New housing: skyrocketing costs for infrastructure, but there’s a way. All the details in the report “A Jump Start”

TORONTO – Canada needs to build more homes and it needs to do it as fast as possible. But there is a… “but”: this will imply the need to increase spending on municipal infrastructure like roads, sewers, water mains, public transport, schools, parks, fire stations… and according to the report “A Jump Start” by former city manager and Ontario deputy minister Michael Fenn and the Canadian Urban Institute (funded by the Canada Infrastructure Bank), the average cost of such infrastructure could exceed $100,000 for each newly built home (you can download and/or read the whole report here: A-Jump-Start).

Canada will need an additional 3.5 million housing units by 2030 on top of the 2.3 million already scheduled to be built to restore affordability to the levels seen in 2004, as Canada Mortgage and Housing Corp. forecasts. This increase in new construction – more than 500,000 homes per year – is equivalent to building a new city the size of Calgary every year, for seven years, noted the report’s author, Michael Fenn, former city manager and deputy minister of Municipal Affairs and ‘Housing Ontario, who also served as founding CEO of both transportation authority Metrolinx and regional health authority Mississauga Halton LHIN.

“Canada’s housing crisis is to a large extent an investment crisis” says Mary W. Rowe, CEO of the Canadian Urban Institute. “Yes, Canada needs more housing, but to make that happen we need the necessary infrastructure – the water lines, roads, sewers and all other essential municipal services – that make new homes possible…”. Although some new homes will benefit from pre-existing infrastructure, the report says there are obstacles to financing the new projects required, The Canadian Press reports.

For example, municipalities are often reluctant to take on debt or pass on capital costs through property tax increases, for obvious political reasons. In some cases, growth is therefore held back by municipalities insisting that developers shoulder the financial burden by paying the full capital cost of long-term infrastructure upfront.

The report also notes that there is also municipal opposition to relying on the private sector to provide public infrastructure, especially if this involves transferring ownership or control.

Also according to the report, municipalities should develop new financing tools that allow them to share infrastructure costs among those who benefit from them, including developers. Developing tools such as land value capture and tax increment financing can also help cities provide more services. Other recommendations include using private capital to invest in public infrastructure through measures such as utilities and development companies. Furthermore, financial risks should be shared with institutional investors who are better positioned to absorb them.

“Municipalities often face challenges financing the critical infrastructure they need to unlock new housing developments” said Canada Infrastructure Bank CEO, Ehren Cory. “This report demonstrates that there is a range of new funding that can help councils build the housing infrastructure needed for population growth”.

The report concludes: “Building housing-enabling municipal infrastructure on an accelerated basis is essential to increasing the supply of housing across Canada. In fast-growing parts of Canada, the cost of providing a full range of infrastructure likely exceeds $100,000 per home over time. Investment of that scale exceeds the financial capacity of the municipal sector, which owns and operates the majority of public infrastructure. It will require a considerable long-term investment by both the public sector and the private sector. It is a daunting but necessary venture and like some Canadian winter journeys, it may require a “jump start”. This paper proposes four measures that should improve Canada’s prospects for achieving our housing-enabling infrastructure needs: moving from pre-payment to secured-payment for infrastructure over its useful life; ensuring all beneficiaries contribute to infrastructure’s cost throughout its lifecycle; reducing municipalities’ infrastructure financial risk and limitations by using innovative financial models and private capital while keeping infrastructure in public ownership, and; tailoring infrastructure financing models to the fiscal risks and realities of Canada’s small, rural and remote municipalities. 

Photo by Erik Eastman on Unsplash