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Municipal and Federal Financial / Regulatory Mechanisms

and the Canadian Housing State

Adriano LeonardiM.Sc Planning Candidate

University of Toronto

Primary SupervisorDr. Alan WalksSecond Reader

Dr. Deborah LeslieExternal AdvisorDavid Amborski

Course CoordinatorPhilippa Campsie

March 2014

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Table of Contents

Executive Summary 3Research Questions 4Rationale of the Research Questions 4Approach / Method 7The Framework of the Questions 8

Part I - Current Economic Framework 111.1 The “New” Staples Economy 111.2 Crises of Capitalism or, the Dialectic Market/State: The Exhaustion of the Intensive Stage 15

Part II - The State of the Canadian Housing 192.1 Housing Wealth Effect 192.2 Housing Prices: Planning, the Supply Side 212.3 Housing Prices: The Demand Side, and the Housing Crisis 23

Part III - Municipal Funding/Regulatory Mechanisms 283.1 Sources of Municipal Revenues 323.2 Case Studies 32 3.2.1 Municipal Revenues 34 3.2.2 Population and Income 37 3.2.3 Total Dwellings and Average Prices by Structural Type 38 3.2.4 Development Charges per Residential Use 40 3.2.5 Building Permits by Residential Use 41 3.2.6 Land Value Assessment 42

Part IV - Discussion 46Part V - Conclusion and Recommendations 51

References 52Appendix A - Context 61Appendix B - The “New” Staples Economy 63Appendix C - Crises of Capitalism or, the Dialectic Market/State 64Appendix D - Case Study: the State of Canadian Housing 64Appendix E - Sources of Municipal Revenues 65Appendix F - Limitations of the Case Studies comparison 69Appendix G - Case Studies: Original Charts with Additional Variables and Complete Numbers 70Appendix H - List of Interviewees and Interview Guide 82

* * *

This study was completed as a requirement for the University of Toronto Programme in Planning Master of Sciences Degree. I thank my supervisor, Dr. Alan Walks, my second reader, Dr. Deborah Leslie, my outside advisor, David Amborski, and the course coordinator, Ms. Philippa Campsie

Word Count: 14,133Submitted on March, 2014

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Executive Summary

Growth and development require infrastructure that must be funded. In an ideal economic liberal model, growth and resources would supposedly expand mutually and indefinitely. In this model, economic, social and environmental depreciation are considered side effects of progress, capable of being counterbalanced with more substantial growth/development that generates more resources – where all would gain once more and the side effects would be compensated. This hypothetical endless accumulation principle has been tested: first, by an economic crisis in developed countries (overlooked and adjourned by the constant financing of public/private debt since 1980s) due to the saturation of the post-World War II boom; second, by the beginning of the exhaustion of important non-renewable natural energy resources worldwide. In this context, sustainable growth became a form of public policy in developed countries, and were followed by recurrent economic downturns since the 1980s.

In this research, in Parts I and II, I interpret the exhaustion of the post-World War II boom model of accumulation, together with the results of this model in the urban fabric, where municipalities are heavily reliant on land-use activities, basically housing construction, to fund their revenues. To illustrate this trend, Part III uses the municipalities of Brampton, Hamilton, Markham and Vaughan as case studies, by involving first, an analysis of municipal funding mechanisms and other economic indices; and second, this information will be analyzed together to attempt to understand the extent to which these municipalities rely on the housing industry to fund growth and provide revenues. The latter will involve an analysis of the budgets of these municipalities over time, as well as interviews with planners and other key stakeholders.

I argue that an important change in the traditional Canadian Economic Staple Model (Innis, 1956) has occurred, which I refer to as the “New” Staple Model: the extractivist industry, historically the major contributor to the Canadian gross domestic product (GDP) became the third contributor (5%); retail/trade became the second (13%); and construction, the main contributor (20%). Currently, with the erosion of the extractivism base of the Staple Model, together with the slow economic decline of the most important commercial partner (the U.S.), Canadian economic policies seem to see the housing industry (with the majority of jobs in the construction industry) as a key sector. However, the housing industry is not a self-sustainable independent force: especially after the U.S. subprime crisis, the industry has been sustained through massive financial assistance by the Bank of Canada and the Canada Mortgage Housing Corporation (CMHC). The case studies prove that under low interest rates, this is represented by a continuous reproduction of the housing-based economic model at urban fringes, despite overall downturns or fragile growth, inflated housing prices, and growing public/private debt. I argue that while there has been no drastic negative consequences in the economic bases of this status quo, this urban economic issue is continuously postponed or not seriously considered by government agencies.

Municipal and federal funding/regulatory mechanisms are major agents in driving the housing industry and urban markets through home ownership as economic engines, and, therefore, shaping the urban fabric. However, in a constant discussion of budget fiscal constraints, realistic unfavourable future demographic/economic trends, long time exposed low interest rates, and already high levels of private/public debt, it seems to cast doubt as to whether this growth sector, where municipalities strongly base their revenues, is sustainable in the long run.

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Research Questions

1. What is the effect of municipal funding mechanisms on the urban sprawl pattern of urban development within the context of inflated housing prices?

1a. Housing Policies: How have housing policies possibly stimulated the contemporary urban sprawl pattern of urban development?1b. Housing Industry: To what extent do municipalities rely on the housing industry to provide revenues and fund growth?1c. Shrinking Revenues: What is the context of the recurrent discussion of shrinking municipal revenues?

2. How does the contradiction between federal housing policies in stimulating the ongoing urban sprawl pattern of urban development operate within inflated housing prices?

2a. Mortgage Securitization: What kind of local planning practices do federal mortgage securitization policy encourage?

Rationale of the Research Questions

Before being treated as a commodity, housing should be seen as a social need. Data from the 2011 National Household Survey1 reveals that 58.6% of the country’s nine million homeowners have a mortgage to pay, and 25.2% (of 58.6%) spent 30% or more of their total income on shelter—which is the threshold defined by the CMHC to measure housing affordability. Also, due to the fact that interest rates have been so low for an extended period, many households have been consolidating their debts in their mortgages. As low interest rates are unsustainable in the context of continuously increasing debt (Flaherty, 2010; Magdoff, 2006; Hurst, 2011), slight rises in interest rates in a persistent unemployment environment could make home ownership difficult and cool household consumption.

The 2007 subprime crisis in the US illustrated that the traditional strategy of igniting the housing industry as a way of boosting the economy is showing signs of exhaustion, and, due to global economic shifts together with recurrent recessions, similar signs can be also seen in the traditional Canadian approach to balance deficits within natural resources extraction and trade surpluses. I suggests that, to avoid an episode in the housing industry and markets similar to that which occurred in the U.S. from happening in Canada, the federal government (CMHC and Bank of Canada) decided to directly intervene in the mortgage securitization system via two means: (1) low interest rates and (2) by assuming as public risk mortgage-backed securities generated from private banks2 (Dobbin, 2009; Rosemberg, 2010; Walks, 2012; Macdonald, 2012). While there is already a discussion on the need for “smart decline” in some Canadian,

1. http://www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-014-x/99-014-x2011002-eng.pdf2. The CMHC is playing a similar role to the many ”’off-balance-sheet’ special-purposed vehicles (SPVs) created in the US and elsewhere: take the originated mortgages off the hands of the banks, in turn lowering the amount of capital the banks needed to hold according to the Basel requirements and allowing them to originate even more mortgages (which again would be sold on to CMHC, etc.)”. Cited in Walks, 2012, p8.

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European and U.S. cities (Beauregard, 2008; Hall & Hall, 2008; Hall, 2009; Reckien & Fernandez, 2011; Rybczynski & Linneman, 1999; Bowman & Pagano, 2000; Dewar, 2006; Mallach, 2011; Schilling & Logan, 2008; Dewar & Morrison, 2012), financing general economic growth by stimulating the housing industry must be examined critically, due to: (1) housing-based growth is occurring through financial/monetary artifices in a unstable economic basis, which can negatively affect public and private revenues if expected economic growth does not happen as has occurred historically; (2) the overall economy, the structure of municipal revenues and the urban fabric are so merged, that it is difficult to change the ways cities, as “growth machines” (Molotch, 1976) are expected to operate. The rationale of my interpretation was organized in six points, moving from an economic context, to the urban planning context:

First, in the current global economic shift, where developed countries are losing ground to developing countries, the traditional Canadian staples economic model, as defined by Harold Innis (1956) is being challenged: the construction industry (basically the housing industry) has taken the first position (from the extraction of natural resources and retail trade) with the highest growth as a contributor to the GDP. Comparing the housing construction activity with the traditional staples model, it is even more susceptible to seasonal boom and bust cycles, it is based in a much smaller local market, it relies more on federal stimulus, and it has become a mix of investment with welfare assets for households.

Second, the relationship between the determinants of property prices and regulatory/fiscal municipal/federal mechanisms is frequently ignored due to the monolithic belief that higher property prices are always beneficial, as they are considered a sign of individual and community economic strength (CGAAC, 2009; Carney, 2011; Gotham, 2009; Harris, 1998; Londerville, 2010; Poschmann, 2011). In Canada, the ratio of total private debt to GDP is 164%, while household debt represents at least 78% of the GDP (Walks, 2012). This calls into question whether municipal and federal regulatory and financial policies are prudent and responsible, and to the need to examine the general effects or efficacy of such regulatory mechanisms on future housing market demands and affordability.

Third, residential property values are related to the effects of planning, including land-use planning, and the financial mechanisms that the CMHC sets for stimulating homeownership. Planning can have side-effects, contributing to the problems of higher housing prices and housing affordability (Knaap, 1998). However, if housing prices and property values rise, revenues for landowners, developers and property taxes rise proportionally, increasing municipal revenues. Governmental stimulus to homeownership is heavily dependent on the assumption and expectation that housing prices will always increase, bringing with them an implicit economic multiplier effect.

Fourth, during 1980-2001, transfers from provincial and federal levels to municipalities shrank from 50% to 16% (Leisk et al., 2004, p.33). Municipalities were forced to look for legislatively possible revenue alternatives, basically through the private sector, such as public-private-partnerships, in-kind contributions via subdivision agreements, and even off-site contributions for growth-related capital costs.

Fifth, the idea behind housing taxation on new or related products, basically through development charges and property taxes, is that “growth” must pay for itself and not be a burden on existing taxpayers (Slack

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2002) - which does not always happen. User fees charge existing taxpayers for extra uses or licenses in a specific land or house property. Municipalities tend to view increases in development charges as more politically acceptable than increases in property taxes because they are mainly paid by new residents. Certainly, any taxation is embedded in the total housing price purchase.

Sixth, there are gaps in the literature in terms of addressing the efficacy of fiscal instruments and planning mechanisms in changing the profitability of conventional types of development. Such instruments influence how urban developments are generated and how housing prices are determined, and often induce urban sprawl (Neptis, 2010; Skaburskis, 2003; Skaburskis & Qadeer, 1992; Slack, 2000, 2002, 2003, 2005; Slack & Bird, 1991; Soule, 2006; Tomalty, 2000; Skaburskis & Tomalty, 2000, 2003, Blais, 2010).

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3. Bascaramurty, D. (2013, June 19). www.theglobeandmail.com/news/national/a-new-model-of-urbanity-in-a-sprawling-suburban-city/article12660667/4. Cole, T. (2013, August 23). www.theglobeandmail.com/report-on-business/rob-magazine/hamiltons-dead-or-is-it/article4284080/?page=all

Approach / Method

To understand how economics relates to urban policies, financial/regulatory mechanisms and the urban fabric in the current exhaustion crisis, this research will examine three related parts:

● First, historically and conceptually, I will examine the evolution of high-level planning related to Canadian economic development policy, including how economic development relates to the principles of the “new” Canadian staple economy immersed in a broad model of accumulation in crisis, and how it has evolved given the exhaustion of the intensive manufacturing stage in developed countries. The context for this periodization is in Appendix A; an extended explanation of what I call the “new” Canadian staple model is in Appendix B; and detailed discussion about the intensive stage of accumulation in crisis is in Appendix C

● Second, I will examine how this current economic framework influences and is influenced by the way financial innovations and securitization federal housing policies work together with municipal funding/regulatory mechanisms to stimulate the housing industry and housing markets - with the pattern of urban development as result. I will review national level trends in Canadian housing development, volumes, prices, and mortgage debt levels. Appendix D discusses this topic in greater detail

● Third, the CIP involves an analysis of typical Municipal Funding Mechanisms in four Ontario municipalities (Brampton, Hamilton, Markham and Vaughan). There are two parts to this. First, municipal funding mechanisms, and their diversity, will be examined. Second, this information will be analyzed to understand the extent to which these municipalities rely on the housing industry to fund growth and provide revenues. The latter will involve an analysis of the budgets of these municipalities over time, and interviews with planners and other key stakeholders

● Finally, the CIP will pull together these three strands of understanding of the relationship between I, II and III, to answer the overall research questions

Part I and Part II mainly comprise a literature review and the use of secondary data sources, including those from CMHC, Statistics Canada, and news media sources. I have experience in both academic and professional environments, and I always try to bridge what each can contribute best: market analysis with a quick snapshot and academic materials with a deeper, more balanced analysis.

Part III relies on primary sources, specifically municipal documents, questionnaires sent to respective planning and budget departments, and semi-structured interviews. Markham was chosen due to its attempts to change the traditional pattern of urban development in the direction of new urbanism approaches, and because of the existing intensification of high-rise developments in Markham Centre; Vaughan, for being generally acknowledged as one of the most sprawling municipalities in Canada; Brampton, for its use of non-conventional planning approaches in dealing with rapid growth and influx of low income newcomers, although it has been criticized for letting developers determine how Brampton has grown3; and Hamilton, because has slow growth nowadays, after almost twenty years of economic decline and large numbers of vacant buildings and lands.4

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The Framework for the Questions

The outcomes of social accumulation, surpluses or shortfall periods are easily perceived in the urban fabric of cities. Even though it is still dominant, the conventional image of suburban wealth and abundance is being revised - a 2010 analysis5 of the location of poverty in the U.S. in the 95 largest metro areas reveals that suburbs had the largest and fastest-growing poor population, rising at a rate five times faster than urban poverty growth: 60.7% of the poor lived in suburbs in 2000 in Seattle, 66.4% in 2008; 75.9% in Atlanta in 2000, 84.5% in 2008; 60.9% in Washington in 2000, 67.5% in 2008; 62.7% in Cincinnati in 2000, and 70.2% in 2008. Within the city of Toronto, the suburbanization of poverty increased from 19% in 1970 to 53% in 2005 (Hulchanski, 2010). This seems to be becoming the contemporary pattern of suburbia, and in the U.S., suburban homeowners with subprime mortgages had the highest rates of foreclosures (Schildt, 2013).

This CIP considers urban sprawl “a result of land-use policies and financing decisions which have provided incentives for low-density developments outside the urban core” (Slack 2002, p.2); a pattern of urban development that used the housing industry as a trigger to boost the accumulation process in North America during the post-World War II period, but may have reached a point of exhaustion by the 1990s, and is now in crisis. This exhaustion is illustrated by the 2007 subprime crisis in the U.S., a result of an intricate speculation system between the State, the private mortgage securitization system, and a considered second (subprime) class of homebuyers to enlarge the housing market beyond economic sustainability. As a consequence, inflation in housing prices took place, and became the non-official financial tool to use to continue sustaining an artificial new housing market. When mortgage defaults started to increase, not only in the subprime market, the U.S. federal government and the central bank had to intervene by absorbing mortgages emitted by the private securitization system. In 2012, still in the recovery process, the housing industry represented 15.4% of the U.S. GDP.6

The subprime crisis in the U.S. is part of a larger crisis. In Canada, due to the specificities of the staple economy that has little diversity, the consequences of a similar housing crisis could generate even worse results; this is why, according to my interpretation, following the U.S. crisis, the Canadian government decided to directly intervene in the mortgage securitization system to sanitize the private banking system. This pseudo-solution continues to preserve the status quo in indefinitely inflating housing/land prices, and in the reproduction of suburbanism on the fringes of metropolitan regions, where cheaper land prices facilitate housing construction. Even “the anti-sprawl discourse thus conflicts with public-policy objectives, basically by pursuing the expansion of the economy in traditional [suburban] ways” (Cox 2004, p.2).

This study focuses on how the current economic framework influences and is influenced by the way municipal funding/regulatory mechanisms, together with federal financial and securitization policies

5. http://www.brookings.edu/research/papers/2010/01/20-poverty-kneebone and http://www.businessinsider.com/american-slums-2011-4?op=16. National Association of Home Builders, in www.nahb.org/generic.aspx?genericContentID=66226; table 1: www.nahb.org/fileUpload_details.aspx?contentTypeID=3&contentID=66226&subContentID=206100

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stimulate the housing industry, housing markets, and the pattern of urban development. This relationship is illustrated in relation to the current state of Canadian housing by showing that enlarging the market through credit/debt has market limits, that I call exhaustion, and that market regulation typically extends this limit ad infinitum. The literature review together with the analysis of four case studies, the Ontario municipalities of Brampton, Hamilton, Markham and Vaughan, reveal the following.

Housing is a key part of the North American economy, usually the most valuable individual and familiar asset that is utilized also for businesses and household loans, and an important contributor to job growth. On the demand side, there is the effect of planning; on the supply side, there is the action from the market. Basically, capital gains in the housing industry come from two sources: the real economy, by minimizing construction and land costs, with limited elasticity; and from circulating capital, by maximizing future demand. Considering housing as a commodity, land/housing prices are influenced by the present value of future gains expectations.

Government programs and subsidies stimulate home ownership, such as the Canada-Ontario Affordable Housing Program and the Home Ownership Assistance Program, as well as historically decreasing levels of mortgage rates from the private banking system. Mortgage securitization rules defined by the CMHC help consumers to purchase homes with a minimum down payment of 5%. And, in spite of high public/private debt, mortgage credit has re-accelerated since the 2009 crisis, increasing the already high debt exposure of Canadian financial institutions to housing mortgages, already the single largest asset class exposure, around 42%.

By checking numbers in our 2006-2012 framework for composing municipal revenues, 47.79% of total municipal revenues in Hamilton, 48.39% in Vaughan, 48.57% in Markham, and 67.93% in Brampton are related to land activity, basically property taxation and development charges. Residential uses pay higher development charges and less property taxes than non-residential uses; but, by far, the municipal inventories for property assessment by the Municipal Property Assessment Corporation (MPAC) comprise a majority of the assets related to residential uses - lower property taxes for individual residences are compensated by much larger proportion of current and future collected property taxes for residential land uses than from other uses. Obviously, municipalities with more housing construction activity rely more on DCs revenue, such as Brampton (17.12%), while others with low growth, such as Hamilton (2.73%), show lower DCs revenues. Municipal revenues are predominantly funded by property taxes; in this sense, home ownership and increasing housing/land prices are attractive due to benefits to the municipal tax base - if land/housing prices increase, property taxes increase: the average dwelling price by structural type shows a prices increase for all housing types in all cities, from 39.31% (Brampton) to 75.11% (Markham) for a single-detached unit.

Data from MPAC shows that there is an overall constant and similar residential land use distribution in all municipalities, a slight increase in commercial lands, and a slight decrease for industrial uses. The percentage of current value assessment (CVA) for farmlands shrank slightly in Brampton (from 0.29% in 2006 to 0.26% in 2013), and Vaughan (from 0.30% in 2006 to 0.26% in 2013). The evolution of prices devoted to land uses shows that in a time frame of only seven years, all municipalities had land prices that

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increased in all land uses, from a minimum of 17.19% in Hamilton to a maximum of 73.11% in Brampton. These numbers confirm the importance of land uses, new housing, and increasing housing prices to the municipal tax base. Aside from punctual decreases (that we can justify with the 2009 recession), municipal revenues grew in all municipalities in the 2006-2012 period, suspending at least from this point, the argument of constricted municipal revenues.

In many Canadian municipalities,

• Low density areas have profitability, and the best “land use efficiency” for private developers, even when building new infrastructure

• Vertical, high-density condominiums pay higher charges in taxes and additional fees than low-density subdivision plans

• Some cities forgo municipal revenues in the present period by leveraging future land development

• Development Charges with a flat rate through the municipalities and defined by population-per-unit (PPU) instead of square area create market distortions and are a limited tool for directing planning policies

• The way DCs are applied today can create competition (for lower taxes) between municipalities, thus stimulating the status quo in the matter of reproducing subdivision plans. Similarly, Tomalty & Skaburskis (2003) found such an absence of coordination between DCs and planning

• Whether the amount of single-detached production is a representation of urban sprawl levels, we could interpret a high total number of single-detached houses as a form of high sprawled urban development; Beyond the matter of “consumer choice” or Smart Growth principles, the case studies reveal that this urban pattern has not substantially changed overtime

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Part I - Current Economic Framework

The last global recession triggered in 2007 basically at the core of the dominant capitalistic model is just the last example of the exhaustion of the accumulation process that was initiated in the late 1970s, and represented a rupture or shift, by the early 1990s, in the traditional north-south division (developed versus undeveloped economies) of economic and commercial powers. Since then, the amelioration measures implemented by national governments of the global north have tried to soften the negative consequences of the excesses of financial liberalization within a shrinking internal market, but the core principles of financing the private and public debt trying to enlarge this market are ongoing, postponing the solution of a crisis of which we still cannot see its upshot (Mandel, 1999; Aglietta, 1976; Deak, 1985; Leonardi, 2007).

This CIP considers two scales to contextualize the economic framework of the research questions: one, the “new” staple economy, based in the construction industry, is a reinterpretation of the traditional Canadian staple economic model (Harold Innis, 1894-1952), influenced and reinforced by increased global competition, free trade agreements, and by the shifting of the main global economic powers, as from the 1990s. The second, the exhaustion of the intensive stage of accumulation (Aglietta, 1976; Mandel, 1999), since the end of the 1970s, provides the historical economic framework that involves the “new” staple model. To show how this economic contextualization relates to urban planning and municipal finance, Part II analyses Canada’s housing state; followed by the way municipal revenues are generated in the case studies, in Part III.

1.1 The “New” Staple Economy

In this chapter, we will outline a discussion about how the staple economy can interfere in municipal revenues and city planning. The arguments of this chapter are from Harold Innis (1956), Melville H. Watkins (1963) and John N.H. Britton (1996). For additional argumentation, see Appendix B.

As the main global economic engine shifts from developed countries to emerging countries (figures 1, 2, 3), there are ongoing outcomes and expected effects for the Canadian economy. Since the start of the crisis in 2007, the BRICs’ (Brazil, Russia, India, and China) contribution to the global GDP has risen even more: 45% of global growth has come from the BRICs, up from 24% in the first six years of the decade.7 The G7 has contributed only 20% in the past two years8, and 2013 was the first time in which emerging markets accounted for more than half of world global GDP on the basis of purchasing power, according to the International Monetary Fund (IMF, fig.4). Some media economists say this BRICs boom is over, that this current crisis is temporary, and the traditional division developed/underdeveloped countries will be restored; but instead, they should consider that the BRICs are reaching the mature age.9 By 2030, the BRICs+other emerging markets will represent around 80% of the world’s GDP (Goldman Sachs, fig.4). By 2050, BRICs’ markets will represent double of the GDP of the G7 countries.10

7. O’Neil, J. & Stupnytska, A. (2009, December 4). The Long-Term Outlook for the BRICs and N-11 Post Crisis. In www.goldmansachs.com/our-thinking/archive/brics-at-8/brics-the-long-term-outlook.pdf [page 6]8. (ibid.). www.goldmansachs.com/our-thinking/archive/brics-at-8/brics-the-long-term-outlook.pdf [page 8]9. www.economist.com/news/briefing/21582257-most-dramatic-and-disruptive-period-emerging-market-growth-world-has-ever-seen?zid=295&ah=0bca374e65f2354d553956ea65f756e010. Goldman Sachs Global Investment Research (2012, March). The Rise of Growth Markets. In www.goldmansachs.com/our-thinking/focus-on/growth-markets/dataviz/index.html [March, 2012]

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2006 2010 2015 2020 2025 2030 2035 2040 2045 2050BRICs Brazil, Russia,

India, China 5,637 8,640 13,653 20,226 28,925 40,278 55,090 74,483 98,757 128,324

G7 Canada, France, Germany, Italy, Japan, UK, USA

28,005 30,437 33,414 36,781 39,858 43,745 48,281 53,617 59,475 66,039

 

Fig.1: Gross Domestic Product 2006-2050 in US$ billions

Source: Brics and Beyond, Goldman Sachs Global Economics Group, 2007

Fig.2: Global Gross Domestic Product 2011-2013: advanced economies & developing economies

Source: International Monetary Fund, 2013, in Growing Outlook Update: Growing Pains.

In the staples economic model, economic downturns are common. Traditionally susceptible to commercial trades, the Canadian staples economy has been affected during the last 15 years, when its main commercial trades and partners have been struggling with lower economic growth. This CIP interprets that the “new” staple economy in Canada means fostering five objectives: (1) to diversify trading partners; (2) to continue with the extractivism industry; (3) to enlarge free trade agreements; (4) to strengthen domestic technology and industry; (5) to promote and sustain the housing industry (this last point is my addition to Britton’s points, and this CIP will discuss this point).

This inherited colonial economic system, with a large dependence on exports of unprocessed products, has led to good, bad and neutral consequences for Canada’s economy and society. The Canadian economy has

Fig.3 Emerging-Market Share of World GDP.

Source: International Monetary Fund, 2013, in The Economist; When Giants Slow Down, July 27, 2013.

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Fig.4 World GDP Forecast up to 2030

Source: Goldman Sachs, 2013, in The Economist; When Giants Slow Down, July 27, 2013.

small domestic markets within both individual and collective chains of consumers for those unprocessed goods the economy produces the most. Thus, the Canadian economy has to rely heavily on trade. The “new” staple economy means that the known staple economy is now immersed in a period of increased global competition and currency wars, economic shocks, and the permanent instability of recurrent boom-and-bust cycles, currently enhanced by free trade agreements (FTA/NAFTA, OCDE, WTO and others).11

11. NAFTA: North America Free Trade Agreement; OECD: Organization for Economic Cooperation and Development; WTO: World Trade Organization.12. “Given the prolonged reality of Canada’s continued high export of staples products and its relatively low proportion of world export markets in manufactured end products, the pessimistic view appears most borne out by the evidence. The result, to use Innis’s terminology, is that Canada is something of a hinterland economy, one whose fate is strongly tied to events in foreign metropoles” (Britton, 1996, p.49).

On one hand, this Canadian strength in resource exports can be seen as an advantage, which has “enabled a relatively small economy to achieve a standard of living that its small domestic market could not have otherwise supported” (Britton 1996, p.15). On the other hand, revenues from this industry basically come from the demand of seasonal buyers and it does not create the multiplier effect (typical of manufactories of the second sector) on the productive chain of suppliers (jobs, products with aggregated value, research and education; in addition to that, there is no interdependence with other industries, particularly if the second sector is not strong. The currently predominant tertiary sector, also does not generate the multiplier effect of the secondary sector, nor is it able to adjust its configuration to the staple economy pattern: “Canadian tertiary industries as a group are not successful exporters, except for some consulting and engineering firms, and as a whole the sector is a source of trade deficits” (ibid., p.9). Canada historically has a “surplus on the trade of crude materials that is roughly balanced by a deficit in end products, in services, and on investment income” (ibid., p32). As a result, there are few economic development alternatives (Watkins, 1963) in pursuing endogenous growth.12

Towns and cities that are directly associated with the staples model suffer the most: when the market for the staple declines or the resource is depleted, the economic base disintegrates, and work opportunities and migrants shrink. Some cities are trying to diversify their economies, such as Hamilton (ON), Fort McMurray (AL), Sudbury (ON), and others (Hall, 2008, 2009), but few have been successful. Hamilton, a non-extractivist city and maybe

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Fig.6b: Canada’s Foreign Trade Balance (goods exports minus imports)

Billi

on o

f cur

rent

$CA

N

Year and month

Source: Statistics Canada, in Canadian Construction Overview; Reed Construction Data & CanaData, Fall 2011.

Fig.6a: Canada’s Current Account to GDP,1995-2013*

Source: Statistics Canada, 2013, in www.tradingeconomics.com/canada/current-account-to-gdp

* Strong imports, weak exports, low saving rates, high personal consumption rates as a percentage of disposable incomes

Fig.5: Canada: GDP by Industry

Source: Statistics Canada, Recent Developments in the Canadian Economy: Fall 2013; CANSIM table 379-0031 75

80

85

90

95

100

105

110

115

120

125

2007 2008 2009 2010 2011 2012 2013

index

Q1 2

007=

100

Mining, oil and gasConstructionManufacturingRetail trade

the most important post-industrial city in Canada, has been struggling with changing its revenue base within slow growth, and vacant land/building properties are a socioeconomic concern. Overall, if the economic base shrinks, budget cuts tend to keep some municipal departments and eliminate others, and city planning departments are usually rejected. Paul Bedford, ex-chief planner of the city of Toronto, sees governmental budget cuts in the current state of the city planning profession: with the exception of Toronto, “municipal planning departments are trying to figure out how to best cope with stagnation or decline”; (..) “many [municipal planning departments] have become buried deep with clusters of other functions or are even merged with other departments”, removing “planning from the forefront of the change agenda” (Bedford, 2007, p.28-29).

In the “new” staple economy, a new “staple” has been found to maintain growth. Figure 5 (Statistics Canada, 2013), shows that construction (basically housing construction) became the main contributor to the Canadian GDP (20%) with the highest growth, and this has been sustained by the Bank of Canada and the CMHC (Part II). Even historically with a good retail trade balance, the second contributor, has a very slow recovery since 2009 (fig.6a, 6b). About the “new” staple housing model, Enid Slack (Director, Institute on Municipal Finance and Governance, Munk School of Global Affairs), mentioned: “the problem with relying on the housing industry is that, the housing industry is even more unstable than the traditional staple economy” (February 3, 2014).

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1.2 Crises of Capitalism or, the Market/State Dialectic: The Exhaustion of the Intensive Stage

The Canadian economy is obviously inserted in the global economy. In this chapter I will discuss the status of the current crisis in developed countries, based on the arguments of Mandel (1999), Aglietta (1976), Deak (1985), and Leonardi (2007). Additional discussion and detailed explanation is in Appendix C.

Capitalism was generated with the enlargement of the use-values production while commodities, and its historical movement lies in the tendency of the generalization of the commodity form – the maximum commodification possible as a proportion of the whole social production. There are limits to the commoditization of production, which imposes the State intervention.13 Crises of capitalism may be seen as periods in which the development of the antagonism within the dialectic of the commodity form reaches stages in which the primacy of the commodity form is threatened. In these crises, the countertendency (State intervention/regulation) itself raises its opposite, leading efforts to re-impose the primacy of the commodity form (market intervention/regulation).

The market and the State command a dialectic defined by their antagonistic relationship regarding the generalization of the commodity form. State intervention intends to ensure the maximum enlargement possible of the market (providing the needed infrastructure). Although producing use-values directly, the State interferes at the market regulation level. In other words, the tendency of the generalization of the commodity form (from the market) induces its countertendency which materializes in State intervention (Aglietta, 1976; Deak, 1985).

Not everything can be produced as exchange-value, though. The market can organize a portion of social production, but it cannot organize “production” as a whole. Precisely what can and what cannot be produced as a commodity varies according to historically specific stages of capitalism, but the commoditization necessarily includes spatial (or urban) infrastructure (the “built environment”) and the institutional conditions for the continued re-imposition of the capital relation. The part of the product which cannot be commodified is produced directly as use-value under the direct intervention of the State (Deak, 1985).

Michel Aglietta (1976) defines three stages of capitalism: extensive, intensive and contemporary. In the extensive stage of accumulation, the rapid growth of commodity production in a combination (in extension) of proper accumulation through non-capitalist production systems (independent producers, slave labor, production for subsistence, etc.) helped to avoid serious interference into the primacy of the commodity form. The extensive stage is when the relation productivity+profit is reached by extending the capitalistic relations of production into new markets not previously absorbed through capitalism. The period for this was during European expansion overseas, up to the end of the European industrial

13. The main areas of State intervention are: institutions (property), violence (monopoly), ideology, infrastructure and spatial production, and new and obsolete industries.

16

revolutions. In contrast, the intensive stage is when the relation productivity+profit is reached by intensive productivity of labour, with technology playing an important role – from around 1880 to the 1970s. In the intensive stage, the growth of commodity production is limited to levels of productivity and consumption, and the generalization of the commodity form has an effective challenge, with consumption markets not increasing at the same extend of overall production.14 Crises in the intensive stage15 bring more attention to the widening role of the State, growing until the critical point to stunt free market principles.

The development of productive techniques and intensifying automation rapidly saturate the intensive stage, represented by an overproduction crisis, its collapse postponed due to the continuous enlargement of credit from a relaxed State fiscal policy through indebtedness and insolvency, especially after 1960, the exhaustion of the post-war boom. In 1991, the government spending was already high (fig.7), and in 2008, public/private debt reached around 275% as a percentage of GDP in developed economies (fig.8) – representing this crisis,

14. The neoliberal policies from the end of the 1970s and beginning of the 1980s (known as “Reaganism” and “Thatcherism”) by governments from some central countries represented an attempt of “re-commodification” of its economies and dominated the political scene, economic debate and policy for over a decade. The capitalistic State has to try it due to its obligation to ensure commodity production, even if it will have to produce directly use-values ahead. The problem is that privatization is not the same as commodification. The current crisis signals the demise of the US hegemony and its impending transmission to another nation-State. The last transmission of capitalist hegemony (from Britain to the US) took half a century and two (or both) World Wars. It’s not at random that we are hearing (around the last 9 years) about the “emergence” of the BRICs (Brazil, Russia, India and China): their importance is less related to their economic power, but specifically by the potential of a still non saturated consumption market, in comparison to those from developed countries. According to this view, it’s not at random too, that the last Olympic Games were in China, the 2010 Soccer World Cup in South Africa, the 2014 Winter Olympics will be in Russia, the 2014 Soccer World Cup in Brazil, and in 2016, the Olympic Games will be also in Brazil – the first time in History that countries outside of North America and Europe are chosen.15. Late capitalism is another name to call the actual crisis deriving from the second and more developed stage of capitalism (intensive). The formulation was coined after the 1929 crisis and Mandel gave it visibility in 1972.

Fig.7: Governments are spending even more for financing the indebtedness for public and private sectors.

Source: World Bank, World Development Report 1991, Washington, in www.fau.usp.br/docentes/depprojeto/c_deak/CD/5bd/3world/t1-gov/index.html.

17

the last episode was the U.S. subprime crisis in 2007 (fig.9). Canada is not immune, as figure 10 shows.

The crisis generated a reaction in the form of neoliberal policies, which try to avoid the narrowness of the commodity production and markets through privatization and re-commoditization. Its ideology focuses on two ways: presenting itself as an inevitable tendency of a new stage of capitalism (instead of its regular crises); and, trying to disqualify the State as the representative of public interest. However, these policies cannot reconstitute the market ambit. They were resumed in movements of dismantlement of the welfare State, in concentration of capital and incomes, and at the unsustainability of the continuous prolongation of consumption through enlarging the credit/debt. More explanation in appendix C.

Source: MMCDonald-Laurier Institute, 2012.

Fig.10: Canada: Provincial Insolvency in 30 years

Fig.9: In spite of neoliberal discourse which Government should not intervene in the market, Central Banks continuously help financial markets, especially during economic crises: 1990s-2000s, in US dollars*.

Source: International Monetary Fund, 2007, in Revista Exame 900.

Fig.8: Gross Total (public/private) External Debt as a Percentage of GDP:22 Developed and 25 Emerging Economies, 1970-2011.

Sources: Lane & Milesi-Ferretti, 2007; Reinhart & Rogoff, 2009; and 2012; based in World Bank Quarterly External Debt Statistics, various years; Word Bank Global Development Finance, various years.

*Data from Keen, F.S (2011) shows that the FED, under Bernanke, expanded the base money from $850 billion to $2.15 trillion into private banks after 2007.

18

The modern urban planning was born with the intensive stage in the second half of the nineteenth century, and the interest in the built environment increased with the beginning of the crisis in the 1970s. This is the contemporary context of widening State intervention, one of the key areas being intervention in space, that is to say, the production/transformation of spatial structures.

As the world economy shifts from developed to developing economies, the same happens with the importance of cities in emerging economies. From 2007 to 2025, 423 cities in developing countries—more than 70% of the City 600 (Urban World: Mapping the Economic Power of Cities, McKinsey Global Institute; fig.11) — will generate more than 45% of global GDP growth (these cities accounted for about 15 % of global GDP in 2007). The China region’s 225 cities alone will contribute an estimated 30% to the world’s projected increase in GDP.

Source: McKinsey Global Institute: Mapping the economic power of cities. McKinsey & Company, 2011.

Fig.11 “New” Global Cities In developing regions, around 420 cities will generate45 percent of global growth; Chinese cities will contribute almost 30 percent of the total

Number of citiesin the City 600

GDP growth1 by geography100% = $54.9 trillion

SOURCE: McKinsey Global Institute Cityscope 1.0

1 Predicted real exchange rate.2 Includes cities in China (including Hong Kong and Macau) and Taiwan.3 Includes cities in Afghanistan, Bangladesh, India, Pakistan, and Sri Lanka.4 Includes cities in Cambodia, Indonesia, Laos, Malaysia, Myanmar, Papua New Guinea, Philippines, Singapore, Thailand,

and Vietnam.5 S&R = small cities and rural areas.NOTE: Numbers may not sum due to rounding.

10010

12410

7428

13252329

225 21 29 14 98

Mega- and middleweight developing world cities:45 percent of global growth

Mega- and middleweight developed cities:16 percent of global growth

48 2366 3038 8

Asia

China region2

SouthAsia3

South-east Asia4

LatinAmer-ica

EasternEuropeandCentral Asia

MiddleEastandNorth Africa

Sub-Saha-ranAfrica

Devel-opingregionsS&R5

Totaldevel-opingregions

United StatesandCanada

West-ernEurope

North-east Asia

Aus-tral-asia

Devel-opedregionsS&R5

Globalgrowth

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Part II - The State of the Canadian Housing

The interaction of housing, housing finance, and economic activity has for years been of central importance for understanding the behavior of the economy, and it will continue to be central to our thinking as we try to anticipate economic and financial developments (Ben Bernanke, Jackson Hole Symposium, 31 August 2007, cit. in Muellbauer, J., & Murphy, A., 2008, p2).

The objective of this chapter is to bridge between chapters 1.1 and 1.2 by illustrating, with the current state of the housing industry, how the theoretical economic framework can be reflected in the urban development pattern in Canada. Summarizing up to this point, (1) specific characteristics from a staple economic model makes the primary resource Canadian economy susceptible to economic booms from other countries, especially the U.S., and with limited endogenous growth; we have a (2) global economy in a structural crisis, especially for developed countries, where Canada is situated, with no clear picture about how it will continue to affect local growth and employment prospects. In this scenario, the “construction” industry, basically housing, assumed the primary/most important contribution to the GDP, stimulated by Federal financial policies that have resulted in rising household debt. A detailed introduction of this Part II is in Appendix D.

Three economic fundaments shape the urban fabric and housing production/consumption scenario for the Canadian Housing state. One, is the (real) economy itself, such as general economic activity and major changes in employment conditions interfering in house/land supply and prices, and altering the spatial pattern of the demand, which the State tries somewhat to control. The second, is circulating capital, the real economy being molded by institutionalized and financial mechanisms, variations of linkages between central and private banks for determining the rules for mortgage securitization, enlargement or restriction of the market, where the State can intervene with its statutory and regulatory powers. Third, is the move by productive sectors to allocate production units pursuing cheaper land prices, together with public incentives for developing the suburban North America life-style, boosted both the demand and supply sides for low-density subdivision plans.

I consider that chapters 1.1 and 1.2 have provided the terms for understanding the current status of the real economy. Now, we will focus on the institutional, monetary and financial policies and mechanisms that the governments of the U.S. and Canada are promoting to ameliorate the crisis, by enlarging the housing market to stimulate the economy, as has commonly worked in the past, and now, also in crisis.

2.1 Housing Wealth Effect

Housing is a key part of the North American economy, usually the most valuable individual and familiar asset that is utilized also for businesses and household loans, and an important contributor to job growth, with an effect on related industries and general employment, such as banking, the mortgage sector, raw materials, construction, services (architecture, engineering) manufacturing and real estate, and even small businesses (in the U.S., 50% of all private jobs come from small businesses).16 On the demand side, income, interest rates, credit availability, demography, and expected price appreciation are major drivers. On the supply side, credit availability, land-use planning controls, the tax system, municipal attractiveness, and the availability of cheap land (usually greenfields) have effects on housing supply. In the U.S., the National Association of Home

20

Builders estimates that about three jobs are created directly from every single-family home built, and about one job from every multi-family rental unit built, with the economic benefit extending indirectly, not only related to the construction itself.17 In Ontario, 2.32 direct/indirect full-time jobs were created per housing start in 2007 (Will Dunning Inc., based on Statistics Canada data, 2011). The State maintains a close eye on the housing industry because a slight increase in interest rates affect mortgage rates, which can cool down the activity, especially for new houses, affecting the whole distributive productive chain. Figure 12 clearly shows that countries which have their economy set in the North American style for the housing industry and markets perform better economically.

-80% -70% -60% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

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OECD Average GDP Growth %

x

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D A

vera

ge E

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oym

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.218

5 Ad

just

ed R

p-va

lue

= 0.

034;

t =

2.34

8

Figure 1: Average per capita increase in employment and GDP 1991–2005, selected countries.

Source: Schwartz, H.(2008); Housing, global finance, and american hegemony: Building conservative politicsone brick a time; Comparative European Politics, 6, 262-284

Countries to the Right on the X-axis have above average gains in Employment after adjusting for populationgrowth. Countries North on the Y-axis have above average gains in GDP per capita expressed in constant2000 USD. Thus, France combined average employment growth with slightly below average GDP per capitagrowt, and Germany, Japan or Switzerland, very below average GDP per capita growth.

Countries to the Right on the X-axis have above average gains in Employment after adjusting for population growth. Countries North on the Y-axis have above average gains in GDP per capita expressed in constant 2000 USD. Thus, France combined average employment growth with slightly below average GDP per capita growht, and Germany, Japan or Switzerland, very below average GDP per capita growth. Source: Schwartz, H.(2008).

Fig.12 Average Per Capita Increase in Employment and GDP 1991–2005, selected countries.

16. U.S. Small Business Administration, cited in The Importance of Housing to the U.S. Economy, in https://www.ivyfunds.com/perspectives/importance-housing-us-economy17. National Association of Home Builders, “The Direct Impact of Home Building and Remodeling on the U.S. Economy,” October 2008; http://www.nahb.org/generic.aspx?sectionID=734&genericContentID=103543&channelID=311

The basic idea, in a strong economy with employment growth, is that people are confident to purchase homes and feed the chain of related supplies and appliances; conversely, in a weak economy, people are less likely to buy new homes or renovate existent ones. The thermometer of the housing industry assess other consumer-based indicators for spending in the whole economy. This is why in North America, the housing starts index is so important; measured by the New Residential Construction Report in the US and by the Canada Mortgage and Housing Corporation in Canada, it is considered to be a critical monthly indicator of economic strength. It is forward-looking, measured through surveys of home builders nationwide according to building permits, housing starts and housing completions data of new residential construction projects. Housing starts and building permits are considered leading indicators that anticipate changes in the economy’s pattern, and are carefully watched by investors and analysts. For evaluating the real estate market, housing starts have to be looked at in conjunction with home sales, the rental component of the Consumer Price Index (Statistics Canada18) and the Housing Price Index (Statistics Canada19).

21

18. www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/cpis01a-eng.htm19. www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/manuf12-eng.htm

The current channel of cheap credit in deep mortgage markets is crucial for housing wealth, what drives what probably everybody wants: higher house prices with lower down payments. In an opposite direction, countries with restrained credit or limited loans have the opposite effect - consumption falls when house prices rise: home buyers save more for a large down payment, a rationale also applicable for renters, expecting higher rent if the house prices increase (Muellbauer & Murphy, 2008).

2.2 Housing Prices: Planning, the Supply Side

Socially speaking, the objective of planning is to promote distributive efficiency in the provision of public goods and services in scale, timing, and spatial configuration. In term of urban economy, planning means organizing the conditions of competitiveness on the supply side, according to statutory and legislative mechanisms to control and tax the land use, which sets the determinants for property values and prices of land and buildings.

Efficiency in the spatial distribution of public services has long been debated between those in favor of and against of conventional suburban sprawled developments. Studies suggesting lower costs of public services in compact urban development include Real Estate Research Corporation (1974), Burchell and Listokin (1995), Frank (1989), and Blais (2010); conversely, studies arguing that public services are not less costly in compact developments include Windsor (1979), Peiser (1984). Regarding scale and spatial configuration, Hirsch (1984) has the following opinion:

There is little evidence that horizontally integrated municipal services [police, education, refuse collection, hospitals, and fire] incur scale economies beyond a population size of 100,000 to 250,000 (....) For vertically integrated services, matters are different. (...) Cost studies of vertically integrated electricity, gas, water, and sewage treatment services are available, and they all indicate declining unit cost [for large populations] (p272-73, cit. in Knaap, 1998, p272).

Land use planning and building regulations affect the spatial configuration and land/housing prices in a variety of ways. Whether planning imposes development restrictions (a typical view of scholars in economics and the real estate industry), the supply of developable land can be limited, increasing land/housing prices. Whether land use planning enhances neighborhood amenities and public services (a typical view of planning scholars), housing/land prices will probably also increase, even with a surplus of developable land, because amenities/public services increase the overall level of housing quality. Building and maintaining a good public school or library, or other desired public service, could raise surrounding property prices; higher property values seem to appear close to public parks (Schroeder 1982; Weicher & Zerbst 1973),

22

20. Pressed by fiscal constraints since 1980s, local governments have created impact and user fees, and development exactions - a broad range of regulatory justifications to force developers to contribute to the cost of communities’ public facilities (such as access roads, off-site drainage easements or new parks).

LRT stations (McDonald & Osuji 1995; Gatzlaff & Smith 1993), sewer interceptors and centralized sewage systems (Nelson & Knaap 1988), better public schools (Jud 1985), and other public investments. Bramley (1993) found that British governments respond to high housing prices by releasing more land through the statutory planning system for housing development; but despite housing construction being stimulated, he found a minor effect on diminishing housing prices. Potepan (1996) found that increases in land supplies, which can be understood in part as less land/building regulations, can just slightly lower house prices/rents; and that demand and economic factors (robust/weak economy), differences in construction wages and construction costs, seem to have more long-term effects on property prices than land prices.

Similarly, good access to public services can be related to higher taxation and can be capitalized into higher property values (Altshuler & Gomez-Ibanez, 1993; Gyourko, 1991; Skaburskis, 1990). At the same time, it is possible to say that property taxes and other taxes lower land prices, especially if it is not counterbalanced by planning advantages/amenities, such as public services (Oates & Schwab 1995; Skaburskis 1995; Wassmer 1993). This means a delicate balance for sprawled municipalities, where revenues heavily rely on property taxes from new subdivision plans, without land improvements.

The extent to which land use planning and location factors influence land and housing prices depends largely on the availability of land and housing markets. Where there are plenty of greenfields, the North American case, competition with nearby markets and municipalities for revenues imposes constraints on the effects of planning. Whether they are not, and infill developments are preponderant, land use planning may play a significant role, including contributing to higher price effects. Other assumptions include that property prices generally decline with distance from the central business district (CBD); but even if the location is far but has good connectivity to the CDB or other urban centres, it can increase prices (Waddell et al., 1993; McDonald & McMillen, 1990).

By determining density restrictions, zoning influences property prices and the spatial configuration, but it may vary according to how strictly zoning is enforced or who controls the zoning process, exactly what local governments control through zoning, and the metropolitan context in which that local zoning control takes place. In North-America, most local governments seek to curtail high-density development (Knaap, 1998), and this negative approach to higher density affects property prices more than permissive use (Pogodzinski & Sass 1991).

Typically, property prices are higher in higher density zones (Knaap 1985; Jud 1980), and prices in suburban communities are more uniformly affected by zoning than in central cities (Fischel 1989b, 1988). It seems that residents, particularly in suburban areas, are disposed to pay extra for land use constraints, and that zoning policies and the housing industry tend to follow this market differential (McMillen & McDonald, 1993, 1991a; Thorson, 1994). In sum, regulatory controls within municipalities can influence land and housing prices, shifting the demand for land from one part of the metropolitan area to another; which

23

can be understood that, facilitating developments can lower property prices only by a small fraction. Conversely, limiting urban sprawl can increase urban density, probably increasing land and housing prices. Fischel (1988, p.54) concludes:

Land use management, especially traditional zoning, does provide some benefits that would seem to be difficult to obtain under less coercive conditions. Abolition of zoning and related management would seem to create net costs; land use management, especially overall growth control programs, are important constraints on the land market. This in turn affects housing values.

2.3 Housing Prices: The Demand Side, and the Housing Crisis

As typical recommendation from a housing market advisor, “past performance is not a guarantee of future results”16

Basically, capital gains in the housing industry come from two sources: the real economy, by minimizing construction and land costs, with limited elasticity; and from the circulating capital, by maximizing future demand. Considering housing as a commodity, land/housing prices are influenced by the present value of future gains expectations (Capozza & Helsley 1989; Amott 1980; Chinloy, 1996); or, growth expectations increase current housing prices. Roughly speaking: if the expected profitability through speculation is not considered, if there is no planning regulation or, if the regulation is fragile, housing prices cannot be much higher from construction costs. Construction costs constitute about 50%, and land about 25% of a typical house in the U.S. and Canada. As a sample, the components of housing costs are in table 1 (data from US; due to similarities between both markets, see percentage rate).

Data from US; due to similarities between both markets, I consider the percentage rate applicable to Canada. Source: National Association of Home Builders of United States (1996)

Tab.1: U.S.: Cost Components of an Average New Single-Family Home, by Census Regions 1995

Since 2000, in the U.S., low interest rates, financial innovations in securitization and changes in procedures by credit rating agencies resulted in the creation of a second category of housing consumers, extending loans for those whose credit histories would not have been previously accepted by the mortgage regulation (named sub-prime market). In 2004, a combination of interest rates signalizing a return to normal levels, and an already expanded housing stock with overvalued prices started to show a increase in default in mortgage loans payments,

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Source: tradingeconomics.com/united-states/interest-rate

Fig. 13: Unites States Interest Rates/Benchmark Interest Rate

and housing prices started to decline, which led to a general contraction in the credit supply, and not only for the sub-prime market or to the housing industry - losses to the order of $500 billion by early 2008 (Mishkin 2011; Greenlaw, Hatzius, Kashyap, & Shin, 2008; Ashton 2009; Fligstein & Goldstein 2010; McNall7 2009). Few neoclassic economists, such as Paul Krugman did, stood up to speak on how fragile or forged the affordability bases of the inflated housing market were and the dangers of future corrections. Trying to curb the expansion of the lending process, interest rates rose until the middle of 2008, when the overall economic activity finally plummeted and forced interest rates to sharply fall to the current 0.25% a year (fig.13).

After the U.S. housing crisis in 2008, the share of housing growth to GDP in the U.S. fell to about 2% and now is 2.5% of the GDP growth21; the number of jobs in housing-related industries collapsed, resulting in a struggle for economic growth. As a typical response, the Federal Reserve (Fed) lowered interest rates to near zero, but with prices, foreclosures and overbuilding high, the housing industry remained stalled despite interest rates close to zero. As another resource, the Fed decided to purchase mortgage-backed securities (MBS), a move followed by the Bank of Canada and the Canadian Mortgage and Housing Corporation (CMHC) (fig.14). The current international financial crisis has highlighted deficiencies in the self-regulation of the financial system; there is an emerging consensus that prudential regulation in recent years was too lax, and banks know that public agencies would save them from their risk taking excesses. It has become clear that the practice of lending long and funding short has become extended in recent years and that liquidity covered by the banking system has been negligent. The U.S. sub-prime crisis has extended the connections between housing and the macroeconomy by seizing large segments of credit markets and a widening of credit spreads (Sassen, 2009; Mortgage Architects, 2007).

$0

$20

$40

$60

$80

$100

$120

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Out

stan

ding

Cre

dit,

$Cdn

Billi

ons Regular NHA MBS

NHA MBS purchased via CMB

Source: KPMG 2008, cited in Walks, 2012.

Fig. 14: Canada: Growth in NHA MBS (Mortgage-Backed Securities) purchased via CMB (Canada Mortgage Bond program: CMHC and CHT take mortgages off of private banks, allowing them to originate new mortages).

25

Canada is following similar steps the U.S. took in dealing with the combination of public/private debt and the housing crisis. By purchasing MBAs, the CMHC and Bank of Canada are assuming as their responsibility risks taken from the private securitization industry (fig.15); and thus, socializing the risk. Walks says, “by 2009, the Canadian mortgage market had come to resemble the U.S. mortgage market before its crash, with over 30% of all outstanding mortgage credit now securitized and packaged in mortgage-backed securities” (Walks, 2012, p.18) (fig.16). With so many State guarantees, housing prices continue to increase (fig.17, 18). However, the Bloomberg Agency said that it is improbable that the credit crisis in Canada can be solved in traditional ways: “There’s little evidence exports will help Canada offset any drag from its housing-sparked debt addiction. In the third quarter [of 2012], outbound shipments, including oil, plunged 7.8% from the second quarter and had dropped 8% since 2000” (Thorpe, Argitis & Dmitrieva; Bloomberg, 201322).

0%

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60%

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100%

120%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

MBS

, %, A

ll of

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ada

Source: CMHC 2009a, cited in Walks, 2012 (p.15)

Fig. 15: Canada: Growth of CMHC-guaranteed mortgage backed securities (NHA MBS) as a proportion of the growth of total mortgage debt

Source: CMHC 2009a, 2009b, cited in Walks, 2012 (p.18)

Fig. 16: Canada: CMHC-guaranteed mortgage backed securities (NHA MBS) as a proportion of the growth of all outstanding mortgage debt

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21. U.S.Census Bureau and S&P/Case-Shiller Home Price Index, cited in https://www.ivyfunds.com/perspectives/importance-housing-us-economy; and in www.nahb.org/generic.aspx?genericContentID=66226; table 1: www.nahb.org/fileUpload_details.aspx?contentTypeID=3&contentID=66226&subContentID=20610022. Thorpe, J., Argitis T., & Dmitrieva, K. (2013, February 27). Canada losing debt halo as property peaks under Carney. Bloomberg. www.bloomberg.com/news/2013-02-27/canada-losing-debt-halo-as-bull-market-housing-peaks-with-carney.html

26

Source: Teranet-National Bank 6-City Index, Canada; Shiller-Standard and Poors 20-City Index, USA, cited in Walks, 2012 (p.11)

Fig. 17: Canada and US: Index of Urban Real Estate Prices

60.00

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CanadaUnited States

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Encouraged by low interest rates of 0.25% from the end of 2008 to August 2010 (fig.19), and with five-year mortgage rates of less than 3%, the average price of homes sold increased 82% between 1992-2012, and more than 30% from January 2009 to January 2012, according to the Canadian Real Estate Association. The value of mortgages insured by the CMHC increased 98% to $575.8 billion at the end of September, 2012, from the end of 2006; and in 2011, Canadians became more indebted than Americans.22 The ratio of private debt to disposable income has continued to rise, to a record 170% as a proportion of GDP in 2010, with 78% household debt, according to Statistics Canada (Walks, 2012; fig.20). Although the government has made a fetish of its prudence with the public finances, the current impasse is seen in an official contradictory message of “borrow but save”, maybe because “it was the only tool the Bank of Canada had. The reality, they really could not lift interest rates” (Douglas Porter, chief economist at Bank of Montreal). Within a global race for low interest rates, any increase would cause the Canadian dollar to appreciate, constraining the staple economic model even more, already in a global quenching, and increasing household debt. In January 2013, Mark Carney, ex Bank of Canada Governor, said that rate increases were improbable because of weaker-than-anticipated business investments and exports.22

Source: Teranet-National Bank House Price Index, Canada; in The Globe and Mail, Jan 12, 2014.

Fig. 18: Canada: Housing Price Index of Urban Real Estate in Toronto, Vancouver, Calgary and Winnipeg, 1999-2013

27

Source: tradingeconomics.com/canada/interest-rate

Fig.19: Canada Interest Rates/Benchmark Interest Rate

0%

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Outst

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ebt a

s % o

f GDP

Fig.20: Outstanding Private Debt as a proportion (%) of GDP.

Source: Walks (2012); fromStatistics Canada, Cansim II database, Tables 3800002, 1760032 and 3780012

Bloomberg estimates that the share of GDP to housing in Canada, including construction and renovation, was about 20% in February 2013; a similar U.S. measure was at 18% in 2005, back up by easy monetary policy and regulation. Moody’s Investors Service, on January 28, 2013, downgraded six Canadian banks, saying debt and inflated home prices have left Canadians vulnerable to the extended global crisis. Benjamin Tal, deputy chief economist at the investment-banking Canadian Imperial Bank of Commerce (CIBC) said, “We basically borrowed our way out of this recession”…“now, it’s payback time. We will be in for a period of long, slow growth”.22

Weale (200723) says that there is a close analogy between the effects of rising house prices and the effects of government debt: rising house prices and low interest rates reduce the apparent need for people to save or to finance their retirement, in addition to stimulate borrowing for general consumption; on the government side, this means in the end, a social burden that the State has to shoulder through increasing government debt. Both have the effect of reducing the economy’s stock of productive capital and increasing the dependence on revenues or investments from abroad, backing up the rationale of the staple economy. However, while the increase in public debt may be used to fund collective goods such as health and education, the increase in average house prices typically temporarily benefits the wealthy, and can create social and spatial exclusion (Gibbons & Machin, 2008).

According to Muellbauer & Murphy (1997), two forces will dampen the next upturn of macroeconomic instability: unfavourable demographic trends, especially an aging population, and high levels of debt, especially

23. On the assumption that between 1987 and 2007 “excess” house price appreciation was 1.9% year, Weale argues that this appreciation was equivalent to a government deficit of 4% year of US GDP over these years. Cited in Murphy & Muellbauer (2008).

28

after interest rates move to normal levels - low interest rates are not sustainable in the long run. One of the dilemmas in targeting housing prices by managing interest rates or preserving the liquidity of private banks in a small open economy, such as Canada, may be the unintended effect on the exchange rate: if short-term interest rates are raised in response to an excessive appreciation in house prices, the exchange rate is likely to appreciate, damaging the “real economy” – exports of natural resource goods and manufactured goods. We are going to see in Part III, how this discussion affects a strong portion of municipal revenues - taxation and charges related to land uses and housing construction. Or, using words from a planner (anonymous) from Hemson Consulting said that, “municipal revenues created this straitjacket about relying on the housing industry that it is very difficult to detach; but, urban sprawl is being slowly reduced in the last 10 years”.

Part III - Municipal Funding / Regulatory Mechanisms

Until the 1970s, most of the first generation of hard infrastructure’s urban expansion was funded by the government, either directly or through taxation. By the middle of the 1970s, successive economic crises began to reveal the unsustainability of affording infrastructure only through this model. Thus, even after being used for almost 40 years as lot levies (Slack, 1994), the application of development charges as a legislative piece to fund growth was finally officialised in the 1989 Development Charges Act, and, later, the respective 1997 amendment. Funding growth has become more difficult since 2001, when transfers from provincial and federal levels were reduced from 50% in 1980, to 16% in 2001 (Leisk et al., 2004, p.33); “Notwithstanding the significant decrease in support from other levels of government, municipalities have not been given significantly enlarged powers to raise revenue for their own purposes” (p.34). Since then, municipalities have been facing difficulties in financing growth-related infrastructure, using alternative revenue sources, such as user/license fees, public-private partnerships, and increasing development charges. Municipal revenues are largely financed by property taxes; in this sense, home ownership and increasing housing/land prices are attractive due to benefits to the municipal tax base - if land/housing prices increase, property taxes increase.

About property taxation, development revenues and the pattern of urban development, Jamie Bosomworth (Manager, Strategy and Innovation Development Services Commission, City of Markham) said that “municipalities at north of Steeles Av., basically, Vaughan, Richmond Hill, Markham and Brampton, are in a fierce competition for the same market of developers and population for similar housing developments; everybody is closely watching what each other is doing about municipal revenues related to that” (February 4, 2014). About regulatory mechanisms and the position that the status quo can be convenient for municipalities and developers, Remo Agostino, (Vice President, Development, The Daniels Corporation) said that, “developers follow the legislation and rules determined by the province and municipalities; the type and pattern of housing developments are a combination between municipal regulation, demand and profit margin for municipalities and developers” (February 3, 2014).

Housing policies using the home ownership model became the mandate of public/private sectors to deal with housing supply, by considering home ownership as asset-building that allows people to build equity in their homes and other positive impacts (Hajar 2009, Shlay 2006, Gree & White 1997; Haurin & Parcel 2002). Government programs and subsidies stimulate home ownership, such as the Canada-Ontario Affordable Housing Program (initiated in 2008) and the Home Ownership Assistance Program (City of Toronto, 2010ab, 2012ab, 2013), as well as historically decreasing levels of mortgage rates from the private banking system (fig.21). Also, mortgage

29

Fig. 21: 5-year Fixed Mortgage Rate and the 5-year government bond Yield, 2001-20132.

1 Chartered bank posted interest rates2 Latest data point is April 2013Source: Bank of Canada, in Canadian Housing Observer (CMHC, 2013)

%

0

21

3456789

2012

2013

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

5-year �xed mortgage rate1

5-year government bond rate2

securitization rules defined by the CMHC help consumers to purchase homes with a minimum down payment of 5% (Canadian Housing Observer, CMHC, 2013). And, in spite of high public/private debt, mortgage credit has re-accelerated after the 2009 crisis (fig.22), increasing the already high debt exposure of Canadian financial institutions to housing mortgages, already the single largest asset class exposure, around 42% (fig.23).

Fig. 22: Mortgage Credit has re-accelerated, 2005-2011.

Fig. 23: Housing is the Single Largest Asset Class Exposure among Canadian Financial Institutions, 2005-2011.

Source for figures 22, 23: Statistics Canada, Bank of Canada; in Remarks by Mark Carney, Governor of the Bank of Canada, Vancouver Board of Trade, 15 June 2011

Residential uses pay higher development charges and less property taxes than non-residential uses, but, by far, the municipal inventories for property assessment by the Municipal Property Assessment Corporation (MPAC), comprise a majority of assets related to residential uses. Land, as fixed capital for current or expected development is proving itself resistant to crises. The evolution of prices devoted to land uses in

30

24. City of Toronto Staff Report, “Development Charges-Background Study and Proposed By-Law”, October 27, 200825. Councillor Mark Grimes website(2013, October 18). In http://markgrimes.ca/toronto-city-council-highlights-meeting-october-8-9-10-11-2013/

Single family homes

4,500

5,500

6,500

7,500

8,500

9,500

40,000

60,000

80,000

100,000

2009 2010 2011 2012 2013

units

VacantStarts

Source: Statistics Canada, CANSIM tables 027-0010, 027-0051.

Fig. 24: Housing Starts for Single-detached dwellings in Canada

the four municipalities of the case studies of my research show that in a time frame of only seven years, all municipalities had land prices increased in all land uses.

Because the number of bedrooms or population per unit (PPU) instead of area is considered for DC calculation, higher density developments tend to pay a higher charge per hectare/acre than low density developments, although some services have a lower per unit or per capita cost in higher density developments (RCCAO; Amborski, 2011). In Toronto, 2008, the City commissioned a study that was used as the basis for proposing an increase in development charges; the recommendation was the following increases: 126% for single and semi-detached units, 123% for two-bedroom apartments, and 144% for one-bedroom and bachelor units24 - the increase was approved by Council in October 11, 2013 (Bylaw 1347-2013), to a universal increase over two years of 75% for residential uses and 25% for non-residential uses.25

Thus, on one hand, efficient development subsidizes inefficient development: small, high-density lots subsidize large lots, and smaller units tend to subsidize larger units. On the other hand, as most municipalities do not apply area-specific development charges, relatively low-density developments pay the same per unit charge as built-up areas where services are already extended. Consequently, as they all pay the charges based on the same average costs, the low-cost areas tend to subsidize the high-cost areas (Blais, 2010). Lloyd Noronha, (Director of Development Finance & Investments at the City of Vaughan) said that, “there is a need of reviewing how property taxes and development revenues are generated, because the way they are today, it seems they are reproducing sprawl; the government realizes that, and this matter is currently being discussed in the conference ‘Development Charges in Ontario - Consultation Document, fall 2013’” (November 19, 2013).

Both in peripheral or central areas, an over-reliance on development charges and property taxes as a continuing revenue source seems to be an unstable strategy. As we see in figure 24, during economic downturns, housing activity tends to decline and municipalities face shortfalls to meet expenditure commitments that were predicated on future development revenues and continuously increasing housing prices. If prices decline, property taxes tend to decline, diminishing this main source of municipal revenues.

31

The result in the urban fabric, despite the Ontario government initiatives to curb urban sprawl, such as the Smart Growth principles, the Provincial Policy statement (2005), the Growth Plan for the Greater Golden Horseshoe (2006) and Places to Grow Act (2005), shows that the status quo of conventional pattern of sprawled urban developments is still leading. A planner from the City of Vaughan (anonymous, did not want to identify his/her self) said that, “of course we stimulate a specific type of development [single-detached units], but you will not hear this publicly here”. City centres grew by 5.3% with a population of 13,682,144 (13.7% of total the population), less than the national average; and peripheral areas grew by 8.7% with a population of 13,213,599 (13.2% of the total population) over the 2006-2011 period (fig.25, 2011 Census26).In other words, even our case studies showing in some cases a small decline in the production of single-detached and increase of apartment units, municipal funding/regulatory mechanisms and the housing industry maintain the status quo in modeling the urban fabric. In 2008, Statistics Canada showed the following densities by type of neighborhood (tab.2).

Fig. 25: Canada: Peripheral areas grown more than central areas, 2006-2011

Numbers in blue bubbles show the increase in population of suburban communities. Source: 2006-2011 Census Canada

Tab.2: Canada, 2008: Distribution (%) of population by type of neighborhood

1. In low-density neighbourhoods, 66.6% or more of the housing stock is composed of single family dwellings, semi-detached dwellings or mobile homes. In medium-density neighbourhoods, the percentage is between 33.3% and less than 66.6%. In high-density neighbourhoods, these types of dwellings comprise less than 33.3% of the housing stock.2. Census Metropolitan Areas. Source: www.statcan.gc.ca/pub/11-008-x/2008001/t/10459/4097957-eng.htm

Up to this point, the position of this CIP is that, regardless of the conventional rationale of policy makers and the development industry (that suburbia and single detached houses are what people want), policy makers and developers should develop a solid economic framework that is economically and environmentally sustainable; and that the status quo modeling the urban fabric is mostly possible due to the federal fiscal support encouraging home ownership and the way the municipal funding mechanisms are set.

26. The Canadian Press (2012, April 12). New census data shows Canadian suburbs rule: Planners stumped by demographic surprises. In www.cbc.ca/news/canada/story/2012/04/11/census-suburbs-growth.html

32

3.1 Sources of Municipal Revenues

Revenues are generated for bearing the costs of three types of municipal expenditures: infrastructure operating/maintenance; services that residents receive; and for funding growth, usually in new areas or greenfields.

Municipal taxes:• Property taxes• Special area taxes• User fees: licenses, permits and rents • Fines and penalties • Investment income • Development charges

Federal / Provincial transfers:• Payments in lieu of taxes • Conditional and unconditional grants

Municipal revenues have the following advantages: autonomy, flexibility, accountability, some predictability, and are broadly distributed as follows: property and related taxes 53%, user fees 23%, provincial transfers 15%, federal transfers 1%, other revenues 8%. Broad municipal expenditures are: transportation 19%; health, social services, and social housing 13%; water, sewers and garbage 17%; recreation and culture 12%; debt charges 4%; planning and development 2%, other 16% (Slack, 2003a). Some tax bases and charges are existing policies, but others are at the discretion of local councillors without a uniform methodology, city-wide policy or longer term vision (Matthews, 2010). A detailed description of how these revenues is contained in Appendix E.

3.2 Case Studies

The data collection for each city was organized into six categories. First is the compilation of the 2006-2012 numerically most significant sources for municipal revenues: property taxation, development charges/reserve funds, user fees charges, investment income and conditional government grants. This information was collected from respective municipal budgets, and consolidated statements of financial position. Second, population size and income, from the 2001, 2006, and 2011 Censuses; and, the 2010 income composition in private households (market income and government transfer payments) from Statistics Canada; third, total private dwellings distributed according to structural type, including single-detached, semi-detached, row/townhouses, duplex apartments, apartments of 5 storeys or more, and apartments fewer than 5 storeys – information taken from the 2001, 2006, and 2011 Censuses; fourth, the average and median dwellings price by structural type for every October from 2006-2012, data taken from the Toronto Real Estate Board (TREB) and the Canadian Real Estate Association (CREA, for Hamilton, and prices are averages of the respective years); fifth, 1994-2013 evolution of development charges for residential use,

33

information taken from respective municipalities and other sources; sixth, 2006-2012 building permits by residential use, information taken from the Ministry of Municipal Affairs and Housing; eight, the 2006-2013 evolution of the current value assessment (CVA) of lands by use type, according to the MPAC. Comments about the limitations of this case study’s research are in Appendix F.

Despite the argument of shrinking revenues, all municipalities showed growing revenues. For municipal revenues,

1. Property taxation remain the most important source of revenues, comprising between 36.71% (Vaughan) and 50.81% (Brampton)2. Development charges seem to be a highly volatile source, from an average of 2.90% (Hamilton) to 17.12% (Brampton)3. User fees/service charges are more stable than property taxes and DCs while revenues and are from 12.21% (Brampton) to 28.33% (Markham)4. The average investment income, surpluses from reserve funds generated by tax collections, grant payments, and returns from investments in the financial market varies between a constant year amount, or slight increase/decrease: 1.52% in Hamilton and 3.88% in Markham5. Government conditional grants are a small more-or-less constant portion (lower-tier municipalities of Vaughan (1.30%), Markham (1.42%), Brampton (2.46%), and 21.66% for the single-tier Hamilton), but started to grow substantially after the 2009 recession for all municipalities. There was a clear change between 2008/2009, when the recession somehow altered previous patterns of revenues: DCs’ contributions and investment incomes fluctuated, and government grants fluctuated (Hamilton) or slightly increased (tables 1 of respective municipalities, appendix G). Other findings are presented by sections and in Appendix G

Regarding the urban sprawl and almost 10 years of Smart Growth principles being highlighted in provincial studies and official documents, the case studies show that Markham and Vaughan had improvements in diminishing the proportion of singles/semis detached units, and Hamilton and Brampton maintained the status quo.

34

3.2.1 Municipal Revenues

The analysis for each city was organized between Total Revenues, Property Taxation, Development Charges/Reserve Funds, User Fees/Service Charges, Investment Income and Government Conditional Grants for the 2006-2012 period. Original charts with additional variables and related numbers are in Appendix G.

To investigate my hypothesis, a relationship between the status quo of producing sprawled pattern of urban development and the distribution of sources of municipal revenues, I had the following findings: 47.79% of total municipal revenues in Hamilton, 48.39% in Vaughan, 48.57% in Markham, and 67.93% in Brampton are related to land uses, basically property taxation and development charges (fig.26).

Fig. 26: Distribution of Major Municipal Revenues, 2006-2012: Bramptom, Hamilton, Markham and Vaughan

*average contribution increase for total municipal revenue in 7 yearsBrampton Hamilton Markham Vaughan

Land Uses: Property Taxes & Development ChargesLicense/Permit fees & Services ChargesGovernment Transfers

0

10%

20%

30%

40%

50%

60%

70%

80%

67.9

3%

47.7

9%

48.5

7%

48.3

9%

Sources: Municipal Budgets, and Consolidated Statements of Financial Position for respective municipalities and years; in Ministry of Affairs and Housing.

There is an overall constant and similar residential land use distribution in all municipalities, a slight increase in commercial lands, and a slight decrease for industrial uses (fig.39a, 40a, 41a, 42a, and appendix G). The percentage of CVA for farmlands has slightly shrunk in Brampton (from 0.29% in 2006 to 0.26% in 2013), and Vaughan (from 0.30% in 2006 to 0.26% in 2013); Hamilton and Markham basically maintained the same proportion (appendix G).

The evolution of prices devoted to land uses (fig.39b, 40b, 41b, 42b, and appendix G) shows a less uniform pattern than just analyzing land use distribution. In a time frame of only seven years, all municipalities had land prices increased in all land uses, from a minimum of 17.19% in Hamilton to a maximum of 73.11% in Brampton. Residential land prices increased 33.58% in Hamilton, 53.17% in Brampton, 56.08% in

35

Markham, and 63.86% in Vaughan (fig.27a). The growing percentage of commercial lands valorized even more than residential lands, 43.94% in Hamilton, 62.36% in Markham, 67.07% in Vaughan, and 73.11% in Brampton (fig.27b). Even the shrinking percentage of industrial lands had values increased: 17.19% in Hamilton, 17.95% in Brampton, 30.36% in Markham, and 48% in Vaughan (fig.27c).

Fig. 27a: Residential Land Prices Increase, 2006-2012

$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

33.58%H53.17%B

63.86%V56.08%M

2006 2007 2008 2009 2010 2011 2012 2013

BramptonHamilton

MarkhamVaughan

Fig. 27b: Commercial Land Prices Increase, 2006-2012

$0

$2,000,000,000

$4,000,000,000

$6,000,000,000

$8,000,000,000

$10,000,000,000

$12,000,000,000

67.07%

73.11%62.36%

43.94%

2006 2007 2008 2009 2010 2011 2012 2013

Sources for figures 27a, 27b, 27c: Ministry of Municipal Affairs and Housing for respective municipalities, based on the Municipal Property Assessment Corporation values.

Fig. 27c: Industrial Land Prices Increase, 2006-2012

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

$4,000,000,000

$4,500,000,000

48%

17.95%

30.36%17.19%

2006 2007 2008 2009 2010 2011 2012 2013

Between the four municipalities in the 2006-2012 period, figure 28 shows the city of Markham with the highest municipal revenue increase (146.89%), followed by Vaughan (135.49%), Brampton (132.79%) and Hamilton (29.56%). The single-tier Hamilton had the highest revenue, which is related to higher government transfers (fig.32). Figure 29 shows Brampton with the highest (50.81%) average property taxation contribution, Vaughan with the smallest (36.71%), and all cities show an increase in this type of revenue. Figure 30 shows Markham with the average highest (28.33%) user charges contribution and Brampton with the smallest (12.21%), and again, all cities show an increase.

36

Sources for figures 28 to 33: Municipal Budgets, and Consolidated Statements of Financial Position for respective municipalities and years; in Ministry of Municipal Affairs and Housing.

Fig. 28: Total Municipal Revenues Growth 29.56%

132.79%

146.89%

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

$1,800,000,000

Brampton Hamilton Markham Vaughan

2006 2007 2008 2009 2010 2011 2012

135.49%

Fig. 29: Property Taxation

44.88%*

50.81%*

*average contribution increase for total municipal revenue in 7 years

37.57%*

Brampton Hamilton Markham Vaughan

2006 2007 2008 2009 2010 2011 2012$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

36.71%*

Fig. 30: User Fees / Service Charges

*average contribution increase for total municipal revenue in 7 years

27.74%*V

12.21%*

17.86%*

Brampton Hamilton Markham Vaughan

2006 2007 2008 2009 2010 2011 2012$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

$300,000,000

$350,000,000

28.33%*M

Fig. 31: Investment Revenues

*average contribution increase for total municipal revenue in 7 years

1.83%*

3.25%*

1.52%*

Brampton Hamilton Markham Vaughan2006 2007 2008 2009 2010 2011 2012

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

3.88%*

Fig. 32: Conditional Grants/Transfers

*average contribution increase for total municipal revenue in 7 years

1.30%*V2.46%*

21.66%*

Brampton Hamilton Markham Vaughan2006 2007 2008 2009 2010 2011 2012

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

1.42%*M

Investment revenues (fig.31) vary between a constant year amount, with an average slight increase to all, except for Hamilton, with a sharp increase in 2008. There is a similar slight increase in government transfers for Bramptom, Markham and Vaughan (fig.32) after 2009, and again, Hamilton had a high increase after 2008. Hamilton is a single-tier municipality (Hamilton receives more governmental transfers for providing services that Regions provide for Brampton, Markham and Vaughan), and is facing slow growth after an economic decline during the last 20 years due to the exhaustion of the steel industry. Impressively 21.66% of total revenues are grants/transfers, the highest between municipalities; not surprisingly, only 2.90% of total revenues come from DCs. All municipalities have shown fluctuation in DCs contribution (fig.33), and the comparison of graphics 4 to 8 shows DCs as a high percentage of municipal contribution, usually just after property taxes, and the most volatile.

37

*average contribution for total municipal revenue in 7 yearsBrampton Hamilton Markham Vaughan

2006 2007 2008 2009 2010 2011 2012$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

2.90%*

10.82%*

11.87%*

17.12%*Fig. 33: Development Charges /Reserve Funds

3.2.2 Population and Income

Brampton (521,310; tab.3a) has a similar population of Hamilton (519,941; tab.3b), and the highest population growth (60.19%), followed by Vaughan (57.29%) and Markham (44.62%). From 2001-2011 (tab.3a, 3b, 3c, 3d), market incomes decreased for men in Brampton (-15%) , Markham (-7.53%), Vaughan (-5.4%), and increased 2.54% in Hamilton. Women’s market incomes decreased -1.7% in Brampton, increased 2.32% in Vaughan, 2.19% in Markham, and 28.86% in Hamilton – not exactly a good sign: women are statistically more present in lower income and more precarious jobs than men. Vaughan had the highest ratio of total city revenue per total population of $1,874 in 2011, followed by Markham ($1,605) and Brampton ($1,406). Hamilton is included, but not being considered in this comparison due to its single-tier condition.

Tab.3c: Markham: Population Market Income

TotalPopulation

2001 1 208,613 34,303 23,123

20061 261,572 30,911 20,742

2011 2 301,704 31,720 23,631

increase/decrease 44.62% 7.53% 2.19%

1. Selected trend data for Markham, 1996, 2001 and 2006 censuses2.NHS Profile, Markham, Ontario, 2011, Sta�s�cs Canada

Ratio city revenue/population: $ 1,605 per inhabitant in 2011

3. CAN$ before taxes: 92.9% of total male income and 86.9% of totalfemale income are market incomes in 2011

Median Market 3

Income MalesMedian Market

3Income Females

Tab.3d: Vaughan: Population Market Income

TotalPopulation

2001 1 182,021 41,402 25,794

20061 238,863 36,174 23,911

2011 2 286,303 39,183 26,394

increase /decrease 57.29% 5.4% 2.32%

1. Selected trend data for Vaughan, 1996, 2001 and 2006 censuses

Ratio city revenue/population: $ 1,874 per inhabitant in 2011

2. NHS Profile, Vaughan, Ontario, 2011, Sta�s�cs Canada

Median Market 3Income Males

Median Market 3Income Females

3. CAN$ before taxes: 92.5% of total male income and 86.1% of totalfemale income are market incomes in 2011

Tab.3b: Hamilton: Population Market Income

Total

Population

2001 1 490,263 34,783 19,214

20061 504,550 34,461 20,567

2011 2 519,941 35,666 24,761

increase /decrease / 6.05% 2.54% 28.86%

1. Selected trend data for Hamilton, 1996, 2001 and 2006 censuses2. NHS Focus on Geography Series 2011 – Hamilton, Sta�s�cs Canada

Ratio city revenue/population: $ 3,052 per inhabitant in 2011

Median Market 3

Income MalesMedian Market

3Income Females

3. CAN$ before taxes: 88.4% of total male income and 80.7% of totalfemale income are market incomes in 2011

Tab.3a: Brampton: Population Market Income

Total

Population

2001 1 325,422 39,296 24,340

20061 433,801 33,573 21,958

2011 2 521,310 33,414 23,934

increase/decrease 60.19%

Ratio city revenue/population: $ 1,406 per inhabitant in 2011

15% 1.7%

1. Selected trend data for Brampton, 1996, 2001 and 2006 censuses2. NHS Profile, Brampton, Ontario, 2011, Sta�s�cs Canada3. CAN$ before taxes: 90.8% of total male income and 82.7% of total

female income are market incomes in 2011

Median Market 3Income Males

Median Market 3Income Females

38

The 2010 income composition (market income and government transfer payments, fig.34) in private households shows that there is a similar distribution of incomes between municipalities: Brampton with 12.4%, Hamilton 12%, Markham 11.4%, and Vaughan 11.4% of government transferences.

3.2.3 Total Dwellings and Average Prices by Structural Type

Even with a population simlar to that of Brampton, Hamilton had 53,785 more dwellings, the highest number of total dwellings in 2011 (there is a high rate of vacancy), the smallest growth in the number of new units, and the distribution between types was basically unaltered between 2001-2011 (tab.4b). Brampton had an increase from 1.62% to 6.01% (tab.4a) for apartment/duplexes, and the lowest percentage of single-detached dwellings in 2011 (52.93%) between the four municipalities. Hamilton had the cheapest prices ($266,031 for a single-detached house in 2013), followed by Brampton ($494,121, fig.35a).

~ ~ ~ ~

97,500

125,845

149,205

Singles Semi Row Apatments Apartments ApartmentsTotal detached % detached % Townhouses % Duplex % 5 storeys or more % fewer 5 storeys %

2 1001 52,200 53.54 13,485 13.83 11,880 12.18 1,575 1.62 15,065 15.45 3,295 3.38

2 2006 65,290 51.88 17,070 13.56 14,050 11.16 7,900 6.28 15,030 11.94 6,505 5.17

2 3011 78,975 52.93 20,240 13.57 17,215 11.54 8,965 6.01 17,005 11.40 6,805 4.56

1. Structural Type of Dwelling (9) and Tenure (4) for Occupied Private Dwellings, for Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2001 Census. Source: Statistics Canada, Census (2001)

2. Structural Type of Dwelling (10) and Household Size (9) for Occupied Private Dwellings of Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2006 Census. Source: Statistics Canada, Census (2006)

3. Household Type (17), Household Size (9) and Structural Type of Dwelling (10) for Private Households of Canada, Provinces, TerritoriesCensus Divisions and Census Subdivisions, 2011 Census. Source: Statistics Canada, Census (2011)

Tab.4a: Brampton: Total Dwellings by Structural Type

Tab.4b: Hamilton: Total Dwellings by Structural Type

1. Structural Type of Dwelling (9) and Tenure (4) for Occupied Private Dwellings, for Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2001 Census. Source: Sta���c� �a�a�a� �e��u� ������ 2. Structural Type of Dwelling (10) and Household Size (9) for Occupied Private Dwellings of Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2006 Census. Source: Sta���c� �a�a�a� �e��u� ������3. Household Type (17), Household Size (9) and Structural Type of Dwelling (10) for Private Households of Canada, Provinces, TerritoriesCensus Divisions and Census Subdivisions, 2011 Census. Source: Sta���c� �a�a�a� �e��u� ������

Singles Semi Row Apartments Apartments ApartmentsTotal detached % detached % Townhouses % Duplex % 5 storeys or more % fewer 5 storeys %

12001 - - - - --

20062 193,735 112,045 57.83 5,980 3.09 18,635 9.62 6,815 3.52 32,750 16.9 17,510 9.04

20113 202,990 118,105 58.18 6,325 3.12 21,440 10.6 6,320 3.11 33,140 16.3 17,660 8.7

~~~~~~

Sources:Brampton: www12.statcan.gc.ca/nhs-enm/2011/as-sa/fogs-spg/Pages/FOG.cfm?lang=E&level=4&GeoCode=3521010Hamilton: www12.statcan.gc.ca/nhs-enm/2011/as sa/fogs-spg/Pages/FOG.cfm?lang=E&level=4&GeoCode=3514019Markham: www12.statcan.gc.ca/nhs-enm/2011/as-sa/fogs-spg/Pages/FOG.cfm?lang=E&level=4&GeoCode=3519036Vaughan: www12.statcan.gc.ca/nhs-enm/2011/as-sa/fogs-spg/Pages/FOG.cfm?lang=E&level=4&GeoCode=3519028

Fig. 34: Income Composition

39

Fig. 35a: Single-Detached Average Prices Fig. 35b: Semi-Detached Average Prices

$0$100,000$200,000$300,000$400,000$500,000$600,000$700,000$800,000$900,000

$1,000,000

$189.053

$494.328

$509.534

$865.61375.11%M

68.88%V

39.31%B

40.72%H

$860.520

$494.121

Brampton Hamilton Markham Vaughan

2006 2007 2008 2009 2010 2011 2012 2013

$266.031$354.694

Brampton Hamilton Markham Vaughan

2006 2007 2008 2009 2010 2011 2012 2013$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$340.596

$543.29166.08%M

55.70%V

39.86%B

47.67%H

$530.313

$374.192

$210.130

$327.123$267.552

$142.297

Vaughan and Markham follow similar patterns. They had the highest proportion of single-detached dwellings in 2011: Markham with 64.12% (tab.4c) and Vaughan 67.84% (tab.4d). The number of single-detached dwellings declined by 10% in ten years, both in Vaughan (76.99% in 2001) and Markham (75.86% in 2001), and all the other dwelling types increased in both. Markham had the highest increase in housing prices (75.11%, appendix G) for a single-detached ($865,613 in 2013), followed by Vaughan (68.88% appendix G), $860,520 in 2013 (fig.35a). Overall, all dwelling types had increased prices (fig.35a, 35b, 35c, 35d), but singles/semi detached had the highest increases: 39.31% and 39.86% in Brampton, 40.72% and 47.67% in Hamilton, 75.11% and 66.08% in Markham, 68.88% and 55.70% in Vaughan (appendix G).

Tab.4c: Markham: Total Dwellings by Structural TypeSingles Semi Row Apartment Apartments Apartments

Total detached % detached % Townhouses % duplex % 5 storeys or more % fewer 5 storeys %

20011 60,600 45,970 75.86 1,660 2.74 5,295 8.74 1,330 2.19 5,140 8.48 1,205 1.99

20062 77,160 51,795 67.13 3,715 4.81 8,440 10.94 5,505 7.13 6,295 8.16 1,410 1.83

20113 90,520 58,040 64.12 5,090 5.62 10,935 12.08 5,530 6.11 9,225 10.19 1,700 1.88

1. Structural Type of Dwelling (9) and Tenure (4) for Occupied Private Dwellings, for Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2001 Census. Source: Statistics Canada, Census (2001)

2. Structural Type of Dwelling (10) and Household Size (9) for Occupied Private Dwellings of Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2006 Census. Source: Statistics Canada, Census (2006)3. Household Type (17), Household Size (9) and Structural Type of Dwelling (10) for Private Households of Canada, Provinces, TerritoriesCensus Divisions and Census Subdivisions, 2011 Census. Source: Statistics Canada, Census (2011)

~

Tab.4d: Vaughan: Total Dwellings by Structural TypeSingles Semi Row Apartments Apartments Apartments

Total detached % detached % Townhouses % Duplex % 5 storeys or more % fewer 5 storeys %

20011 52,945 40,765 76.99 3,070 5.80 4,640 8.76 380 0.72 3,675 6.94 415 0.78

20062 69,480 47,895 68.93 5,670 8.16 6,670 9.60 3,560 5.12 4,820 6.94 865 1.24

20113 86,045 58,205 67.64 7,195 8.36 9,305 10.81 3,070 3.57 6,940 8.07 1,330 1.55

1. Structural Type of Dwelling (9) and Tenure (4) for Occupied Private Dwellings, for Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2001 Census. Source: Statistics Canada, Census (2001)

2. Structural Type of Dwelling (10) and Household Size (9) for Occupied Private Dwellings of Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2006 Census. Source: Statistics Canada, Census (2006)

3. Household Type (17), Household Size (9) and Structural Type of Dwelling (10) for Private Households of Canada, Provinces, TerritoriesCensus Divisions and Census Subdivisions, 2011 Census. Source: Statistics Canada, Census (2011)

Brampton Hamilton Markham Vaughan

2006 2007 2008 2009 2010 2011 2012 2013$0

$50,000$100,000$150,000$200,000$250,000$300,000$350,000$400,000$450,000$500,000

$294.787

$457.57155.22%V

48.15%M

36.83%B

33.31%H

$422.726

$264.055

$203.010

$285.338$192.984

$142.297

Fig. 35c: Row/Townhouses Average Prices

Brampton Hamilton Markham Vaughan

2006 2007 2008 2009 2010 2011 2012 2013$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$236.826$237.628

$184.822

$116.746$170.237

$214.066

$362.809

$349.390

53.11%V47.03%M45.82%H15.82%B

Fig. 35d: Condo/Apartments Average Prices

40

Sources for graphics 35a to 35d: Market Watch, Toronto Real Estate Board, respective years, for Brampton, Vaughan and Markham. For Hamilton, The Canadian Real Estate Association, respective years (communication and data collected by email with Janet Lemoine, in 2/12/2013).

Sources for graphic 36a to 36d: from 1994 to 1999, RCCAO (2011): Alternatives to development charges for growth-related capital costs, David Amborski. For 2013: Brampton, www.brampton.ca/EN/Business/planning-development/development_charges/Pages/residential-rates.aspx. Hamilton, City of Hamilton, bylaw #09-143, #11-174, #11-175, as amended. Markham, www.markham.ca/wps/portal/Markham/BusinessDevelopment/ PlanningAndDevelopmentServices/DevelopmentCharges/DevelopmentRates/. Vaughan, Engineering services + general services, City of Vaughan Bylaw number 045-2013; water, wastewater, roads, transit, subway, general services, from: www.york.ca/wps/portal/yorkhome/business/yr/landdevelopment/developmentcharges; www.york.ca/wps/portal/yorkhome/yorkregion/yr/bylaws/developmentchargesforgotransitservicebylaw/; www.yrdsb.edu.on.ca/pdfs/w/schools/EDCPamphlet2009.pdf

3.2.4 Development Charges per Residential Use

Even volatile, DCs are, after property taxes, usually the second or third highest municipal revenue, with a continuous increase in the 1994-2013 period (fig.36a, 36b, 36c, 36d). In 2013, DCs are $65,128 for a single-detached in Markham, $63,990 in Brampton, $57,608 in Vaughan, and $30,103 in Hamilton. In Brampton and Markham, DCs for apartments increased more than for singles/semis: one or more bedrooms (505% Brampton, 416% Markham); bachelor or one bedroom (530% Brampton, 468% Markham). Other values are shown in table 7 of every municipality, appendix G. The 2002-2013 period shows a rapid and constant increase in DCs, which chronologically points to the shrinking of provincial and federal transfers to municipalities (from a decrease of 50% in 1981 to 16% in 2001; Leisk et al, 2004). A rupture in this municipal revenue, and/or in the pattern of continuous increase in land/housing prices can negatively affect what I am calling of new staple housing economy.

Fig. 36a: Singles/Semi-detached DC increase

390%502%

Brampton Hamilton Markham Vaughan1994 1999 2002 2010 2013

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$16,698 M$12,738 B

$23,065 H

$30,103 H

$11,762 V

$65,128 M$63,990 B$57,608 V

490%

Fig. 36b: Row/Townhouses DC increase

Brampton Hamilton Markham Vaughan1994 1999 2002 2010 2013

$18,423 H

$22,081 H

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$14,005 V$13,402 M$12,787 B

$59,618 B$55,015 M$50,284 V 468%

410%359%

Fig. 36c: Two or more Bedrooms DC increase

Brampton Hamilton Markham Vaughan1999 2002 2010 2013

$0$5,000

$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000$50,000 $45,338 B

$15,361 H

$19,206 H

$41,940 M$36,272 V

$10,093 M$9,748 V$8,974 B

505%416%372%

Fig. 36d: Bachelor or one Bedroom DC increase

Brampton Hamilton Markham Vaughan1999 2002 2010 2013

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$7,614 V$6,424 M$4,758 B

$30,069 M$26,355 V$25,204 B

$9,634 H

$13,450 H

346%468%530%

41

3.2.5 Building Permits by Residential Use

Building permits more-or-less follow the volatility of development charges, anticipating or delaying moves according to economic crises. Also, BPs are important for consideration because for new construction, remaining fees must be paid as a condition for releasing the building permit. The objective here is continuing to show the inconstancy of considering housing construction/activity as municipal revenue, and to highlight changes in the production of single-detached units (fig.37a, 37b, 37c, 37d). The 2009 recession hit the industry in all municipalities; however, Brampton and Markham have seen strong construction activity after 2009-2010, Hamilton has been more-or-less flat and Vaughan has been in decline after 2010.

Fig. 37a: Building Permits for Brampton 2006-2012units

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2006 2007 2008 2009 2010 2011 2012

Single / Semi / Apartments /Detached Detached T

Rowownhouse Condos Total

2006

2007

2008

2009

2010

2011

2012

4,215

764

791

2,202

1,852

3,834

1,182

30

62

650

752

992

473

260

381

563

746

542

824

1,132

26

100

425

572

4,552

6,694

2,186

1,260

3,515

3,775

5,940

NewHousesUrban Sprawl ratio (singles+semis / total units): 62.05%

13,658 3,668 2,965 3,079 27,922

Fig. 37b: Building Permits for Hamilton 2006-2012

units

2006 2007 2008 2009 2010 2011 20120

1,0002,0003,0004,0005,0006,0007,0008,000

Single /Detached

/Semi Detached

RowTownhouse

Apartments /Condo Total

2006

2007 63

2008 124

2009 11

2010 0

2011 0

2012

1,178

1,031

1,015

1,417

1,588

1,246

25

40

12

64

0

64

711

840

313

708

0

688 118

3,057

1,977

2,035

1,351

2,189

1,588

2,116New

Houses 7,475 205 3,260 316 11,256

Urban Sprawl ratio (singles+semis / total units): 68.23%

Brampton had the highest number of building permits in the 2006-2012 period (27,922 new units), followed by Vaughan (16,872), Markham (15,969) and Hamilton (11,256); expressive is the production of apartments/condos in Markham (5,340) and Vaughan (3,512). Overall, if urban sprawl can be represented by a high ratio of new single/semi-detached units (singles+semis detached / total new units), the 2006-2012 period had high rates of building permits for single/semis: 68.23% in Hamilton, 65.78% in Vaughan, 62.05% in Brampton, and 46.44% in Markham (the high production of apartments lowered the ratio).

Fig. 37c: Building Permits for Markham 2006-2012

units

01,0002,0003,0004,0005,0006,0007,0008,000

2006 2007 2008 2009 2010 2011 2012

Single /Detached

Semi /Detached

RowTownhouse

Apartments /Condos Total

2006

2007

2008

2009

2010

2011

2012

1,317

1,209

493

470

1,300

979

237

311

106

270

322

402

318

328

389

278

628

1,272

1,098

423

233

430

799

2,357

2,697

2,970

2,271

1,221

1,448

3,049

5,010

NewHouses 5,768 1,648 3,213 5,340 15,969

Urban Sprawl ratio (singles+semis / total units): 46.44%

Single/DetachedSemi/Detached

Row TownhousesApartments/Condos Total

Single/DetachedSemi/Detached

Row TownhousesApartments/Condos Total

42

Fig. 37d: Building Permits for Vaughan 2006-2012

units

01,0002,0003,0004,0005,0006,0007,0008,000

2006 2007 2008 2009 2010 2011 2012

/Single /Detached

Semi Detached

RowTownhouse

Apartments /Condos Total

2006

2007

2008

2009

2010

2011

2012

2,367

1,662

1,685

1,961

1,208

612

545

237

280

275

219

47

611

317

221

362

236

515

709

1,138

223

683

519

240

4,336

4,232

3,354

2,409

3,281

2,182

1,414

NewHouses 9,495 1,603 2,262 3,512 16,872

Urban Sprawl ratio (singles+semis / total units): 65.78%

3.2.6 Land Value Assessment

Another way to assess the reliance of municipal revenues in the housing industry is by showing the assessment of land according to uses at market prices made by the MPAC every four years. Vaughan had 78.88% or $47.3 billion, Hamilton 85.34% or $43 billion, Brampton 80.82% or $50 billion, and Markham 82.38% or $44.8 billion in residential land assets in 2013. In suburbs, the conventional mono functional zoning basically results in the production of single/semi-detached housing. This high proportion of designated residential lands, a base for municipal property taxation, includes current and future residential allocation (fig.38a, 38b) - municipalities recurrently expand designated growth areas over previously designated industrial or rural areas, to allocate growth in their land budget forecasts.

Tab 5a: Brampton: Current Value Assessment (CAN$) / Class Category, 2013

Source: Municipal Property Assessment Corporation, www.brampton.ca/EN/City-Hall/Bylaws/2013/121-2013.pdf

Residential Totals ($CAN) %Multi residential Residential: 49,998,643,106 80.82

Commercial Commercial: 8,899,666,522 14.39occupied Industrial: 2,685,110,332 4.34

excess lands Pipeline: 115,448,500 0.19vacant land Farmland: 160,726,357 0.26

others Managed Forests: 1,633,538 0.00Industrial

poccu iedexcess lands

vacant landothers

PipelineFarmland

Managed ForestsTotal

48,710,670,3251,287,972,781

8,501,985,608127,532,484255,470,18014,678,250

2,404,603,73565,056,182

191,884,24023,566,175

115,448,500160,726,357

1,633,53861,861,228,355

Tab 5b: Hamilton: Current Value Assessment (CAN$) / Class Category, 2012

Source: Ministry of Municipal Affairs and Housing

Residential Totals ($CAN) %Multi residential Residential: 43,739,538,097 85.34

Commercial Commercial: 5,383,673,200 10.50occupied Industrial: 1,083,892,961 2.11

excess lands Pipeline: 236,421,000 0.46vacant land Farmland: 793,460,740 1.54

Managed Forests: 12,424,900 0.02Industrialoccupied

excess landsvacant land

PipelineFarmland

Managed Forests

Total

41,345,598,2472,393,939,850

5,131,921,12989,429,230

162,322,841

1,037,257,03918,630,32228,005,600

236,421,000793,460,74012,424,900

51,249,410,898

Single/DetachedSemi/Detached

Row TownhousesApartments/Condos Total

Single/DetachedSemi/Detached

Row TownhousesApartments/Condos Total

43

Tab 5c: Markham: Current Value Assessment (CAN$) / Class Category, 2013

Source: Municipal Property Assessment Corporation, 2013 Tax Rates and Levy By-law; www2.markham.ca/markham/ccbs/indexfile/Agendas/2013/General/gc130506/2013%20Tax%20Rates%20and%20Levy%20By-law.pdf

Residential 44,107,794,781 Totals ($CAN) %Multi residential 625,157,432 Residential: 44,732,952,213 82.38

Commercial Commercial: 8,170,344,242 15.05occupied 7,645,786,610 Industrial: 1,228,191,585 2.26

excess lands 163,948,282 Pipeline: 59,293,750 0.11vacant land 348,727,600 Farmland: 111,353,075 0.21

others 11,881,750 Managed Forests: 0 0.00Industrialoccupied 981,014,010

excess lands 10,048,500vacant land 224,336,075

other 12,793,000Pipeline 59,293,750

Farmland 111,353,075Managed Forests

Total 54,302,134,865

Tab 5d: Vaughan: Current Value Assessment (CAN$) / Class Category, 2013

Source: Municipal Property Assessment Corporation, City of Vaughan bylaw 060-2013; www.vaughan.ca/services/property_tax_and_assessment/General%20Documents/Final%20Tax%20Rate%20By-law%20060-2013.pdf

Residential 47,076,420,658 Totals ($CAN) %Multi residential 172,409,970 Residential: 47,248,830,628 75.88

Commercial Commercial: 10,526,816,416 16.91occupied 9,848,964,718 Industrial: 4,240,234,513 6.81excess lands 376,335,148 Pipeline: 81,753,000 0.13vacant land 287,674,425 Farmland: 165,731,810 0.27others 13,842,125 Managed Forests: 2,533,750 0.00

Industrialoccupied 3,645,365,471

excess lands 48,254,142vacant land 508,958,200

other 37,656,700Pipeline 81,753,000

Farmland 165,731,810Managed Forests 2,533,750

Total 62,265,900,117

Fig. 38b: Land Use: 2013 Current Value Assessment / Class Category for the Case Studies (CAN$)

Residential Commercial Industrial Pipeline Farmland Forests

Brampton Hamilton Markham Vaughan

$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

$60,000,000,000

$49,

998,

643,

106

$43,

739,

538,

097

(201

2)$4

4,73

2,95

2,21

3$4

7,24

8,83

0,62

8

$8,8

99,6

66,5

22$5

,383

,673

,200

$8,1

70,3

44,2

42$1

0,52

6,81

6,41

6

Fig. 38a: Land Use: 2013 Current Value Assessment / Class Category for the Case Studies (%)

Residential Commercial Industrial Pipeline Farmland Forests

Brampton Hamilton Markham Vaughan

0%10%20%30%40%50%60%70%80%90%

80.8

285

.34

(201

2)82

.38

75.8

8

14.3

810

.50

15.0

416

.90

44

It is interesting to note that Hamilton, once an industrial city, had the smallest percentage (2.11%, tab.5b) of assessed lands as industrial use in 2012, and Vaughan, 6.91% (2013); Brampton (4.34%, 2013) and Markham (2.26%, 2013). The evolution of the percentages of land use (fig.39a, 40a, 41a, 42a, and appendix G) show that the distribution of CVA by land use has an overall constant distribution in all municipalities during the 2006-2013 period for residential uses, a slight increase in commercial lands, and a slight decrease for industrial uses; however, a small decline of only 0.5% in six years of industrial land in Hamilton (municipal area of 112,775 ha) can be interpreted as 564 ha of industrial land being transferred to other uses - a small percentage in numbers with large consequences in terms of the urban fabric, losses of jobs, in an already settled infrastructure.

The percentage of CVA for farmlands, another sensitive topic for growing municipalities and urban sprawl, has slightly shrunk in Brampton (from 0.29% in 2006 to 0.26% in 2013), and Vaughan (from 0.30% in 2006 to 0.26% in 2013); Hamilton and Markham basically maintained the same proportion in the period (appendix G).

Fig. 39b: Current Value Assessment / Class Category for Brampton 2006-2013 (CAN$)

$0

$10,000,000,000

$20,000,000,000

$30,000,000,000

$40,000,000,000

$50,000,000,000

2006 2007 2008 2009 2010 2011 2012 2013

32.64 billion

5.14 billion2.27

billion

8.89billion2.68

billion

49.99billion53.17%

73.11%17.95%

Fig. 39a: Current Value Assessment / Class Category for Brampton 2006-2013 (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

81.0

712

.76

5.65

80.8

214

.38

4.34

2006 2007 2008 2009 2010 2011 2012 2013

Source for Graphics 14 to 17: Ministry of Municipal Affairs and Housing, for respective municipalities, based on the Municipal Property Assessment Corporation values.

Residential Commercial Industrial

Fig. 40a: Current Value Assessment / Class Category for Hamilton 2006-2012 (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

85.7

59.

792.

42

85.3

410

.50

2.11

2006 2007 2008 2009 2010 2011 2012

Fig. 40b: Current Value Assessment / Class Category for Hamilton 2006-2012 (CAN$)

$0$5,000,000,000

$10,000,000,000$15,000,000,000$20,000,000,000$25,000,000,000$30,000,000,000$35,000,000,000$40,000,000,000$45,000,000,000$50,000,000,000

32.74 billion

3.74 billion

925million

5.38billion1.08

billion

43.73billion33.58%

43.94%17.19%

2006 2007 2008 2009 2010 2011 2012

Residential Commercial Industrial

45

The evolution of prices devoted to land uses (fig.39b, 40b, 41b, 42b, and appendix G) shows that in a time frame of only seven years, all municipalities had land prices increase in all land uses: from a minimum of 17.19% in Hamilton to a maximum of 73.11% in Brampton. With a 2% average of general interest rates and inflation basically unaltered in the period, it means an extraordinary valorization of land. Residential land prices increased 33.58% in Hamilton, 53.17% in Brampton, 56.08% in Markham, and 63.86% in Vaughan. The growing percentage of commercial lands valorized even more than residential lands, 43.94% in Brampton, 62.36% in Markham, 67.07% in Vaughan, and 73.11% in Brampton. Even the shrinking percentage of industrial lands had increased values: 17.19% in Hamilton, 17.95% in Brampton, 30.36% in Markham, and 48% in Vaughan.

Land, as fixed capital for current or expected development is proving resistant to crises. Regardless of whether this increase represents current or expected future gains, municipal property taxes increase accordingly to proportional tax rates, sustaining one of the assumptions of this CIP, that the construction industry, especially housing, may be replacing the staple economy, and municipalities are benefiting from this trend; and not only in the dominant residential use, but the potential of industrial uses to become commercial or residential uses.

$0$5,000,000,000

$10,000,000,000$15,000,000,000$20,000,000,000$25,000,000,000$30,000,000,000$35,000,000,000$40,000,000,000$45,000,000,000$50,000,000,000

2006 2007 2008 2009 2010 2011 2012 2013

47.24billion63.86%

47.24billion

2.80billion

6.30billion

28.83billion

67.07%47.24billion48.00%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

75.5

216

.50

7.50

75.8

816

.90

6.91

2006 2007 2008 2009 2010 2011 2012 2013

Fig. 42a: Current Value Assessment / Class Category for Vaughan 2006-2013 (%)

Fig. 42b: Current Value Assessment / Class Category for Vaughan 2006-2013 (CAN$)

Fig. 41a: Current Value Assessment / Class Category for Markham 2006-2013 (%)

Fig. 41b: Current Value Assessment / Class Category for Markham 2006-2013 (CAN$)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

82.4

9

2.71

14.4

8

82.3

7

2.62

15.0

4

2006 2007 2008 2009 2010 2011 2012 2013$0

$5,000,000,000$10,000,000,000$15,000,000,000$20,000,000,000$25,000,000,000$30,000,000,000$35,000,000,000$40,000,000,000$45,000,000,000$50,000,000,000

2006 2007 2008 2009 2010 2011 2012 2013

44.73billion

8.17billion1.22

billion

28.65billion

5.03billion

942million

56.08%

62.36%

30.36%

46

Part IV - Discussion

In this research, I tried to find a relationship between two scales of analysis, one economic and another, urban: (1) the big picture, illustrated by an economic framework the Canadian staple model has historically performed, to a variation of that, where a contemporary distribution of global economic powers has forced adjustments in the original staple model, what I call the new staple model - housing construction and housing markets as dominant economic engines; (2) the small picture, where I make assumptions about the consequences from the previous in federal/municipal patterns of stimulating/financing urban developments, basically by continuously extending housing markets in low-density developments at the urban fringe. In other terms, how the urban fabric and city planning, which can be modeled by financial/regulatory federal/municipal policies, are imposed by accumulation patterns, and which public policies can control somewhat. After defining these economic/urban frameworks, I could form the research questions (page 4) that are the base for the three parts of this CIP.

Moving from the macro (Part I-Current Economic Framework) in direction (Part II-The State of the Canadian Housing) to the local analysis (Part III-Municipal Funding/Regulatory Mechanisms, the case studies), I have formulated the following points for discussion:

Part I - The ways the historical Canadian staple economy was settled may be facing exhaustion due to:

• Exhaustion of the intensive stage of accumulation in developed countries

• Economic decline of the main commercial partner, the US, where 73.7%-85% of Canadian exports traditionally found markets, together with the economic decline of European markets

• Canadian trade of commodities even when surpluses (balance of trade, fig.43), are not robust as the exports of aggregated value products, and this is an unstable reliance to balance high public/private debt levels (current account to GDP, fig.44).

• Trade and current account are volatile indices; what is important is analyzing the overall tendency in a period of time. In this matter, figures 45, 46, compare the trajectory of Brazil and Canada, two countries heavily reliant on export of commodities, but currently moving in somewhat different trajectories. Figures 47 (government budget) and 48 (government debt) show more long standing indices

Part II - Housing construction and markets have always been an important economic contributor for the Canadian GDP, and these became the highest contributor with almost 20% of GDP in 2013 (fig.49). This market is being financed by growing levels of public/private debt:

• Since the 1990s, homeownership has been stimulated through governmental financial support, together with market-oriented solutions. This move is already in place in European countries facing similar fiscal constraints

• In 1993, Retirement Savings Plans (RRSPs) were permitted to be used as down payments for first time home buyers (Wolfe, 1998); in 1997, CMHC announced that transfers to provinces for housing supply would diminish annually, and be eliminated in 2033 (fig.50)

47

Fig.43: Canada: Balance of Trade1981-2014 ($CAD million)

Source: Statistics Canada, in www.tradeeconomics.com

Fig.45: Brazil and Canada: Balance of Trade*, 1981-2014 ($CAD million)

Source: Statistics Canada and Banco Central do Brasil, in www.tradeeconomics.com

Fig.46: Brazil and Canada: Current Account to GDP, 1981-2014 (%)

Source: Statistics Canada and Banco Central do Brasil, in www.tradeeconomics.com

Fig.47: Brazil and Canada: Government Debt to GDP, 2000-2014 (%)

Source: Statistics Canada and Banco Central do Brasil, in www.tradeeconomics.com

Fig.44: Canada: Current Account* to GDP, 1981-2014 (%)

Source: Statistics Canada, in www.tradeeconomics.com

*Strong imports, weak exports, low saving rates, high personal consumption rates as a percentage of disposable incomes

*2007: the changing point, where emerging economies growth basically detached from developed economies

48

Fig.48: Brazil and Canada: Government Budget1998-2014 (% of GDP)

Source: Statistics Canada, in www.tradeeconomics.com

• Declining interest rates since 1995 (fig.19) were followed by declining mortgage interest rates (fig.21), and CMHC basically became an insurance company backing up private financial institutions, which facilitated the development of a secondary mortgage market through mortgage backed securities (MBS, fig.15, 16)

• Housing is the single largest asset class exposure (with 42% of total assets) among Canadian financial institutions (Bank of Canada, 2011; fig.23). Regardless of lessons from the U.S. subprime crisis and the following recession, mortgage credit has re-accelerated (fig.22)

• The ratio of private debt to disposable income has continued to rise, to a record 170% as a proportion of GDP in 2010, with 78% household debt (Statistics Canada fig.20; in Walks, 2012). In October 2013, a report prepared by the Employment and Social Development Canada, covering the 1997-2003 period says: “The wages of middle income workers have stagnated”; “Middle-income families are increasingly vulnerable to financial shocks”; “Many in the middle spend more than they earn, mortgaging their future to sustain their current consumption.27”

• Maybe due to a lack of economic alternatives, and even between boom and busts, the housing industry and prices are growing (fig.51, 52)

• Municipalities are at the core of this trend, as the majority of municipal revenues come from land related uses, basically property taxation and development charges for residential uses (fig.53)

Part III - The case studies of Brampton, Hamilton, Markham and Vaughan are evidences of the assumptions built in Part II. Brampton, Markham and Vaughan are currently growing municipalities; and Hamilton, after a period of economic decline, is in slow growth (it was chosen as a comparator to growing municipalities). In spite of municipalities complaining that transfers from provincial/federal levels shrank, they were competent in increasing their revenues in the 2006-2012 period, basically from land-use activity (fig.53).

• Land, as fixed capital for current or expected development, is proving itself resistant to crises. The evolution of prices devoted to land uses shows that in a time frame of only seven years, all municipalities had land prices that increased between 17% and 73% in all land uses

• Residential uses pay higher development charges and less property taxes than non-residential uses; still, by far, municipalities comprise a majority of assets related to residential uses

27. Bebby, D. (2014, February 23). In http://www.theglobeandmail.com/news/politics/middle-class-dreams-a-myth-in-troubled-economy-internal-government-report/article17056573/

49

$0

$200

$400

$600

$800

$1000

2032-3

3203

1-32

2030-3

1202

9-30

2028-2

9202

7-28

2026-2

7202

5-26

2024-2

5202

3-24

2022-2

3202

1-22

2020-2

1201

9-20

2018-1

9201

7-18

2016-1

7201

5-16

2014-1

5201

3-14

2012-1

3201

1-12

2010-1

1200

9-10

2008-0

9200

7-08

2006-0

7200

5-06

2004-0

5200

3-04

2002-0

3200

1-02

2000-0

1

MillionFig. 50: Federal Funding to Ontario 2000-2033

Source: Federal-Ontario funding agreements and Public Accounts

Fig. 49: Canada: GDP by Industry 2007-2013

Source: Statistics Canada, Recent Developments in the Canadian Economy: Fall 2013; CANSIM table 379-0031 75

80

85

90

95

100

105

110

115

120

125

2007 2008 2009 2010 2011 2012 2013

index

Q1 2

007=

100

Mining, oil and gasConstructionManufacturingRetail trade

Fig. 51: Canada Housing Starts 1981-2014 (units/thousands)

Source: CMHC, in www.tradeeconomics.com

Fig. 52: Canada New Housing Price Index, 1981-2014 (index points)

Source: Statistics Canada, in www.tradeeconomics.com

50

Fig. 53: Distribution of Major Municipal Revenues, 2006-2012: Bramptom, Hamilton, Markham and Vaughan

*average contribution increase for total municipal revenue in 7 yearsBrampton Hamilton Markham Vaughan

Land Uses: Property Taxes & Development ChargesLicense/Permit fees & Services ChargesGovernment Transfers

0

10%

20%

30%

40%

50%

60%

70%

80%

67.9

3%

47.7

9%

48.5

7%

48.3

9%

Sources: Municipal Budgets, and Consolidated Statements of Financial Position for respective municipalities and years; in Ministry of Affairs and Housing.

• In first position, property taxation alone comprises at least an average of 36.71% and a maximum of 50.81% of municipal revenues in the period

• The 2002-2013 period shows a rapid and constant increase in DCs, which chronologically reflects the shrinking of governmental transfers to municipalities (from a decrease of 50% in 1981 to 16% in 2001; Leisk et al., 2004)

• A rupture in the pattern of the increase in land/housing prices (the base for property taxation calculation), or a decline in new housing production (the base for DCs), both strongest municipal revenues, can negatively affect what I am calling the new staple housing economy

• Overall, if urban sprawl can be represented by a high ratio of new single/semi-detached units (singles+semis detached / total new units), the 2006-2012 period shows high rates of building permits for single/semis: 68.23% in Hamilton, 65.78% in Vaughan, 62.05% in Brampton, and 46.44% in Markham (the high production of apartments lowered the ratio)

• It seems that despite the Ontario government’s initiatives to curb urban sprawl, and as a combination of federal/municipal and the construction industry interests in direction of the status quo in construction activity (mostly housing) - the urban sprawl still leads in the case studies

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Part V - Conclusion and Recommendations

There is no historical perspective to affirm that the construction industry will definitively be of highest importance to the Canadian economy, or that the economic indicators, especially the balance of trade and current accounts to GDP will not revert to positive numbers. However, what is important to evaluate is the historical pattern of these unstable/fragile revenues as tendencies. The same rationale is applied to accumulation crises, such as the current one in developed countries, showing that: (1) the economic configuration that sustained Canadian society during the last 40 years is being rearranged within other economic terms; (2) the unsustainability of financing growth through monetarization of credit/debt.

The problem of considering housing as an asset or private investment, the ongoing configuration in North America, is that housing is a social need that can generate socioeconomic distortions if fully transformed into a commodity. Whether this happens, it becomes not only a monetary value, but it can create a planning problem, such as a lack of affordability. Municipal funding mechanisms seem to be caught within the restrictions of a Canadian economy with little diversification, which has not changed much from Harold Innis’ time. In a constant discussion of fiscal budget constraints in all three levels of government and the shrinkage of manufactories/employment, stability within stimulating growth in the construction industry seems to be the current economic national policy.

The recommendations are related to the Part II of this research, the State of the Canadian Housing, due to two reasons: (1) a similar U.S housing bubble burst can be avoided in Canada; (2) as federal agencies, the CMHC and Bank of Canada set the financial/regulatory framework for the housing industry and markets.My recommendations have to be read as a starting point, and are directed to the CMHC.

THe CMHC, which originally had a humble mandate of helping first-time buyers obtain favorable financing, currently insures $560-billion of some of Canada’s riskiest mortgages, more than double what it insured in 2005. Since 2010, the government has implemented measures for reducing household debt exposure to the Canadian mortgage market, but structural issues remain:

• A Canadian borrower can obtain a prime CMHC-insured mortgage with as little as a pay stub and a job letter

• The CMHC considers the underwriting responsibility lying primarily with the lenders themselves who profit from the mortgages; the insurer relies on physical documentation and rarely spot checks mortgage applications at origination

• As in the U.S, it is difficult to know the true extent of the problem or, the amount and quality of the mortgage credit spread: a respected Canadian mortgage website affirms that undervaluation and frauds are “widespread, as well as under-reported problems in mortgage lending” and that it is “surprisingly common these days”28

• Prior to 2003, the CMHC had a regional mortgage cap that set a maximum dollar amount on the size of the mortgage they would insure, following the original mandate to help first-time buyers. If a buyer could afford a home that is priced above the local average, he/she should not need taxpayer-backed subsidies to do so. This cap was eliminated in 2003, and the CMHC started to

52

insure mortgages of any size, from simple starter homes to opulent mansions. In 2012, a nationwide limit was re-established, and the CMHC will no longer insure mortgages on homes more than $1,000,000. However, this cap is still very high

• The CMHC has a program29 to purchase a second home with a 5% down payment, the same percentage as if buying the first home. The program is commonly used for purchasing recreational properties, or to purchase a home for children while they are attending college or university. In the context of the CMHC’s original mandate, if someone is fortunate enough to have the income and assets to purchase a second home, they should not require public subsidies. Taxpayers are bearing the risk of a default in mortgage payments for a second home that can be used for renting and generating income to a private owner

• The inflated housing prices within the mortgage industry suggest that even investors can use the second home program. The program does not require to applicants to state up front the purpose of the second home

• The CMHC does not provide transparency in its policies, especially considering that all taxpayers are collectively affected if these insured loans have payments decreased or enter in default. “CMHC is the least transparent of all Canadian Crown corporations concerning its numerous activities and detailed breakdown of its insurance guarantees”30

Recommendations:

• The CMHC should demand Canada Revenue Agency notice of assessments (NOAs) for all mortgage applications, to ensure that income or employment has not been misrepresented - NOAs are very difficult to alter or forge.

• To set the maximum mortgage cap to the average resale price in each census metropolitan areas. The cap changes annually to reflect changing housing prices

• Eliminate the second home program

• Increase transparency and oversight over the CMHC

• Gradually raising interest rates, which will affect mortgage rates

28. http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/10/document-fraudster-gets-three-years.html29. http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Second-Home.pdf30. Dr. Ian Lee from Carleton University’s Sprott School of Business: http://www.bnn.ca/News/2012/10/11/Is-CMHCs-home-valuation-system-creating-risk-.aspx

53

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APPENDIX AContext

Over the past half-decade, in the United States, Canada and in some developed Western European countries an influential political anti-urban sprawl movement has emerged, with theoretical variations of branded names such as smart growth, growth management, or New Urbanism, whose purpose is to limit or prohibit further suburbanization by implementing restrictive land-use policies and restrictions on the rights of property owners, promoting tax incentives over infill developments, land use intensification and disincentives to discourage driving. The main arguments of those involved in this movement are based on considerations that low density urban developments that rely on individual modes of transportation are more costly monetarily and environmentally than higher density inner-city developments which rely on public transit.

On the other hand, it is frequently said that: • Subdivision plans are a matter of consumer lifestyle choice• That low-cost land at the urban fringe has made homeownership affordable for working-class

families (Kahn, 2001)• That the wealth, stability and self-esteem of Western nations are due to their high homeownership

rates (Hernando de Soto, 2000)• That auto ownership helps low-income families move out of poverty by reducing the costs of

consumer goods and increasing the average Canadian’s social and recreational opportunities (Raphael & Stoll, 2000; Sullivan, 2003)

• That development charges used for new developments are an important source of municipal revenue, putting medium and lower density municipalities facing the current fiscal constraints in a much better financial condition than bigger, denser and older cities, with decadent, expensive infrastructure and basically without greenfields to foster growth. This opinion considers that:

• (1) The lowest local government expenditures per capita are not in the higher density, but in the medium and lower density municipalities

• (2) That newer municipalities grow more rapidly than consolidated urban areas, increasing municipal revenues. In terms of car reliance, the socioeconomic benefits superpose the alleged compromise of the natural environment, functioning as an efficient urban development process. As a final argument, considering that less than 0.5% of Canada’s land area has been urbanized, urban sprawl is not a problem.1

Although I discuss urban sprawl in economic terms, this CIP will not participate in the above debate. I consider this debate a deviation in the attempt to understand the causes of urban sprawl, the economic forces boosting this dominant pattern of urban development in North America.

For the last 20 years, some US, European and Canadian cities have been forced to cut municipal services due to shrunken revenues, with the difference in overall spending levels made up through rising general public/private credit levels in a common effort to internally restore the consumption sphere, and, therefore, the overall economy. However, enlarging the market through credit/debit has also market limits. The US housing crisis that was triggered in 2007 is a clear signal of these market limitations, where the general economic crisis affected the housing industry from the beginning of the productive chain, to the housing consumers at the end. While Canada seems to be following the same path as the US in depending on rising household debt to sustain the economy, the structure of Canada’s financial and mortgage markets assumes as a public risk mortgage-backed securities generated by private banks (Walks, 2012).

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Public financial support for private economic sectors is a part of capitalistic economies; economic stimulus from the State has always boosted national economic engines or natural vocations, whether they involve extractivism, manufactories, or information technology (IT); similarly, household taxes have always contributed to the expansion of the North American suburban way of life, where the housing industry is the most focused; what seems to be different now is that the construction industry growing in importance due to financial dependence from the overall economy, within a lack of other economic alternatives - and no prospects of changing this scenario. In other words, regardless of the fact our suburban case studies show the continuous reproduction of the construction model above through state intervention, this CIP reveals the exhaustion of the housing industry and housing markets as engines of overall economic strength (and economic recovery) in Canada - it is how I interpret the massive financial support from the State.

Since post-WWII reconstruction in North America, federal policies have been stimulating homeownership through the private housing industry and private housing markets as important contributors to the GDP, while at the same time limited affordable housing was supplied by public agencies. In Canada, since the early 1990s, neoliberal policies have shrunk public responsibilities in the housing supply through the understanding that extending financial stimulus and lines of credit for homeownership consumption could effectively supply housing needs. After twenty years, the results of these policies have been growing shortfalls in affordable housing with longer waiting lists, and record housing prices in the private market.

Regardless of realistic unfavourable future demographic and economic trends, such as declining fertility rates, an aging society, deindustrialization, and already high levels of private/public debt in Canada, boosting the private housing industry and private markets has optimistically inflated housing prices, and diminished housing affordability. In times of low interest rates and cheap credit, overpricing housing is socially translated into overall financial confidence, driving greater access to credit, private/public consumer spending and, conversely, more debt. This rationale follows the neoclassic theory of self-correcting equilibrium, where shortfalls in one sector are naturally compensated by a surplus in another. Limited economic activity or weak household income growth can, according to neoclassical theory, be balanced by a surplus in the mining and oil industries, historically the most productive Canadian assets, affording deficits in other economic sectors.2

The housing industry share/contribution to the GDP in Canada is about 20% (at the beginning of 2013, Statistics Canada, fig.5); the corresponding U.S. share was at 18% in 20053, months before the housing crisis. With the ratio of private debt to GDP at 170%, and the household debt to GDP at 78% (Walks, 2012), heavy but silent State intervention (since the end of 2007) by the Bank of Canada and by the CMHC has been inevitable (Macdonald, 2012): (1) to backup fragile economic circumstances in general, and (2) to prevent a burst in the housing industry and markets in particular.

1. Statistics Canada (2005): Canada’s land area is 9,984,670 km2. Nancy Hofmann (Statistics Canada, 2001) reports that 28,045 square kilometers, or about 0.3% of Canada’s total land area, were urbanized as of 1996.2. In January 2013, Mark Carney, ex Bank of Canada Governor, said that rate increases were improbable because of weaker-than-anticipated business investment and exports. In www.bloomberg.com/news/2013-02-27/canada-losing-debt-halo-as-bull-market-housing-peaks-with-carney.html3. www.bloomberg.com/news/2013-02-27/canada-losing-debt-halo-as-bull-market-housing-peaks-with-carney.html.

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APPENDIX BThe “New” Staple Economy

According to the IMF (International Monetary Fund), Canada had the 11th biggest GDP in 20121, it is one of the world’s wealthiest nations, and, as with other developed nations, the Canadian economy is dominated by the service industry, which employs about 75% of its productive force.2 Canada is unusual among developed countries in the importance of its primary sector, with the extractivist industry (mainly logging and oil) comprising 58% of total Canadian exports.3 International trade, mainly of its natural resources, is responsible for around 30% of the national GDP, and 73.7% of exports are to only one country, the US (20094) - a number which was as high as 85% in 1992.

The staple theory argues that overcommitment to extraction and the export of a single or few resources makes a nation or region vulnerable internally and in world markets. In addition, “resource productions are commonly undertaken by big, often foreign-owned multinational corporations which remit dividends back to their headquarters” (Britton, 1996, p.50). The relative weakness of Canadian manufacturing industries means that large portions of the workforce remain employed in lower-skill primary and tertiary sector jobs, not encouraging any significant research and development or spin-off industrial activity. Another negative consequence of this accommodation in a monolithic economic model is the inducement to ruin existent manufactures or to make it difficult for other industries to flourish. Economically speaking, a staple economy generates two related consequences for national economies: (1) by making the nation’s currency stronger, there is a consequent decrease in price competitiveness, and thus the exports of the affected country’s manufactured goods; (2) an increase in imports of manufactured products. As a result, there are few economic development alternatives (Watkins, 1963) in pursuing endogenous growth.

Together with the instability of the staple-based fundaments of the economy, the automation and information technologies, following the second stage of deindustrialization in developed countries (the late 1970s) – moving in the direction of a cheaper labour force and softer labour and environmental regulations - have also eliminated and made the Canadian job market precarious. Moreover, governmental policies have been conducting a market-oriented approach through free trade agreements, making it easier for corporations and factories to send plants abroad. Since the 1990s, the negative characteristics of the job market have become more structural than seasonal factors. About the ongoing NAFTA agreement, implemented in 1989, the Toronto Star wrote in its first annual review: “Free Trade: a devastating first year” – “the 250,000 new jobs predicted by Prime Minister Mulroney did not materialize”; (...) later, “the Canadian Labour Congress stated that the NAFTA had led to the loss in its first two years of 226,000 Canadian jobs”; or, that “large cuts in wages/benefits are being made in order to remain competitive with US or Mexico” (cited in Britton, 1996, p.41-42). The agreement made the staple economy increasingly cyclical and susceptible to any impulse coming from the US and its commerce policies (Norcliffe, 1994, cited in Britton 1996, p.42). It was predicted in 1989 that only with a Canadian dollar measuring around 72-cents on the US dollar would Canadian manufactures be competitive – I can imagine what is happening nowadays (2010s), with parity of the CA-US dollar.

1.www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?pr.x=92&pr.y=5&sy=2011&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&c=156&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC%2CLUR%2CLP&grp=0&a=#cs32. Krahn, H.J; Lowe, G.S; Hughes, K.D. (2007); Work, Industry & Canadian Society, p62.3. www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec04-eng.htm4. www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec02a-eng.htm

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APPENDIX CCrises of Capitalism or, the Dialectic Market/Sate: the Exhaustion of the Intensive Stage

In this understanding of the dialectic Market/State, generalization of the commodity form can be stated as a dialectic process, rather than a linear or “evolutionary” process. Thus, capitalism is characterized by a tendency towards the generalization of the commodity form, which requires the need for State intervention and the direct production of use-values. While it preserves the commodity form, by ensuring the conditions for the functioning of the market, it is also antagonistic with the same market since it imposes a limitation on the expansion of the commodity form. Therefore, the tendency towards the generalization of the commodity form gives rise to its countertendency, to widening State intervention and the direct production of use-values - this is called the dialectic of the commodity form.

The characteristics of the current crisis are the continuous expansion of State intervention, the continuous enhancement of productivity through technological development, and the diminishment of the employees in industry – in other words, the consumption market cannot follow the commodities production; but another question is, how much can the expansion of services be produced as commodities?

Relating this rationale to the limits of the housing industry expansion, as Alan Walks (2012, p.3) said, “Economic theory based on monetarism and the neoclassical synthesis, and the equilibrium and econometric models derived from them, famously and spectacularly failed to predict the crisis” (together with Bezemer, 2009; Galbraith, 2009a; 2009b; Keen, 2009a; 2009b, 2011; Roubini & Mihm, 2010; Y. Smith, 2010; Stiglitz, 2010).

APPENDIX DCase Study: the State of Canadian Housing

Part II shows that the pattern of urban development based on urban sprawl is also in crisis due to two main factors: one, the growth limitations described in chapter 1.1 and 1.2, currently represented in record public/private debt levels; second, the suburbia pattern is environmentally costly, and is facing pressure from governmental agencies to be constrained. Practically speaking, the suburbia pattern of development is expensive in two ways: it presupposes an average household income that is relatively high and stable within a preponderant middle class in the national socioeconomic spectrum, which is not the Canadian configuration anymore; the middle class is shrinking and the income gap between rich and poor is increasing.

The urban fabric is a result of an intricate relationship between the location decisions of firms and households, accessibility between housing and places of work, neighborhood characteristics, the quality of public services and public transportation, the type of housing available, the housing stock, demographics, the level of tax burdens, credit availability, interest rates and lagged appreciation that are potential mechanisms for overshooting, and the quality of life overall. In this geography, urban housing markets are significant in shaping and conforming the pattern of urban development within new construction, conversions and rehabilitation of the existing stock. Housing wealth is both an asset and a good which represents the socioeconomic well-being of renters, owners, owners-occupiers, and builders. Once housing expenditures are a large component of the household’s budget, the availability and price of housing assume considerable importance in shaping the urban fabric and welfare in general. Housing

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wealth plays a crucial role in the national economy; it is considered a form of distribution of welfare, and thus, a regulatory institutional framework defined by the State sets the terms of property rights, monetary policies and financial mechanisms to arbitrate the housing industry for market purposes. However, while the government intervention stimulating the housing industry for the market is on a massive scale, the affordable housing supply has declined.

The neoclassic economic mechanism of indefinitely expanding the consumption sphere (in our case, credit for housing markets) as a way to stimulate its multiple effects has limits, up to the point to constrain the fundaments of the real economy. David Miles & Vladimir Pillonca (2008) observe that over valuated housing prices in recent years in North America have been on an unprecedented scale, though absent in other countries, particularly Japan and Germany. Leamer (2007) argues that eight out of ten US post-war recessions were preceded by substantial problems in housing and consumer durables.1 When the real economy has to use creativity from the circulating capital to boost consumerism through unrealistically inflated prices, it is because the fundamentals of the real economy are not healthy; and whether these financial innovations (including gambling) are directed for the commerce of an asset that is also a social good, such as housing, the socioeconomic effects of a crisis can be multiplied.

Regardless of realistic unfavourable future demographic trends and already high levels of private/public debt, the shared belief that home prices and incomes will continuously increase makes consumers confident about their overall financial situation. Thus, as housing prices increase, it leads again to greater access to credit, few believe of the need to save for their retirement and therefore, higher consumer spending and more debt.

1. Leamer argues that the exceptions would be the 2001 recession, which was caused by the internet bubble, and the 1953 recession after the end of the Korean war.2.MPAC provides annually for every municipality the following information about each assessed property: the roll number, description/identification of the property, the name of the assessee, the property’s assessed value, the type of assessment (for example, residential, commercial, industrial), the tax qualifier (for example, taxable, tax exempt, exempt but eligible for payment in lieu) and, in the case of residential properties, the type of school board the assessee supports under the Education Act. This tax bill separates the school levies and upper tier levies from the general local levy and other special rates.

APPENDIX ESources of Municipal Revenues

Municipal TaxesProperty Taxes

The main source of municipal revenues is through the tax base (property assessment) and tax rates. In Ontario, the Assessment Act, 1990, authorizes the valuation of real property for tax base valuations according to classes and types, and is subject or exempt to taxation. In 1998, the Ontario Fair Assessment System (OFAS) transferred the assessment services to the municipal sector through the Municipal Property Assessment Corporation (MPAC2). Since 2009, the assessment of land has been based on market price, which is to be updated every four years. There are seven main property categories (residential, multi-residential, commercial, industrial, pipeline, farm, and managed forests) and other sub-categories, including the particularities of office buildings, shopping centres, parking lots, vacant land, and large

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industrial properties. There are tax reductions for some cases, such as vacant and surplus land in the commercial and industrial classes, and farm land awaiting development.

Tax rates are applied to each dollar over the taxable assessment above, and they are a tool used to generate revenues for single or lower tier municipalities, upper tier municipalities and school boards. Except for education taxes set annually by the Ministry of Finance, there are distinct tax rates for each property class and purpose, and municipalities have the discretion to set their own rates, and to comply with the budget determined for every following year - estimated revenues from all sources other than property taxes, including surplus from the previous year, are deducted from the estimated total operating expenditures to calculate the tax rates. Even in cases where the budget remains constant from one year to the next, tax rates may fluctuate due to property reassessment. Starting in 2005, municipalities were given enhanced power to increase tax rates for multi-residential, commercial and industrial classes, up to 5% to 10% of the previous year’s annualized current value assessment (CVA) taxes. As an example, in the City of Toronto in 2003 they were: residential 1.214%, commercial 3.419%, office 7.379%, and industrial 9.924% (Slack, 2003b3).

In addition, section 326 of the Municipal Act, 2001, allows municipalities to impose special area taxes for properties benefiting from special services, such as particular waste management, fire, sewer and water services that are provided at different levels in different parts of the municipality. Heritage areas with particular requirements are included here.

To avoid over taxation from one property class to another, the province imposes restrictions through: tax ratios; transition ratios and ranges; reduced rates for farm and managed forest classes (taxed at 25% of the residential rate); phase-in programs (charging taxes in manageable amounts); graduated tax rates (allowing municipalities to shift taxes from lower-valued properties to higher-valued commercial and industrial properties); tax relief for low-income seniors and disabled homeowners; and rebates for charities and heritage properties.

User Fees

Section 391 of the Municipal Act, 2001, describes that municipalities have the discretion to determine the services, the amount, the basis for calculating, and what will be charged for licenses and permits (businesses, vendors, trailers, and animals, among many others), services such as water, waste, sewage, transit, recreation and police enforcement, concessions or franchises to use, occupy, or to operate municipal facilities. The total amount of building user fees collected by a municipal authority cannot exceed the anticipated costs of the authority to administer and enforce these respective services within its jurisdiction. Uses fees are not only for individuals: a municipality can impose fees for the use of its highways for telecommunication, electricity or gas businesses, and to impose charges for capital projects that provide benefits to nearby properties (Ontario Regulation 586/06, 2001). Other examples of these charges include particularized sidewalks and for specific water and sewer connections (Building Code Act, 1992).

3. www.competeprosper.ca/uploads/EnidSlackReport_190603.pdf

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Fines, Penalties and Investment Incomes

Fines are imposed for contravening municipal or licensing bylaws related to the Building Code Act, 1992, or other acts; or fines for parking or traffic violations, among others. Investment incomes are surpluses from reserve funds generated by tax collections, grant payments, and returns from investment practices in the financial market, etc.

Development Charges

Cities provide a wide range of services in the community and have an extensive inventory of facilities, land, infrastructure, vehicles and equipment, such as arenas, community centres, pools, libraries, fire stations, arterial roads, buses, parks, and many others. As new development occurs to support growing populations, new facilities need to be added so that overall service levels do not decline. Sharing the growth-related capital costs for city services means allocating them over all new anticipated growth within the urban boundary in the City. The development charges were created for this objective. As an overall principle, cities assume that growth in all its variances is inevitable, and thus, they have to be prepared for stimulating and maintaining it. The data collection on municipal revenues and the municipal budget for our four cases studies show that reliance on this continually growing economic scenario as a way to fund growth may not be the most realistic option. Figure 3, which shows the housing starts, demonstrates the volatility of development charges.

Development charges (The Development Charges Act, 1997) are levies on land developers and builders to pay for new growth-related infrastructure capital costs such as roads, sewers and transit, residential and non-residential. DCs are not generated for operating/maintenance costs, or for the future repair of infrastructure; municipalities enact development charge bylaws every five years, and DCs are payable when the issuance of a building permit - if not paid, a building permit can be denied. The calculation of development charges for future growth-related projects follows the following rationale:

Growth-related net capital costs forecast for residential and non-residential uses, new infrastructure, and in order to accommodate future services and developments for the total additional population of residents and employees. Projects that are to be built and respective components to be purchased must be “part of a an official plan, capital forecast or similar expression of the intention of the council and the plan, forecast or similar expression of the intention of the council that has been approved by the council” (Ontario Regulation 82/98,s.3, 1997). A coefficient of population per unit for this type of dwelling based on Census data is used for the residential forecast. The non-residential portion of the forecast estimates employment and related building space for four categories of uses: retail and service commercial, major office, industrial and mixed commercial-industrial, and institutional. Floor space in square meters occupied per worker is used to convert the employment forecast into gross floor area (GFA) of building space, which will provide estimates for infrastructural needs. Under the 1997 Development Charges Act, industrial buildings may expand up to 50% without a requirement to pay extra for development charges. In our four case studies, industrial uses pay about 60% less DCs than residential uses, and non-residential/non-industrial uses pay about 30% less than residential uses – residential uses always pay more DCs.

Service categories and historic service levels, usually for past 10-year average levels, are used as a reference for future capital projects in a way that “must not include an [DC] increase that would result in the level of service exceeding the average level of that service provided in the municipality over the [preceding] 10-year period” (s.5.(1) 4, Development Charges Act, 1997).

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Allocation of the growth-related net capital costs between the residential and the non-residential uses, according to respective demands and services forecasted for shares of population and employment growth: PPU for residential use and sq.m for non-residential uses.

Municipalities can recover up to 100% of the growth-related capital cost for services such as water supply, storm water management, roads, power supply, police and fire protection services, but cannot impose development charges for hospitals, city halls, parks, entertainment facilities, or tourism facilities. The following services, equipment, and related land are typically included in the city-wide DC calculations: Public works building and fleet, parking facilities, growth studies and other; recreation, fire (vehicles, bunker gear, opticom devices, equipment, stations, etc.); the public library board; school boards; transit, roads (including associated structures, sidewalks, streetlights, signals, landscaping and intersections, etc.); specific area charges.

Federal / Provincial transfersPayments in Lieu of Taxes

Payments in Lieu of Taxes (PILs) are transfers made by provincial and federal agencies on properties they own and occupy, or services they perform on municipal lands, or they lease to others. PILs are either calculated on the assessment of land or on a prescribed per-person or per-bed amount; for example, payments to institutions such as hospitals, universities and correctional institutions - currently based on $75 monthly per bed, student, prisoner, or a person in a psychiatric hospital (Municipal Affairs and Housing, the Fiscal Context, 2013). Municipalities also give out PILs on their public utilities, such as transit, sewer and water utilities utilized for other governmental instances.

Government Contributions

Conditional and unconditional grants are made by the provincial and federal governments, and are made for specific programs or services. Unconditional grants may be used according to what a municipal council decides, for instance, to pay for operating expenditures - in 2013, they accounted for about 15% of provincial grants. Conditional grants usually account for about 85% of provincial grants, and are subject to specific eligibility and spending criteria, such as for transportation, health, social services and the environment. Municipalities received $949 million in 2009 through the combined Ontario Municipal Partnership Fund (OMPF, $704 million) grant, the Ontario Drug Benefit (ODB), the Ontario Disability Support Program (ODSP, $245 million), and Ontario Works benefits ($570 million) (Municipal Affairs and Housing, the Fiscal Context, 2013).

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Appendix FLimitations of the Case Studies comparison

There are two major limitations of this short study, and a third minor one: one refers to the scale of the sample – four municipal case studies in Ontario are not enough to constitute a pattern able to generate affirmations. To ameliorate that, Brampton, Hamilton, Markham and Vaughan were chosen due to their scale of current or past importance, and for sharing specific particularities and similarities.

The second limitation, Annual Municipal Reports or budgets, or Consolidated Statements of Financial Position (CSFP) - the basis of documentation that I used - are open sources for public consultancy, and a detailed understanding about how the composition of numbers are drawn for defining balances is not possible without a direct involvement in municipal financial departments. Municipalities try to show transparency in this process by hiring external accountants as consultants: KPMG Chartered Accountants have prepared the CSFP for Brampton and Vaughan. In other words, by analyzing these documents, I could find a contradiction between the recurrent discussion of municipal fiscal constraints, and our municipal case studies, in which official documents basically show growing revenues during the 2006-2012 period: Markham 146.89%, Vaughan 135.49%, Brampton 132.79%, Hamilton 29.56%. My analysis determines that increasing housing prices, the base point for the property taxes calculation and by far the most important source of city revenues, play a very important role in the growing municipal revenues.

The third limitation refers to data collection. Municipalities do not have a unified way to show their data, and the information is organized and posted according to their discretion and routine practices. Variations occur in a form of terminologies, methodologies for aggregating data and information, and limited access to fiscal numbers. Precious time for unifying scattered information to make terminologies and numbers more credible for a comparison study could have been used to gather more subjects and data for analysis. The Ministry of Municipal Affairs and Housing unified these information in a standard format, but the details about how this information is generated still remains with each municipality.

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Appendix GCase Studies: original charts with additional variables and complete numbers(1) Brampton

Brampton2. Population

Brampton1. Revenues

Brampton3. Income composition in private households / 20101

www12.statcan.gc.ca/nhs-enm/2011/as-sa/fogs-spg/Pages/FOG.cfm?lang=E&level=4&GeoCode=3521010

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Brampton5. Average Dwellings Price by Structural Type (CAN$)

January-October OctoberVolume (CAN$) Volume (CAN$) average median average median average median average median

2006 1 1,911,213,137 172,937,907 354,694 340,500 267,552 271,812 192,984 198,825 184,822 183,500 2007 2 2,241,960,255 197,270,753 382,033 363,000 279,671 276,025 205,475 206,875 250,150 242,000 2008 3 379,597 369,000 281,267 279,500 208,360 192,500 185,263 182,000156,647,1502,017,705,256 2009 4 2,098,685,692 249,912,042 398,851 397,450 298,637 298,875 208,840 206,500 181,611 184,500 2010 5 2,394,265,158 187,075,893 408,981 393,050 313,696 319,000 210,368 204,250 189,674 186,625 2011 6 2,529,629,976 245,211,276 444,790 425,500 345,611 348,000 252,716 244,000 209,640 205,000 2012 7 2,890,126,508 237,593,568 472,169 460,500 363,246 363,000 253,654 238,500 213,579 225,500 2013 8 2,950,433,741 287,996,840 494,121 470,000 374,192 369,500 264,055 247,000 214,066 208,000

increasein 7 year 54.37% 66.53% 39.31% 38.03% 39.86% 35.94% 36.83% 24.23% 15.82% 13.35%

1 to 8: Market Watch, Toronto Real Estate Board, respective years

Single-detached Semi-detached Row / Townhouse Condo / Apartments

Brampton6. Development Charges Composition/Residential Use/2013

Single / Row Large Apt Small AptSemi detached Townhouse >750sq.ft <750sq.ft

City of Brampton 1 25,552 21,180 17,270 9,580Region of Peel 1 35,812 35,812 25,580 13,301

Go Transit 1 480 480 342 177Public School 1 1,595 1,595 1,595 1,595

Catholic School 1 551 551 551 551

Total Unit Costs (CAN$) 63,990 59,618 45,338 25,204

1. www.brampton.ca/EN/Business/planning-development/development_charges/Pages/residential-rates.aspx

Brampton7. Development Charges Increase 1994-2013

Single / Row Two or + Bach or oneSemi detached Townhouse Bedrooms Bedroom

1994 1 12,738 12,7381999 1 12,787 12,787 8,974 4,7582002 1 16,543 16,543 12,242 7,4432010 1 40,180 38,578 29,639 16,2562013 2 63,990 59,618 45,338 25,204

Increase in 9 years (%) 502 468 505 530

1. RCCAO (2011): Alternatives to development charges for growth-related capital costs, by David Amborski.2. www.brampton.ca/EN/Business/planning-development/development_charges/Pages/residential-rates.aspx

Brampton8. Total Building Permits by Residential Use, 2006-2012

Brampton4. Total Private Dwellings by Structural Type

Singles Semi Row Apatments Apartments ApartmentsTotal detached % detached % Townhouses % Duplex % 5 storeys or more % fewer 5 storeys %

20011 97,500 52,200 53.54 13,485 13.83 11,880 12.18 1,575 1.62 15,065 15.45 3,295 3.38

20062 125,845 65,290 51.88 17,070 13.56 14,050 11.16 7,900 6.28 15,030 11.94 6,505 5.17

20113 149,205 78,975 52.93 20,240 13.57 17,215 11.54 8,965 6.01 17,005 11.40 6,805 4.56

1. Structural Type of Dwelling (9) and Tenure (4) for Occupied Private Dwellings, for Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2001 Census. Source: Statistics Canada, Census (2001)2. Structural Type of Dwelling (10) and Household Size (9) for Occupied Private Dwellings of Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2006 Census. Source: Statistics Canada, Census (2006)3. Household Type (17), Household Size (9) and Structural Type of Dwelling (10) for Private Households of Canada, Provinces, TerritoriesCensus Divisions and Census Subdivisions, 2011 Census. Source: Statistics Canada, Census (2011)

Source: Ministry of Municipal Affairs and Housing; http://cscconramp.mah.gov.on.ca/fir/Welcome.htm

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Brampton9. Current Value Assessment / Class Category, 2006-2013Source: Ministry of Municipal Affairs and Housing; http://cscconramp.mah.gov.on.ca/fir/Welcome.htm

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Hamilton2. Population

Hamilton

1. www12.statcan.gc.ca/nhs-enm/2011/as-sa/fogs-spg/Pages/FOG.cfm?lang=E&level=4&GeoCode=3514019

3. Income composition in private households / 20101

Hamilton1. Revenues

Appendix GCase Studies: original charts with additional variables and complete numbers(2) Hamilton

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Hamilton5. Average Dwellings Price by Structural Type (CAN$)

TotalVolume (CAN$) average median average median average median average median

2006 1 189,053 142,297 152,288 116,7462007 2 208,162 162,566 166,981 127,9512008 3 213,287 164,839 169,783 129,7392009 4 219,136 170,716 181,077 141,1642010 5 235,269 185,180 184,411 142,8532011 6 242,476 182,802 193,579 139,5372012 7 254,068 201,700 196,920 155,4942013 8 266,031 210,130 203,010 170,237

increase%28.54%13.33%76.74%27.04sraey 7 ni

1 to 8: The Canadian Real Estate Association, respective years (communication by email)

Single-detached Semi-detached Row / Townhouse Condo / Apartments

Hamilton6. Development Charges / Residential Use / 2013

Single / Row Large Apt Small AptSemi detached Townhouse 2+ bedrooms bach/1 bedroom

City of Hamilton 1 28,09 20,138 17,34 11,576Go Transit 1 22 164 14 95

Public School 1 1,04 1,040 1,04 1,040Catholic School 1 73 739 73 739

30,103 22,081 19,266 13,450Total Unit Costs (CAN$)

1. City of Hamilton, bylaw #09-143, #11-174, #11-175, as amended

~

Hamilton4. Total Private Dwellings by Structural Type

1. Structural Type of Dwelling (9) and Tenure (4) for Occupied Private Dwellings, for Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2001 Census. Source: Statistics Canada, Census (2001)2. Structural Type of Dwelling (10) and Household Size (9) for Occupied Private Dwellings of Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2006 Census. Source: Statistics Canada, Census (2006)3. Household Type (17), Household Size (9) and Structural Type of Dwelling (10) for Private Households of Canada, Provinces, TerritoriesCensus Divisions and Census Subdivisions, 2011 Census. Source: Statistics Canada, Census (2011)

Singles Semi Row Apartments Apartments ApartmentsTotal detached % detached % Townhouses % Duplex % 5 storeys or more % fewer 5 storeys %

20011 - - - - --

20062 193,735 112,045 57.83 5,980 3.09 18,635 9.62 6,815 3.52 32,750 16.9 17,510 9.04

20113 202,990 118,105 58.18 6,325 3.12 21,440 10.6 6,320 3.11 33,140 16.3 17,660 8.7

~~~~~

Hamilton7. Development Charges Increase 1994-2013

2. City of Hamilton, bylaw #09-143, #11-174, #11-175, as amended1. City of Hamilton, bylaw #09-143, #09-144, #06-174, as amended

Single / Row Two or + Bach or oneSemi detached Townhouse Bedrooms Bedroom

1994 1

1999 1

2002 1

2010 1 23,06 18,42 15,36 9,6342013 2 30,10 22,08 19,26 13,450

Increase in 9 years (%) 31 20 25 40

Hamilton8. Total Building Permits by Residential Use, 2006-2012

Source: Ministry of Municipal Affairs and Housing; http://cscconramp.mah.gov.on.ca/fir/Welcome.htm

75

Hamilton9. Current Value Assessment (CAN$) / Class Category, 2006-2012Source: Ministry of Municipal Affairs and Housing; http://cscconramp.mah.gov.on.ca/fir/Welcome.htm

76

Appendix GCase Studies: original charts with additional variables and complete numbers(3) Markham

Markham2. Population

Markham3. Income composition in private households / 20101

1. www12.statcan.gc.ca/nhs-enm/2011/as-sa/fogs-spg/Pages/FOG.cfm?lang=E&level=4&GeoCode=3519036

Markham1. Revenues

77

Markham5. Average Dwellings Price by Structural Type (CAN$)

January-October OctoberVolume (CAN$) Volume (CAN$) average median average median average median average median

2006 1 1,396,610,667 125,385,246 494,328 467,166 327,123 329,333 285,338 273,450 237,628 236,166 2007 2 1,669,912,858 148,628,461 549,539 508,166 349,573 337,666 319,457 310,775 500,418 267,500 2008 3 530,952 482,660 348,306 343,750 268,281 270,700 313,038 250,87585,478,4881,397,286,615 2009 4 1,803,993,930 204,716,552 624,836 573,666 393,435 394,796 345,881 339,150 293,893 272,833 2010 5 1,906,593,515 158,508,035 694,680 627,166 407,416 405,500 355,458 335,900 350,295 281,633 2011 6 2,229,929,634 205,397,481 728,263 675,000 473,872 458,000 369,936 357,450 382,668 321,500 2012 7 2,338,113,557 187,428,812 789,846 725,000 486,138 481,500 405,362 391,000 347,530 326,400 2013 8 2,561,647,611 257,664,425 865,613 747,000 543,291 528,500 422,726 412,600 349,390 309,000

increasein 7 years 30.84%47.03%48.15% 50.89%60.48%66.08%59.90%75.11%83.42% 105.50%

Source of 1 to 8: Market Watch, Toronto Real Estate Board, respective years

Single-detached Semi-detached Row / Townhouse Condo / Apartments

Markham4. Total Private Dwellings by Structural Type

Singles Semi Row Apartment Apartments ApartmentsTotal detached % detached % Townhouses % duplex % 5 storeys or more % fewer 5 storeys %

20011 60,600 45,970 75.86 1,660 2.74 5,295 8.74 1,330 2.19 5,140 8.48 1,205 1.99

20062 77,160 51,795 67.13 3,715 4.81 8,440 10.94 5,505 7.13 6,295 8.16 1,410 1.83

20113 90,520 58,040 64.12 5,090 5.62 10,935 12.08 5,530 6.11 9,225 10.19 1,700 1.88

1. Structural Type of Dwelling (9) and Tenure (4) for Occupied Private Dwellings, for Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2001 Census. Source: Statistics Canada, Census (2001)2. Structural Type of Dwelling (10) and Household Size (9) for Occupied Private Dwellings of Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2006 Census. Source: Statistics Canada, Census (2006)3. Household Type (17), Household Size (9) and Structural Type of Dwelling (10) for Private Households of Canada, Provinces, TerritoriesCensus Divisions and Census Subdivisions, 2011 Census. Source: Statistics Canada, Census (2011)

~

Markham Markham6. Development Charges / Residential Use / 2013

tpA llamStpA egraL/ elgniSSemi detached Townhouse >700sq.ft <700sq.ft

City Wide Hard 1 10,092 7,829 6,624 4,927City Wide Soft 1 12,265 9,515 8,048 5,986

York Region Hard 1 37,437 32,848 23,253 15,746York Region General 1 2,992 2,549 1,808 1,273

Go Transit 1 322 254 187 117Public School 1 1,370 1,370 1,370 1,370

Separate School 1 650 650 650 650

Total Unit Costs (CAN$) 65,128 55,015 41,940 30,069

1. http://www.markham.ca/wps/portal/Markham/BusinessDevelopment/PlanningAndDevelopmentServices/DevelopmentCharges/DevelopmentRates/

Markham8. Total Building Permits by Residential Use, 2006-2012

7. Development Charges Increase 1994-2013

1. RCCAO (2011): Alternatives to development charges for growth-related capital costs, by David Amborski.2. http://www.markham.ca/wps/portal/Markham/BusinessDevelopment/PlanningAndDevelopmentServices/DevelopmentCharges/DevelopmentRates/

Single / Row Two or + Bach or oneSemi detached Townhouse Bedrooms Bedroom

1994 1 16,6981999 1 15,995 13,402 10,093 6,4242002 1 20,752 17,784 14,043 9,8942010 1 46,457 37,960 29,565 19,3342013 2 65,128 55,015 41,940 30,069

390 410 416 468increase in9 years (%)

Source: Ministry of Municipal Affairs and Housing; http://cscconramp.mah.gov.on.ca/fir/Welcome.htm

78

Markham9. Current Value Assessment / Class Category, 2006-2013Source: Ministry of Municipal Affairs and Housing; http://cscconramp.mah.gov.on.ca/fir/Welcome.htm

79

Appendix GCase Studies: original charts with additional variables and complete numbers(4) Vaughan

Vaughan2. Population

Vaughan3. Income composition in private households / 20101

1. www12.statcan.gc.ca/nhs-enm/2011/as-sa/fogs-spg/Pages/FOG.cfm?lang=E&level=4&GeoCode=3519028

Vaughan1. Revenues

80

Vaughan5. Average Dwellings Price by Structural Type (CAN$)

January-October OctoberVolume (CAN$) Volume (CAN$) average median average median average median average median

2006 1 1,076,256,945 111,067,309 509,534 437,375 340,596 340,225 294,787 296,875 236,826 229,750 2007 2 1,324,289,377 133,071,836 553,469 508,166 368,152 367,125 278,244 311,725 261,093 255,500 2008 3 480,426 455,000 371,523 369,000 320,062 315,500 290,383 261,50070,622,3551,155,720,034 2009 4 1,346,796,810 176,703,940 605,912 551,125 387,764 390,000 356,423 355,200 296,253 266,625 2010 5 1,494,770,015 152,559,849 772,864 552,000 409,716 411,250 425,444 377,500 305,791 293,750 2011 6 1,699,543,882 143,913,292 691,978 620,000 460,097 470,000 398,643 399,000 321,372 312,000 2012 7 2,164,341,214 191,692,295 757,746 650,000 512,667 508,000 407,667 404,250 297,719 279,000 2013 8 2,205,884,323 225,664,450 860,520 765,000 530,313 520,000 457,571 465,000 362,609 332,000

increasein 7 years 44.50%53.11%56.63%55.22%52.84%55.70%74.91%68.88%103.18%104.96%

1 to 8: Market Watch, Toronto Real Estate Board, respective years

Single-detached Semi-detached Row / Townhouse Condo / Apartments

4. Total Private Dwellings by Structural TypeSingles Semi Row Apartments Apartments Apartments

Total detached % detached % Townhouses % Duplex % 5 storeys or more % fewer 5 storeys %

20011 52,945 40,765 76.99 3,070 5.80 4,640 8.76 380 0.72 3,675 6.94 415 0.78

20062 69,480 47,895 68.93 5,670 8.16 6,670 9.60 3,560 5.12 4,820 6.94 865 1.24

20113 86,045 58,205 67.64 7,195 8.36 9,305 10.81 3,070 3.57 6,940 8.07 1,330 1.55

1. Structural Type of Dwelling (9) and Tenure (4) for Occupied Private Dwellings, for Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2001 Census. Source: Statistics Canada, Census (2001)2. Structural Type of Dwelling (10) and Household Size (9) for Occupied Private Dwellings of Canada, Provinces, Territories, CensusDivisions and Census Subdivisions, 2006 Census. Source: Statistics Canada, Census (2006)3. Household Type (17), Household Size (9) and Structural Type of Dwelling (10) for Private Households of Canada, Provinces, TerritoriesCensus Divisions and Census Subdivisions, 2011 Census. Source: Statistics Canada, Census (2011)

Vaughan

Vaughan6. Development Charges / Residential Use / 2013

Single / Row Large Apt Small AptSemi detached Townhouse >700sq.ft <700sq.ft

City of Vaughan 1 14,83 12,61 9,00 7,199Region of York 2 40,42 35,39 25,06 17,019

Go Transit 3 32 25 18 117Public School 4 1,37 1,37 1,37 1,370

Catholic School 4 65 65 65 650

Total Unit Costs (CAN$ 57,60 50,28 36,27 26,355

1. Engineering services + general services, City of Vaughan Bylaw number 045-20132. Water, wastewater, roads, transit, subway, general services. From:

www.york.ca/wps/portal/yorkhome/business/yr/landdevelopment/developmentcharges3. www.york.ca/wps/portal/yorkhome/yorkregion/yr/bylaws/developmentchargesforgotransitservicebylaw/4. www.yrdsb.edu.on.ca/pdfs/w/schools/EDCPamphlet2009.pdf

Markham8. Total Building Permits by Residential Use, 2006-2012

Vaughan7. Development Charges Increase 1994-2013

RowSemi detached Townhouse

Two or +Bedrooms

Bach or oneBedroom

1994 1 11,7621999 1 16,385 14,005 9,748 7,6142002 1 19,175 18,208 13,486 11,0742010 1 36,657 34,656 26,019 20,2972013 2 57,608 50,284 36,272 26,355

490 359 372 346

1. RCCAO (2011): Alternatives to development charges for growth-related capital costs, by David Amborski.2. Engineering services + general services, City of Vaughan Bylaw

number 045-2013Water, wastewater, roads, transit, subway, general services. From:www.york.ca/wps/portal/yorkhome/business/yr/landdevelopment/developmentchargeswww.york.ca/wps/portal/yorkhome/yorkregion/yr/bylaws/developmentchargesforgotransitservicebylaw/www.yrdsb.edu.on.ca/pdfs/w/schools/EDCPamphlet2009.pdf

increase in9 years (%)

Single /

Source: Ministry of Municipal Affairs and Housing; http://cscconramp.mah.gov.on.ca/fir/Welcome.htm

81

9. Current Value Assessment / Class Category, 2006-2013Vaughan

Source: Ministry of Municipal Affairs and Housing; http://cscconramp.mah.gov.on.ca/fir/Welcome.htm

82

Appendix HList of Interviewees and Interview Guide

Enid Slack; Director, Institute on Municipal Finance and Governance, Munk School of Global AffairsJamie Bosomworth; Manager, Strategy and Innovation Development Services Commission, City of MarkhamLloyd Noronha; Director of Development Finance & Investments at the City of VaughanAnonymous Planner, City of VaughanAnonymous Planner, Hemson ConsultingRemo Agostino; Vice President, Development, The Daniels Corporation

* * *

Firstly, I got only two answers (Brampton and Hamilton) from questionnaires I sent to municipal planners in each municipality, which did not want to identify themselves, and did not contribute to my research. Thus, I changed the approach to open questions and discussion about my initial findings with the above targeted persons, in about one hour interview: (1) I presented my research with graphics, numbers, and initial conclusions; then, (2) I explained the weak points and strengths of my research up that point; (3) open discussion about findings and suggestions for improvement. Their contribution and important observations I distributed along the text of this CIP.

Questionnaire sent to Brampton:

1) What is the regulatory basis for taxation (mainly property taxes and development charges) in the municipality (area specific / uniform / city-wide charges)?

Property taxes are based on property assessed value and Development Charge is based on type of property (Residential house types: Single, Semi or apartment etc or Non-residential)

2) What is the proportion/percentage of development charges in the total municipal revenue?

Please see the annual 2012 report for the answer to your questions 2 to 6. http://www.brampton. ca/EN/City-Hall/Annual-Report/Pages/AnnualReport.aspx

3) What is the proportion/percentage of property taxes in the total municipal revenue?

4) What is the proportion/percentage of user/licensing fees in the total municipal revenue?

5) What is the proportion/percentage of provincial/federal transferences in the total municipal revenue?

6) Beyond the traditional model of taxes mentioned previously, what are the other specific sources of municipal revenues as a percentage of total revenues?

7) Did the municipality face restricted revenues during the 2007-2010 recession? (if yes, from which municipal sector)? Is there a value to represent or to measure this? 10% or 20% lower?

Please review all the annual report to see the revenue trend. http://www.brampton.ca/EN/City- Hall/Annual-Report/Pages/AnnualReport.aspx

8) Do you have studies about the influence of development charges on the urban pattern of development in your municipality? Can you name some that I can research (probably online)?

I don’t have any report handy but I encourage you to visit Brampton.ca to see different incentives city provide for certain areas. For example, city provide some types of incentive to build certain types of building around downtown

83

9) Do you think the structure of property taxes/development charges encourage any particular type of development?

Development Charge sure does. That is usually one of the tool city use to encourage certain types of developments that are consistent with the city long term plan.

10) Does the municipality prefer (or encourage) a specific type of development? (new subdivisions? Downtown developments? Compact forms? Low-rise buildings? Single-detached? Townhouses? Apartments?)

There is no short answer to this. But yes, city has a vision to manage its growth at the same time improve the service quality and certain types of development in certain areas are desirable to achieve this

11) What is the distribution/percentage of the typology above (single / detached / townhouses / apartments) in your municipality?

Please search at Brampton.ca portal or Statistics Canada.

12) Is there any particular change in the taxation system which developers tend to push for?

There is a lobby group from Builders Association ( http://ohba.ca/). Please visit the URL to know more. Please review the City of Brampton e-mail disclaimer statement at: www.brampton.ca/en/Info-Centre/ Pages/Privacy-Statement.aspx

Questionnaire sent to Hamilton:

1) What is the regulatory basis for taxation (mainly property taxes and development charges) in the municipality (area specific / uniform / city-wide charges)?

Property taxes are largely uniform with subsidies available in the older urban areas. Development Charges are uniform with a few exceptions. Two areas have an additional special area charge while the downtown core and industrial development are eligible for significant subsidies (90% and ~50% respectively). Subsidies are also available for hospitals, educational facilities, student residences, heritage buildings, etc. For more detailed information on development charges please follow the link below: http://www.hamilton.ca/NR/rdonlyres/0ED3BD57-C820-48E3-9919-F6726AED13F7/0/DCPamphletJuly201314.pdf

2) Did the municipality face restricted revenues during the 2007-2010 recession? (if yes, from which municipal sector)? Is there a value to represent or to measure this? 10% or 20% lower?

The penalty interest rate on property taxes was reduced from 15% to 12%

3) Do you have studies about the influence of development charges on the urban pattern of development in your municipality? Can you name some that I can research (probably online)?

There are no studies like this at the municipal level. Developers would not build in the downtown core without subsidies due to the high economic costs. Industrial developers would build elsewhere if Hamilton’s rates were not competitive

4) Do you think the structure of property taxes/development charges encourage any particular type of development?

It is not the structure of property taxes/development charges that encourage development, rather the overall economic cost of developing. Without subsidies for building in the downtown core developers would show a preference for developing green space

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5) Does the municipality prefer (or encourage) a specific type of development? (new subdivisions? Downtown developments? Compact forms? Low-rise buildings? Single-detached? Townhouses? Apartments?)

Not specifically; however, in order to maintain downtown intensification subsidies/payment plans need to be offered to developers to offset the high costs of building downtown

6) What is the distribution/percentage of the typology above (single / detached / townhouses apartments) in your municipality?

Currently there is equal distribution between single detached and townhouses/apartments. In the past, there was a heavier weighting on single detached. This shift reflects increased regulatory costs as well as a first time homebuyer’s price point

7) Is there any particular change in the taxation system which developers tend to push for?

Developers do not tend to lobby at the Municipal level of government; rather they will target Provincial/Federal governments