Canada’s rapid urbanization makes it necessary to achieve a balance between urban growth and the protection of farmland, open spaces, and environmentally sensitive areas. Many people believe that achieving this balance requires compact development, rather than urban sprawl, partly because the cost of providing municipal services is higher in low-density, outlying developments than in high-density developments within the central city.
Cities can and do use planning tools to influence the location, type, and density of development. But they should not ignore the significant potential impact of revenue-raising tools. At least, these tools should not encourage sprawl.
Yet empirical studies show that the property tax, Canadian local governments’ main source of revenue, sometimes encourages low-density development. A regime that does not match property taxes with services received has the potential to reduce property improvements and the density of development and is likely to affect some decisions about business location.
User fees can be an effective tool for achieving a desired development pattern if they are correctly applied, which rarely occurs in Canada. Development charges also have the potential to encourage the efficient use of land and infrastructure. They must, however, be structured to reflect the full costs and benefits of development. In the absence of such charges, developers consider only their own costs and benefits, not the impact on the city’s costs of providing services. Even a charge applied uniformly across the city can encourage inefficiency: developments that impose higher municipal costs (usually developments on the fringes) end up being subsidized by those that incur lower costs (usually developments in existing, high-density neighborhoods).
Overall, cities should remove distortions in the property tax system, eliminating the overtaxation of apartments and commercial and industrial properties relative to single-family houses. And they should set user fees and development charges so they do not work against planning objectives.
Cities can and do use planning tools to influence the location, type, and density of development. But they should not ignore the significant potential impact of revenue-raising tools. At least, these tools should not encourage sprawl.
Yet empirical studies show that the property tax, Canadian local governments’ main source of revenue, sometimes encourages low-density development. A regime that does not match property taxes with services received has the potential to reduce property improvements and the density of development and is likely to affect some decisions about business location.
User fees can be an effective tool for achieving a desired development pattern if they are correctly applied, which rarely occurs in Canada. Development charges also have the potential to encourage the efficient use of land and infrastructure. They must, however, be structured to reflect the full costs and benefits of development. In the absence of such charges, developers consider only their own costs and benefits, not the impact on the city’s costs of providing services. Even a charge applied uniformly across the city can encourage inefficiency: developments that impose higher municipal costs (usually developments on the fringes) end up being subsidized by those that incur lower costs (usually developments in existing, high-density neighborhoods).
Overall, cities should remove distortions in the property tax system, eliminating the overtaxation of apartments and commercial and industrial properties relative to single-family houses. And they should set user fees and development charges so they do not work against planning objectives.
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| Suburban sprawl in London, Ontario, by DenisGiles |
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