The Hub’s second annual Hunter Prize for Public Policy, generously supported by the Hunter Family Foundation, focused on solving Canada’s housing affordability crisis. A diverse group of ten finalists have been chosen from nearly 300 entries, with the finalists and winners chosen by an esteemed panel of judges, including Amanda Lang, Ben Rabidoux, and Mike Moffatt. The Hub is pleased to run essays from each finalist this week that lay out their plans to help solve this persistent policy problem.
Congratulations to Ben Dachis for this $25,000 grand prize-winning proposal in the second annual Hunter Prize. The runner-up was Luhan Yao for a proposal to establish a Below-Market Rental Tax Credit Program.
The housing crisis in Canada demands urgent and innovative solutions. While my fellow finalists for the 2024 Hunter Prize present compelling ideas on municipal land use reform and taxation, one critical element is often overlooked: the soaring costs of the infrastructure that delivers critical services to our homes. As we strive to build new homes, we must address how these essential services are financed. The current model, which burdens homebuyers with upfront development charges, is not sustainable. It’s time for a fundamental shift.
For many Canadians, the dream of homeownership is increasingly out of reach. High development charges, which can add tens of thousands or now even hundreds of thousands of dollars to the price of a new home, are a significant barrier. These fees are intended to cover the cost of municipal infrastructure—roads, water, and sewage systems—but they disproportionately affect those seeking to buy homes.
Ontario cities have been at the epicenter of relying on development charges. Total development charges collected per year are now over $4 billion annually in Ontario as of 2022 – quadrupling since 2010. But cities have only done the hard work of building $2 billion or so worth of infrastructure these development charges were meant to pay for. So households are only getting half of what they’ve paid upfront for. This discrepancy leaves homeowners paying for services that may not materialize for years, if at all, while they live in the city.
Now, other cities across the country are following the lead of Ontario cities. In Vancouver, the Metro Vancouver regional government is more than tripling the combined water supply and wastewater development charges between now and 2027.
The current system places the financial burden squarely on homebuyers, pushing up housing costs and limiting housing accessibility. Instead, we must explore alternative financing models that allow utilities to shoulder the costs of new infrastructure, deferring payments until households actually use these services. This approach not only alleviates immediate financial pressures on homebuyers but can also facilitate a smoother energy transition.
Imagine a scenario where municipalities and utilities finance infrastructure through long-term debt or third-party equity, rather than relying solely on development charges. This shift could reduce the sticker price of homes significantly. For instance, in the Greater Toronto Area, infrastructure costs related to water and wastewater alone can exceed $55,000 per home. By allowing utilities to finance these projects and recoup costs over time, we could see substantial savings for new homeowners.
The rationale for this change is clear. By spreading the costs of infrastructure over the lifespan of the services, we make housing more affordable. Municipalities have access to lower borrowing costs compared to individual homeowners, which translates into savings that can be passed on to homebuyers. Taking out debt at the city or utility makes more sense than it all getting passed down to homebuyers. Families face the risk of illness, job loss, or myriad factors that drive up their repayment risks. Banks know that, and charge a higher interest cost. Spreading these risks across thousands or millions of households can result in lower borrowing costs. Even a few percentage points differences in the borrowing costs between cities and families will save Canadians billions as we build out the infrastructure to build homes.
Reducing sticker shock is particularly crucial in light of the high upfront costs (but with the benefit of often lower long-term operating costs) associated with transitioning to low-emission energy sources. Developers want to sell a home that has the lowest possible construction cost. That probably means a natural gas furnace. If utilities can finance the installation of heat pumps or other green technologies, developers would be more likely to adopt them without facing prohibitive upfront costs. Similarly, existing homeowners might be willing to retrofit their homes if the upfront costs are spread over time.
The federal government has attempted to address the rise in development charges with a fund for cities that requires them to freeze their development charges. But this effort is falling short. The value of ever-rising development charges is worth more to cities than what the federal government has offered on grants to pay for infrastructure.
Instead, we need policy reforms that promote long-term municipal debt financing for infrastructure. By making municipal debt tax-exempt, we can incentivize investment in critical infrastructure without straining municipal and federal budgets. Electrical utilities owned by cities should also be less constrained on how much debt they take out and be able to get other sources of investment finance.
The time for change is now. As we work to build the millions of homes needed to restore affordability, we must adopt a model that allows for equitable sharing of infrastructure costs. This means transitioning away from development charges as the primary financing tool and embracing a system that spreads costs more evenly across users over time. It’s not just about building houses; it’s about ensuring that all Canadians have the opportunity to secure a home they can heat on a frigid day and have a hot shower in without crippling financial burdens.
Ultimately, the key to solving Canada’s housing crisis lies in our ability to rethink how we finance the infrastructure that supports our communities. By aligning the interests of homeowners, developers, cities, and utilities, we can create a more sustainable and affordable housing market. This approach will not only make homes more accessible but also pave the way for a greener, more resilient future. Let’s embrace this opportunity for transformative change.
