Please explain why, or why not.

This is a follow up to my loss leader post.  You should read it before voting. 

A very quick summary is this :-

• New growth costs money.  New growth should pay for itself. However, all new growth is not same
• 1 million sq ft office complex employs 25 times as many people as an industrial compound of same size.   However, they both pay same development charge (should they?)
• Other municipalities already do this.  Development Charge in Guelph for above structure is around $3 million.  In Halton it is $17 million
• Employers don’t just cost money. They pay higher property taxes, and bring in much needed jobs and economic growth.  All this leads to higher property values and quality of life for all of us
• Business pay a much higher property tax rate (residential tax-rate is < 1%.  For Office buildings it’s ~2.25%.  Industrial it’s close to 3.5%)

So the question is, should these “high employers” (office complexes, not retail spaces) pay less development charge than other commercial constructions considering all the benefit they bring in to the community? 

Walmart, Superstore and other retailers sell hardcover books for less than the cost.  Why?  It gets people to the store.  Specifically, it is better than selling toasters or socks at a discount because it gets the right customer in the store. Customers who buy hardcover books (which is arguably a luxury item) buy other items too. 

Does your municipality have a loss leader?  Something it offers in a discount to attract desirable businesses or residents?

Click here to expand the rest of this article

Wow, that was one long title.  I’ve been on 5 hours sleep for a long time, so bear with me.

I had a very long post figured out that talked about the issue from Halton’s point of view, Mattamy’s point of view and my opinion of what was going on.  I think it got detailed enough that the main point got lost.  So I decided not to post that.

Here’s a very brief summary of the conclusion that post reached:

• I spoke with many people and the charge / tax / levy / fee is here to stay.  If you’re hit with it then you can protest to the Regional Council all you like, but it’s likely not going to help: either the Council is evil and out to get new home buyers in which case they won’t care or they are genuinely concerned about the shortfall and this is really needed to fund new growth, in which case it’s needed and won’t go away.  You can see the webcast of the meeting where the Councillors voted on the issue. I don’t think anything was left unsaid [if you are talking to a Councillor then it helps to find out who your Councillor is.  It seems like people are all talking to a single Councillor].
• So the best option is to talk to Mattamy.  Notice i said talk.  Some people said they were thinking about legal actions.  I don’t see how that would possibly help.  If anything, it will likely cost you a lot more than it’s worth.
• I was asked what I would’ve done.  I talked to five Town Councillors to really understand the Nassagewaya Tennis Club funding justification.  And that did not even directly impact me.  Those who know me well know that if I got hit with it, I’d be outside Mattamy’s sales office the very next day with posters and banners, distributing flyers to all potential home buyer, telling them how Mattamy screwed it’s home purchasers.  I would have called every media outlet telling them about protests outside Mattamy’s sales office. I would do it until they reduced the charge. I am not necessarily recommending you do this, just saying this is what I would have done. 
• If I had a lawyer who did not cap the cost for me then I would certainly get that lawyer to at least do my closing for free (that’s close to $1,000 saving right there). Capping the cost is a very standard thing and any lawyer who did not recommend the cap may have done a disservice.
• Here’s what I think people should do:
  • First, get organized and get together.  There’s power in collective bargaining (oh where have I heard this term before :)
  • Find out from your lawyer if Mattamy can pass this charge.  Rest of the points assume that they can.
  • Number of people hit with the increase who did not cap their charge is fairly small.  Mattamy may be willing to reduce it since in the greater scheme of things, it’s not a huge cost to them.  Mattamy, like any other company, is looking at the cost-benefit analysis.  Giving you guys a break costs Mattamy money. You just have to make sure that the benefit they get from it saves them money or gives them goodwill that makes it worth it. I will leave it to your imagination* to figure out how to do that (just don’t get too creative).  At least try to convince Mattamy to meet you half way
  • Once you and Mattamy have agreed on the charge that you will pay, convince them to redo the Purchase & Sales agreement to reflect the additional cost in price so it is easier to finance. An additional $5,000 mortgage (especially in this interest rate environment) will likely cost $25 / month or so.  It’s money, but not the end of the world especially considering people buying now are paying the higher price any way. 

It’s a painful situation but if you can reduce the cost to less than $20 / month, then while it will still suck, it will hurt a lot less.  People were talking about refusing to close or other drastic actions.  I would highly discourage you from going down that route.  You won’t win it. 

Good luck!  I’ll post more as I get more info.

I just thought of something.

Say development charges for new homes go up by $20,000.  Two things happen :-

1. The person buying a new house needs to get a mortgage of additional $20,000.  Their mortgage is $20K higher, so they pay higher interest
2. Since the house price goes up by $20,000 because of the additional tax (ya ya, it’s a tax), they pay higher GST!
3. Their property values are assessed $20,000 higher, so the Town / Region collects more property tax

So let me get this straight: first we hit people when they buy a house, then just because we taxed them more, we increase their property taxes. Lovely :)

A person buying a $550,000 new construction in Halton next year will pay :

• Development charges that the builder passes on
• GST [higher because of highest development charges]
• PST (both actually combined into HST)
• Ontario Land Transfer Tax [also high.  The guts of Province: first they take PST and then they also take the land transfer tax]

By the time it’s all done, the poor person purchasing a new home will end up paying over $100,000 extra just in taxes.

Sweet, sweet gravy train. 

Here is a run-down:

• The Region passed an approximately $7,888 increase in Development Charges for SDE residential construction
• Mattamy Homes passed that on to homeowners who have purchased but not closed.  Many of them got a $7,888 bill in mail
• The Region insists that it’s a fee payable by Mattamy and implies that they should not be able to pass it on to consumers.  More info in their FAQ
• Mattamy cries foul, especially since they paid millions in development charges in advance (you can think of it as an interest-free loan). Perhaps the region should not be able to back-charge if it accepts money in advance.  Their point of view is here
• But then again, Mattamy rushed through the approval of 1500 homes in 2007 and agreed to pay remaining charges when they were calculated in the 2008-2009 budget.  They took a business risk (that the increase would be low) and lost the gamble

I have been asked where I stand. I don’t know yet.  I am trying to get more info.  I sympathize with people.  I’d be pissed if I had to come up with an extra $8,000 for closing.  That’s a lot of money.  Here’s what I agree with :-

General:

• New residents pay for all development costs.  Everyone, including Mattamy, agrees with that
• It has been argued that the Region / Town could be more efficient with projects that cost DC money.  [Zeeshan says: Perhaps]
• I am personally against stealth tax.  People should know how much of their house price was due to development fees and where that money is going. They could find out if they really cared, but it would be nice if this was spelled out for them
• I want to see development charges stay in the locale they are raised from.  If residents in a subdivision that requires an underpass have higher development charges, then that’s fair.  If residents in that subdivision pay through their noses but still do not get their infrastructure, then that’s unfair.

Halton:

• Halton’s share of development charges go into a general pool and can get spent anywhere.  So Halton can take a few dozen million dollars from Mattamy home buyers in Milton and spend it on overdue projects in Burlington.  That’s where the theory breaks since this money, raised by home buyers in 2009 and 2010 in one location may not necessarily fund their growth.  By the way, I am not accusing the Region.  I am saying that it’s possible.  It should not be. 
• I also agree that the Region cannot have it both ways.  Either it should take fee from a builder in advance or it should wait until it finalizes what the charges are.  That means no advance approvals of homes for builders either (sorry Mattamy).
• Does it really cost two to three times more to put infrastructure in Halton than it does in other places?  Has the cost really gone up nearly 3 times in last few years?  Is it a ploy to stop growth?
  [It’s not.  It’s all Ontario’s fault (yes, I am serious)]

Province:

• I sympathize with the Region as well. The Province funded a lot of new growth in Peel and other regions but have now left Halton with the bill.  Halton is growing like crazy and managing that growth costs a lot of money. Ontario’s Place To Grow will only make things worse.  Ontario needs to foot up the bill
• I am disappointed that Ontario even allows a builder to pass on additional cost after a purchase and sales agreement has been signed.  Ask yourself this, if your income goes down after you sign the agreement then can you pull out?  Can you buy a smaller house?  No!  You have to put up with whatever your financial circumstances become. Why shouldn’t the builder do the same? 

Builder:

• I feel bad for Mattamy, I really do.  But it seems like consumers are being used as pawns in politics between the Region and builders. That’s not right, no matter what hardship Mattamy is going through.  As I said, Mattamy gambled when it agreed in advance to a charge without knowing what it was going to be.  It was a business risk that did not work out.  Tough!

Finally, shame on lawyers who reviewed Purchase and Sales agreements but did not cap the cost to $1,000 like many other lawyers did.  Shame, shame, shame. They should refund their client’s fees and close for free!

It’s a tough situation for everyone, but especially for people who got stuck in the middle. It seems like the Region doesn’t care about them, since they represent a tiny number of votes (and new residents don’t vote anyway). The builder does not care about them, because these people are already stuck.  The Province doesn’t care.  These people are really in a tight spot.

I will write more once I have more information, I am on the case.  It is just remarkably difficult to get simple information.  You’d think that halton.ca would have a history of residential development charges in a table format that’s easy to find.

Stay tuned!

This is a follow up to my previous post titled ‘Stealth Tax – Developer Fees.’  

I was surprised to learned that very few people knew about development charges.  This is a charge that builders pay on each home that they obviously pass on to customers.  This can be high.  Not thousands, but tens of thousands of dollars!  A typical detached home in Oakville, for example, may carry a development charge as high as $50,000 (no wonder homes in Oakville cost so much more than homes in Mississauga). 

I’ll leave the claim of “lowest property tax in GTA” for another day.  If I already paid $40,000 in taxes up front then my taxes aren’t really low now, are they?   Next time someone tells you that Milton has low property taxes then tell them it’s because they paid many years of taxes up front. 

In theory development charges make sense.  New developments require new infrastructure that existing residents should not have to pay for.  However, in order for them to make sense in practice the revenue from those charges should be spent around the communities it is collected from.  That, unfortunately, doesn’t happen.  In practice, development charges have turned into a tax on new home buyers so existing home-owners don’t have to pay for services they receive (see the post on the Nassagaweya Tennis Club where the town proposes spending $3 million on a tennis club with less than 200 members).  Other recent projects using development charges are the expansion of Milton Sports Centre and the construction of a central library and arts complex on the Main Street.  These would make sense if the needs of new residents who paid dozens of millions of dollars in taxes were met.  Instead, my neighbours and I are stuck with a Derry Street that should’ve been expanded two years ago, the neighbourhood park area that is a pile of dirt collecting garbage, schools that are overcrowded and delayed, and the underpass on Derry Street that isn’t planned for almost a decade when it should have been built before construction ever started.   

Development Charges are only fair if there is a bylaw that forces a majority of those charges to be spent in communities they were raised from.  Otherwise they cause a serious moral hazard.  The region starts considering this as free money.  This caused huge issues in cities like Las Vegas and Phoenix that were addicted to developer charges.  In those cities the planners thought not of residents when approving new construction, but at $$s coming from developers.  As a result they overbuilt and brought down home values in the entire area. 

If you think that cannot happen in Milton then think again.  Milton doubled its population in less than a decade.  Even Brampton has a growth cap of around 5000 homes (that’s for a population of 433,806.  Milton equivalent for this would mean less than 1000 new homes would be allowed every year in Milton so infrastructure could keep up).  Instead Milton has no development cap, none.  That’s horribly risky for your property values, if not for your quality of life because of ever-crowded streets and schools.  This sort of stuff happens because the town and the region sees dollar signs.

A better way of increasing revenue is to increase the tax-base by attracting good, high quality employers to the region. Many of them moved to Mississauga over the last decade, proving that an area West of Toronto can attract top employers. That’s what we need in Milton. It will help solve traffic issues (so people in this region will work in this region), give employment to people and find a more diversified tax-base so tax-rate can stay low.

It’s tempting to get excited about all the construction in town using developer fees.  It’s free money, right?

Wrong!

It’s a tax on new residents, or existing residents who choose to buy a new home in Milton again.  These residents pay for tax by paying a much higher price on a house than they otherwise would have to.  Developer fees levied on commercial construction also discourages businesses from moving into Milton, which is bad for all residents.

Notice I am not passing any judgement on whether Milton / Halton charge too much or too little.  I am merely pointing out that the expansion of roads, Milton Sports Club, Library, Townhall etc. are done using a tax levied on people buying a new home in the town.  It’s certainly not free money, and shouldn’t be spent as such.