How could strategic housing growth be the path to sustainable municipal finances?

Co-authored by: Cameron Macdonald | Vice Present, Transaction Real Estate

The balancing act between housing demand and infrastructure needs is growing for Canadian municipalities.

In brief:

• Canadian municipalities are struggling to build sufficient housing while funding services and infrastructure.
• Taking a strategic approach that uses land efficiently to grow tax revenues can help municipalities achieve sustainable fiscal health and hit necessary growth targets.
• Addressing these priorities in a proactive and meaningful way can have a positive impact on the bottom line — and a municipality’s ability to thrive — well into the future. 

Municipalities are wrestling with a complicated push-pull challenge: meet the significant demand for new housing while providing the necessary services and infrastructure for all residents in a fiscally sustainable manner. This reality is accentuated in Canada’s fastest-growing communities. 

Even so, a clear opportunity is emerging amid this complexity. Municipalities that plan strategically — analyzing long-term servicing costs and potential tax revenues — can actually capitalize on housing growth to alleviate fiscal pressures down the road. 

How is reality changing for Canadian municipalities right now? 

Due to the housing crisis, Canadian municipalities face increasing provincial and federal pressure to hit prescribed growth targets. But which comes first: the growth, or the infrastructure and financing to support it? 

Historically, municipalities undertook growth planning without a clear understanding of the long-term fiscal considerations, both revenue and expenditure. This has resulted in communities and neighbourhoods where the cost of service outweighs the tax revenue they bring in, placing long-term and consistent pressure on municipal budgets. 

But growth policy and fiscal policy don’t necessarily have to be in opposition. Taking an analytical approach to planning could enable municipalities to plan for fiscally balanced communities.

Municipalities that choose the right options today can build lasting prosperity

The planning and growth management options municipalities choose can have varying impacts on municipalities’ long-term fiscal health. That said, there’s no one-size-fits-all approach. Municipalities are as unique as their residents. Every city and town brings its own interests, concerns and dynamics, factors that should be considered in the growth planning process. 

At EY, we encourage municipalities to ask three core questions as they explore options that can balance sustainable growth with financial strength over the long term.

Which of our neighbourhoods bring in the most tax revenues? Which of our neighbourhoods have the highest servicing costs? 

• Historic downtowns, with mixed uses, higher density and smaller lot sizes, tend to have higher tax revenues and lower servicing costs.
• Suburbs, with low-density, single-family zoning and large lot sizes, tend to bring in lower tax revenues and have higher servicing costs, both during development and over the long term.

What is our infrastructure capacity? Where can we allow infill that will take advantage of this existing capacity, rather than require new infrastructure to be built?

• Asset management plans and infrastructure capacity surveys can give municipalities a clear idea of where there may be excess capacity and where more may be needed to support growth. 
• Neighbourhoods with shrinking populations could be ideal for new growth, as the infrastructure and excess capacity already exist.

What policy changes could we enact to help build neighbourhoods with low-growth infrastructure costs, lower servicing costs and higher tax revenues?

• Reviewing current policy around land use, zoning and building codes through a fiscal lens could identify low-cost opportunities to grow a community in a balanced way.

How can we help? 

At EY, we bring together a multidisciplinary team of real estate, infrastructure, economics, municipal finance and housing policy professionals to analyze your specific community’s character and needs. We can help you develop an evidence-based plan designed to direct your community’s growth in a fiscally sustainable manner.