Guest Post: Michael Janz says sales data indicate suburban sprawl has created profits of $1B for Edmonton developers over a decade

In recent months, a lot of ink has been spilled and hot air vented on the housing crisis being experienced everywhere in Canada. Meanwhile, as leaders at every level of government blame others for the crisis, our municipalities continue to engage in practices that increase costs, require higher taxes, and do little to solve the housing crisis – all in the service of big profits for well-connected developers. Edmonton City Councillor Michael Janz, the representative for Ward papastew, believes we can build happier and healthier urban communities for citizens “of all ages, wages and stages,” as he puts it in his official City Council biography. Mr. Janz is a former three-term Edmonton public school trustee, University of Alberta Board member, and Edmonton Public Library Board member. In this Guest Post, he takes a look at how suburban sprawl is a poor investment for municipalities, although it’s a big profit centre for the development industry. DJC

Who profits and who pays when it comes to urban development? Sales data tell the story

By Michael Janz

Sales figures in Edmonton, like other municipalities across Canada, show us that the suburban development industry is enormously lucrative.

But how much of that profitability depends on subsidies from other municipal taxpayers? 

Yes, we are in a national housing crisis, but we need to get “where we build” right, lest we harm housing affordability for everyone else.

Research into suburban sprawl shows time and again it’s a low-yield investment for municipalities. 

Former Calgary Mayor Naheed Nenshi used to refer to this loss as the “sprawl subsidy.” 

In Ottawa, for example, the city found that suburban expansion costs $465 per person per year. By contrast, Ottawa found that high-density infill development earned that city $606 per person per year. 

In Edmonton, consultant research showed that six new neighbourhoods, even with a higher density than traditional sprawl, in the Decouteau area of the city’s southeast would create a $400-million liability (in 2014 dollars) by 2050. 

It is taxpayers – not developers, of course – who pick up this liability.

Obviously, it would be helpful if this subsidy reaped by developers from taxpayers could be viewed in the context of the profits they generate from their investment. 

But as private companies that are not publicly traded, the public do not have access to their books. However, sales prices tracked by the City of Edmonton’s assessment and taxation branch can stand as the closest proxy for gross profit.

In developing neighborhoods over the past decade, 23,684 residential sales were made, producing revenue of $10,968,719,690 – almost $11 billion! 

To determine net profit, we know that banks want to see a return on investment of around 15 per cent. Even estimated conservatively at 10 per cent over the past decade, though, suburban land developers would have made almost $1.1 billion in profit on 23,684 homes, more than $110 million per year, or around $50,000 per home. 

Quite simply, these profits would not be possible without the public’s generous subsidy.

In the 1970s, speaking of Alberta’s petroleum resources, Progressive Conservative premier Peter Peter Lougheed urged us to “think like owners.” But when it comes to land development across Canada, we’ve failed to do that, and it’s time for a dramatic course-correction when it comes to where and how we build housing.

As citizens, we need to pull back the curtain, do the math, and demand more. 

Quite apart from the long-term maintenance and renewal of roads and sewers, in the short term they aren’t paying adequately for infrastructure required by every community – from playgrounds, to parks, to the welcome sign. 

Developers also myopically fight for their right to build lower-quality, energy inefficient homes today in the name of “housing affordability” – thereby creating a future energy retrofit liability for the municipality and decades of high energy bills for homeowners. 

Homeowners are denied a better deal by municipalities and the provincial government, who have capitulated to developer lobbyists. 

Who fights for the consumer? Who fights for the rest of the taxpayers? 

For the past century, municipalities have encouraged suburban sprawl – the most profitable kind of development for developers to build and the most expensive for municipalities to service.

Attempts to increase the costs recovered by municipalities have been repeatedly thwarted by politically savvy developers. Generous donations to City Council election campaigns and provincial political parties, the use of well-connected lobbyists, and public relations directed at media have all been employed in this successful effort. 

Canadians watched the Toronto greenbelt scandal almost topple a premier, but how many of us remember that one political action committee that helped elect Conservative Doug Ford, Ontario Proud, was majority funded by suburban development interests? 

One of the development industry’s favorite straw house defences is “housing affordability” – the claim they can’t pay any more, that any nickels or dimes charged by the city will increase the purchasing price for new homeowners.

But the industry’s enormous profits show this is untrue, and there are millions of dollars up for negotiation. 

Regardless, services and amenities are required in all neighbourhoods, and if our municipalities and provincial governments don’t require developers to pay, the costs of those playgrounds must be paid from grants from general municipal provincial revenue – diverting more resources from public services for the “us” to offset the profits for a very small “them.”

Another favorite developer defence is the threat they’ll build elsewhere, often in a neighboring municipality. 

But once taxpayers realize sprawl is a liability, not an asset, that threat is quickly defused.

Until the math says yes, municipalities need to say no!

Under our current regime, most new developments are liabilities to taxpayers, not assets. 

Yes, we badly need new housing, but like orphan oil and gas wells abandoned when they’re no longer profitable, municipalities must not be blind to their losses because of our obvious housing needs.

What can we do? 

• Legalize and build housing in already serviced locations, refilling our cities with infill that still provides a generous profit to the developer, but without land use liabilities.
• Encourage a proper role for the public sector in the development business. Why should such enormous profitability be left to a small group of private interests amidst a national housing crisis?
• Make an effort to improve our residents’ municipal financial literacy, ensuring our precious tax dollars stewarding the assets we already have before paying to build more. 

A good life in a prosperous place is possible for the people of our cities when we rebuild inward, especially around the the vacant shopping malls, overbuilt parking lots, and pre-serviced spaces of the last century as we look ahead to the next.