Mike Moore, the president of the Manitoba Home Builders’ Association, told CJOB Talk Radio that affidavits are now being prepared to challenge the city of Winnipeg’s authority to impose an impact fee, which has already come into effect as of May 1.
In January, the MHBA and the Urban Development Institute (UDI) asked their lawyers to clarify with the Manitoba Courts whether the city of Winnipeg has the legal authority to impose a regulatory fee on new developments. Once the affidavit process is completed, the challenge will be turned over to the Court of Queen’s Bench for a ruling.
But there’s no assurance that the proceedings in the court will not be lengthy. Moore told the radio station that if the case goes on for a couple of years, it is neither good for consumers or for business.
In October 2016, city council voted 10-6 to impose the Impact Fee Bylaw, which the development community regards simply as a badly-thought out tax grab disguised as a fee. The fee on a new home is about $5,100 per 1,000 square feet.
Moore told the radio station that new home buyers already pay 25.7 per cent in taxes to the treasuries of all three levels of government, which amounts to over $100,000 on a $400,000 newly-built home. On an average-sized, newly-built home in the city of 1,800 square feet, the impact fee will add $9,700 to the purchase price.
Moore said the funds collected by the city will be going into a reserve account, not general revenues. The reason: Just in case the court rules against the city and it has to return the impact fees collected from new home buyers.
Since home buyers and builders have known since October that the fee was to be imposed on May 1, there was a scramble to obtain permits before that date. Manitoba Fiance Minister Cameron Friesen said in his April 11, 2017 budget that building-permit activity in the city was up 195 per cent in the first quarter this year, when compared to the same period last year. Canada Mortgage and Housing Corporation (CMHC) reported that there was a 131 per cent increase in housing starts in the Winnipeg Census Metropolitan Area (CMA) in the first three months of this year. Moore noted that building permits were up over 1,000 from the previous year.
Those home buyers and builders — builders will add the cost of the fee to a home purchase — who were able to get their permits in before May 1 have until November 1 to begin construction on new homes. Moore added that permit activity is expected to significantly decline after May 1.
By calling it a fee rather than a tax, the city believes it had the authority to impose the impact fee. If it was referred to as a new tax, then the provincial government would have to approve a change to the City of Winnipeg Charter.
The failure of the city to fully discuss a plan for new home development before imposing the fee has been a sore point for the development industry, as was the cancellation of discussions with stakeholders by the city until the court challenge is settled.
“The fact is,” said Eric Vogan, the president of the UDI’s Manitoba Division, before the fee was implemented, “we remain a city without a plan. This fee is not based on any measurable calculation of impacts from new residential development and is a tax. One that we believe the city does not have the authority to impose.”
“We would much prefer working with the city administration through a plan-based process to development charges,” Moore said, “one that appropriately attributes costs to new developments and provides accountability for where the money will be spent.”
“Instead of putting taxpayers at risk, the city should spend this time to develop plans required to support a responsible and legal cost-sharing structure for new developments,” added Vogan.
In an article for the REN, Moore said: “We need to priorize to ensure that all projects in our planning exercise fit within reasonable timelines and are affordable for all citizens ... We need to properly attribute to both new development and existing residents the costs related to new infrastructure. No one group is responsible for picking up the tab. All of us have the responsibility for paying our fair share.”
The driving force behind the fee has always been Winnipeg Mayor Brian Bowman, who caught developers by surprise when he claimed that, “growth isn’t paying for growth,” and that “growth has to pay for growth.”
To rationalize his allegation, the city commissioned a couple of reports. The first report indicated the city would reach a population of 1-million people by 2034-35 and surpass 1 million by 2040. From now to 2040, “the number of households is expected to increase by around 32 per cent, or approximately 100,000 units ...” With this increase, the forecast indicated that changes in numbers and types of homes, especially new homes and new neighbourhoods, will increase demand on municipal services and infrastructure, putting pressure on future city budgets. The bylaw was passed under the belief that the cost of constructing infrastructure, including regional roads, transit, recreation and leisure centres, had to be offset by an additional fee for new subdivisions.
Moore said it’s a misconception that developers don’t pay their fair share of costs. “In actuality, developers pay for 100 per cent of development costs within a subdivision — roads, land for parks/schools, hydro, water and sewers; the city doesn’t pay any money for that. Developers also share costs for arterial roads, such as when Qualico paid to widen the road and create additional turning lanes into Sage Creek. The bottom line is that tax dollars do not subsidize new developments.”
Actually, other studies made the same point. An ND Lea study in 2004 stated that Waverley West would have a net value to the city over an 80-year period of $213 million. A report by MMM Group in 2013 claimed the numbers were even higher at $250 million for the 80-year period. In 2014, another report by Deloitte stated that new developments produced excess revenues for the city, which allows the city to invest in other infrastructure projects.
Moore said the fee has the potential to drive people to build outside the city’s borders. “That would create a bigger deficit in the (city’s) tax base,” he added.
WinnipegREALTORS® past-president Stewart Elston told the REN that, not only will new home starts drop significantly, but the fee could also put buying a new home out of the reach of many people, especially first-time home buyers. “At the same time, prices of resale (existing) homes would increase, also making things tougher, especially for first-time buyers,” he added.
The fee on new homes is now in effect in nine different newer suburbs. In 2018, commercial developments will be charged the fee, and a year after that infill and downtown housing; that is, if the court does side with the city. If not, the fee is toast and new home buyers who paid the fee will get their money back.