A decade ago, City of Calgary staff calculated it would take 30–35 years for a new subdivision to generate enough property tax revenue, levies and utility charges to cover its initial costs. After I presented this information at Calgary’s 2012 suburban developers lobster dinner, many developers made no attempt to hide their dislike of my more equitable approach. One even took out an ad in the Calgary Herald to criticize me. Snippets of my public presentations were taken out of context to falsely portray my recommendations on growth.

To be fair, Calgary’s model for funding new development creates tension between suburban and inner-city builders. Council’s focus on pleasing the developers of sprawl can mean ignoring no-brainer inner-city projects. A Beltline condo project, for example, was cancelled in 2016 after the city determined it required hundreds of thousands of dollars in service upgrades. Had the city taken on that cost, the payback would have been about 10 years instead of the 30–35 years for development in the suburbs. And those upgrades would have allowed other, nearby properties to redevelop, further increasing City revenue.

The flipside of the argument that sprawl costs more is that inner-city development costs taxpayers less—it uses existing infrastructure to create efficiency and generate more tax revenue.

Consider an infill condo in Kensington built in 2011. The site previously had 11 houses, providing $35,400 a year in property tax. The new condo, on the same amount of land, has 114 units and generates about $275,000 per year in property tax. Or consider the 84-unit Tribeca condominium built in inner-city Mission in 2014, which has 72 m of street frontage and a tax assessment of $28.5-million. The same amount of land in the far northwest neighbourhood of Coventry Hills has seven houses, assessed at just $2.8-million.

With Coventry’s density, to get the same 84 units as Tribeca would require 1.1 km of street frontage. That’s 1.1 km of costs: garbage and recycling collection, street cleaning, school buses, fire and police protection, water, sewers, streetlights, stop signs. By adding density, condos make more efficient use of existing services—and they even pay for their own garbage pickup. They contribute more tax revenue too. From an investment perspective, it’s so much smarter for a city than 84 new single-family homes built sprawl-style in the suburbs.

Sprawl is the most expensive form of growth. Yet Calgary is servicing 27 suburbs being built, plus 14 added just three years ago.

Despite Calgary’s much ballyhooed densification during Nenshi’s mayoralty, most Calgary neighbourhoods in fact have fewer people living in them than they did 10 years ago. Smaller families and more single people have resulted in the average household size in Calgary dropping from three in 1980 to under 2.6 today. This means most of our older neighbourhoods have infrastructure capacity for more people than live there, and that the same tax pressure on the inner city is being spread across even fewer people.

Meanwhile, cities aim to get the bulk of their property taxes from higher-density downtown uses, mostly office buildings. Calgary’s currently high office vacancy rate, a trend that started well before the COVID-19 pandemic, has led to tax readjustments and dramatically decreased public revenues. This is just one more reason for council to re-examine how it currently distributes costs among Calgarians.

If politicians would think about development on a cost–benefit basis, like a developer does, taxpayers would get a better deal. For example, the vast surface parking and other underutilized and vacant land in the inner city should make up a greater share of future growth. While service upgrades might be needed, many of Calgary’s utilities are reaching their “best by” date anyway.

In 2013 I had City planning staff model possible development on surplus school lands, sites in older neighbourhoods set aside by developers years ago for schools that are no longer needed. Dozens of these sites exist, prime for infill development. That plan too never made it past city manager Jeff Fielding.

In Edmonton, provincial legislation approved a decade ago opened several surplus school sites for affordable housing. Calgary would benefit from similar legislative changes to permit surplus sites to be used for affordable units mixed with market-rate housing, offsetting the costs for the affordable units. Beyond the economics, mixing incomes can also create diverse and balanced communities, which are harder to create in new suburbs.

In 2014 council mandated that new public buildings should be combined with other uses to offset costs. Planning staff seized on an opportunity to combine a new fire station slated for north Calgary and teamed the fire department with an affordable housing provider. Local political pressure killed the project.

Inner-city developers and affordable housing providers have been frustrated with the challenges of acquiring surplus City property. In 2016 I floated a proposal to restructure the process for identifying and selling surplus City land, modelled after innovations in Ontario and the City of Toronto. The plan included an idea from a downtown office property owner to create a real estate investment trust (REIT) to leverage City property to generate revenue. This effort also died in the city manager’s office.

Council has agreed to service the 27 new subdivisions already being built in Calgary, plus the 14 added just three years ago. These 41 new subdivisions provide enough capacity to fill demand for new single-family homes to at least 2032 and multi-unit homes to 2036.

In the latest servicing agreement negotiations last November, suburban developers presented their wish list for another 11 new subdivisions. These—e.g., Ricardo Ranch, Rangeview, Keystone Hills—came with an estimated annual operating cost to the City of $18-million. For the first time in memory, council turned down the developers’ request. It seems that for many members a light had clicked on, and they finally realized that the cumulative weight on the public purse of a new arena, convention centre and so much new sprawl, combined with the decrease in city revenue connected with downtown office vacancies, was unsustainable. Or, with less than a year until the next election, they didn’t want to be a council known for raising property taxes on residential homeowners to make up the shortfall.

Calgarians will likely continue to subsidize sprawl far from the city core. Cal Wenzel was named one of Alberta’s 50 most influential people in 2014. Alberta’s UCP government in 2020 changed electoral finance laws to make it even easier for developers to influence municipal elections. And even as it shot down the 11 proposed suburbs in late 2020, council invited developers to return in 2022 to make their case for the new developments.

Healthy public finances in Calgary are ultimately tied to the city’s older neighbourhoods and downtown, not to its far-flung suburbs. The inner city, with its corporate headquarters, vast potential for redevelopment, small businesses and diversity of dense, thriving neighbourhoods, remains the key to long-term financial stability. More sprawl will invite the opposite. 

Rollin Stanley is a former chief planner of Calgary. Before that, he led planning in the Maryland suburbs of Washington, D.C., and was head planner for St. Louis.

RELATED POSTS

Sidewalks to Nowhere

On a cool November evening in 2012, a crowd of more than 100 invited guests, primarily land developers, gathered at a private venue in downtown Calgary. The host was Cal Wenzel, head of Shane Homes. From a stage in front of a big screen he proceeded to review each Calgary ...

Alberta’s Tiniest Town

A thirty something man climbs out of his car, careful not to damage the interior with the tiny metal blades on his heels. Wearing chaps and cowboy boots in addition to the spurs, he saunters over to the post office, passing the café next door to it. he is a ...

A Wave of Change

It could be a fairytale. Or the beginning of a political revolution. A centre-left 38-year-old neophyte on a shoestring budget takes on a well-moneyed conservative establishment. The newspapers and television networks give him little hope and pay even less attention, so he relies on social media to get his message ...