Does it make sense for the City of Edmonton to pay infill Developers for increased density? From a pure revenue and expense perspective for taxpayers, it absolutely does.
If your financial planner sat you down one day and said: “I have an investment for you which will pay you a return of 36.75% per year, with annual increases of 3% per year, with no risk”, what would you say? I think all of us in our right mind would jump right out of our seats and sign on the dotted line before the sentence was finished. As it turns out, we as developers can offer that return on investment right now, it just may take a little coaxing, and someone to do some math.
There has been a lot of talk about infill in Edmonton, and specifically the increase of density that could, and should come with it. For this case I would like to talk specifically about the purchase of a home in a mature neighborhood on a lot zoned Rf2 or RF3, of at least 50’ wide on the front which by current zoning standards allows for a subdivision of the current lot into single family lots of at least 25’ wide. The existing home would typically be a bungalow with square footage of between 700 and 1000 square feet, and a value of typically around $350,000 as far as the city assessment is concerned. Through the subdivision of the lot, the developer is responsible for all fees involved in the legal subdivision of the lot, as well as the fee to add a new connection to the existing sewer and water under the street. The key here, and the difference between infill and new development in this case, is that in infill, the existing services which are long paid for can be utilized, instead of building more roads, sewer lines, and water lines which must be built and paid for upfront, then maintained forever more.
Going back to the value of the exiting infill, the tax revenue from this property in 2014 should be about $2450, and using conservative numbers of 3% increase year over year for the next 25 years the cumulative total of taxes on that property totals $89,325.20. Using average numbers from current selling prices and assessments, after the subdivision of the lots each new home should have an assessed value of around $700,000. The cumulative total amount of tax generated through the next 25 years based on the exact same assumption of 3% increase per years, the tax revenue from the exact same sized lot would be $357,300.79. That’s a net difference of $267,975.59. Keep in mind through this process the city pays for no more snow clearing, no more new road construction, no new garbage routes, and no more cost, while quadrupling the revenue.
If there would be an incentive grant payable upon possession of a subdivided lot with new construction of $20,000 upon possession of the new premise, the city could be looking at a return on investment on that $20,000 of 36.75% in the first year, with increases on that amount as taxes go up year over year. Even if the city have to borrow the money for the grant, they would be looking at a massive increase in revenue with a very minimal increase in cost. If the city would perhaps give out 100 of these grants over the next two years, they would be looking at a net increase in revenue of about 27 million dollars over the next 25 years, on an initial investment of 2 million.
While we love to complain about the ever increasing cost of snow removal, and increasing tax rates, a long term fiscally conservative solution is right in front of us. The increase of density in our beautiful mature neighborhoods makes incredible sense. Taking this math into account, in order to increase density and development in our mature neighborhoods, perhaps we need to look at instituting a policy in which the city pays an incentive to build in, not out.