Development charges are a topic that is near and dear to this blog.
In theory, development charges are supposed to be "growth paying for growth." In other words, they are intended to pay for the incremental services and infrastructure required strictly because of new development. This, of course, sounds right. More people will equal more demand on city services.
However, development charges also increase the cost of new homes and there is a growing concern that development charges now pay for more than they should. Meaning, they have become a "housing tax", which is more or less the opposite of what you want if you think there's a shortage of new homes.
Part of the challenge, I think, is that city budgets are complicated. As far as I know, it's largely impossible for the average person to try and figure out which municipal costs are associated with growth and which are associated with ongoing operations (i.e. they should be paid for through things like property taxes).
That said, I think this current market environment could create a bit of a litmus test for development charges.
Development charges are a topic that is near and dear to this blog.
In theory, development charges are supposed to be "growth paying for growth." In other words, they are intended to pay for the incremental services and infrastructure required strictly because of new development. This, of course, sounds right. More people will equal more demand on city services.
However, development charges also increase the cost of new homes and there is a growing concern that development charges now pay for more than they should. Meaning, they have become a "housing tax", which is more or less the opposite of what you want if you think there's a shortage of new homes.
Part of the challenge, I think, is that city budgets are complicated. As far as I know, it's largely impossible for the average person to try and figure out which municipal costs are associated with growth and which are associated with ongoing operations (i.e. they should be paid for through things like property taxes).
That said, I think this current market environment could create a bit of a litmus test for development charges.
As most of you know
, new home sales in Toronto have fallen to levels not seen since the global financial crisis and the early 90s.
This means that construction activity has now also fallen and that, in turn, fewer developers are paying development charges. I haven't seen the exact numbers, but intuitively the drop in development charges paid should be precipitous.
Now, if these charges are strictly paying for growth, then in theory, cities should be completely agnostic to this decline. Sure, they're collecting less revenue, but they also don't have the new growth. Any growth that is still in the pipeline (i.e. under construction) would have already paid for their impacts.
However, if this is not the case, and municipal budgets start getting negatively impacted by this drop in development charge revenue, then it suggests that one of two things could be going on.
Either development charges aren't enough to cover the true cost of growth and the whole thing is a bit of a Ponzi scheme. That is, we need a constant flow of new developments to pay for the shortfalls of the last. Or, we're overtaxing new homebuyers for the benefit of incumbent ratepayers.
I'm sure it's more complicated than I'm making it seem right now. But this is the crux of this debate: Are we equitably levying development charges on new homes? This current market could offer a clue. If cities start running out of money, it might suggest the answer is no.
One simple definition of risk is that it's the "possibility of loss or injury." And that's generally how most of us think about it -- it's a bad thing that needs to be managed, minimized, and sometimes avoided all together.
While true, this recent memo by Howard Marks is a good reminder that risk is also indispensable. Or, put differently, there's risk in not taking enough risk. This is true in business and finance, but it's also true -- as Howard argues -- in chess, in sports, and in many other aspects of life:
The paradox of risk-taking is inescapable. You have to take it to be successful in competitive, high-aspiration arenas. But taking it doesn’t mean you’ll be successful; that’s why they call it risk.
By definition, it means that you will be wrong sometimes. Because if you couldn't possibly be wrong, then it wouldn't be a risk. It would be a known. And known things exist in our world in a very different way than uncertain things. Superior performance, as a gross generalization, demands uncertainty.
You shouldn’t expect to make money without bearing risk, but you shouldn’t expect to make money just for taking risk. You have to sacrifice certainty, but it has to be done skillfully and intelligently, and with emotion under control.
In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie [Munger] should forever be credited with being the architect.
This is an excerpt from his recent letter to Berkshire Hathaway shareholders, which, this year, he opens up with an obituary to his late partner, Charlie Munger.
If you take his description (same letter) of what Berkshire does, and replace businesses with properties, this is what you get:
Our goal at Berkshire is simple: We want to own either all or a portion of [properties] that enjoy good economics that are fundamental and enduring. Within capitalism, some [properties] will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict which will be the winners and losers.
This is a good way to think about real estate.
As most of you know
, new home sales in Toronto have fallen to levels not seen since the global financial crisis and the early 90s.
This means that construction activity has now also fallen and that, in turn, fewer developers are paying development charges. I haven't seen the exact numbers, but intuitively the drop in development charges paid should be precipitous.
Now, if these charges are strictly paying for growth, then in theory, cities should be completely agnostic to this decline. Sure, they're collecting less revenue, but they also don't have the new growth. Any growth that is still in the pipeline (i.e. under construction) would have already paid for their impacts.
However, if this is not the case, and municipal budgets start getting negatively impacted by this drop in development charge revenue, then it suggests that one of two things could be going on.
Either development charges aren't enough to cover the true cost of growth and the whole thing is a bit of a Ponzi scheme. That is, we need a constant flow of new developments to pay for the shortfalls of the last. Or, we're overtaxing new homebuyers for the benefit of incumbent ratepayers.
I'm sure it's more complicated than I'm making it seem right now. But this is the crux of this debate: Are we equitably levying development charges on new homes? This current market could offer a clue. If cities start running out of money, it might suggest the answer is no.
One simple definition of risk is that it's the "possibility of loss or injury." And that's generally how most of us think about it -- it's a bad thing that needs to be managed, minimized, and sometimes avoided all together.
While true, this recent memo by Howard Marks is a good reminder that risk is also indispensable. Or, put differently, there's risk in not taking enough risk. This is true in business and finance, but it's also true -- as Howard argues -- in chess, in sports, and in many other aspects of life:
The paradox of risk-taking is inescapable. You have to take it to be successful in competitive, high-aspiration arenas. But taking it doesn’t mean you’ll be successful; that’s why they call it risk.
By definition, it means that you will be wrong sometimes. Because if you couldn't possibly be wrong, then it wouldn't be a risk. It would be a known. And known things exist in our world in a very different way than uncertain things. Superior performance, as a gross generalization, demands uncertainty.
You shouldn’t expect to make money without bearing risk, but you shouldn’t expect to make money just for taking risk. You have to sacrifice certainty, but it has to be done skillfully and intelligently, and with emotion under control.
In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie [Munger] should forever be credited with being the architect.
This is an excerpt from his recent letter to Berkshire Hathaway shareholders, which, this year, he opens up with an obituary to his late partner, Charlie Munger.
If you take his description (same letter) of what Berkshire does, and replace businesses with properties, this is what you get:
Our goal at Berkshire is simple: We want to own either all or a portion of [properties] that enjoy good economics that are fundamental and enduring. Within capitalism, some [properties] will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict which will be the winners and losers.
