Urban Density and Taxation in Ontario

 

Thunder Bay has signaled that it wishes to increase urban density by enacting a new zoning bylaw in April of 2022 designed to encourage urban density through a process of infill.  One of the more controversial changes is that the urban low rise neighborhood designation now permits buildings that can contain one to four homes based on the size of the property.  Most buildings in such neighborhoods can now be permitted to contain two homes – mainly basement apartments or “mother-in-law” suites but backyard homes will also be allowed.  In some respects, this legitimates a process that has already been underway in many neighborhoods given the persistent housing shortage that seems to be present even in Thunder Bay - a city whose official population has not grown that much since 1971. And as part of the move to create new housing and urban density, there is now a move underway to consider reviewing surplus City of Thunder Bay land for the purposes of selling it for infill housing. Of course, there is the usual inconsistency in that while wanting to increase density in existing residential neighborhoods, Thunder Bay is expanding standard suburban developments at the same time which often reduce urban density.

 

Ultimately, the policy of allowing more units on a standard-lot or the renting of basement apartments is really an infill policy done on the cheap by piling more people onto existing infrastructure and services and not worrying too much about any disruption or other social costs.  In addition, more people living in current suburban residential areas removed from shops and services simply perpetuates a car intensive community.  True density housing should be built adjacent to or in the two main downtown cores with secondary core density areas being areas like perhaps  Westfort or the Bay-Algoma area.  True density housing is not a single detached home or duplex that accommodates renters on an existing lot in River Terrace or Vickers Park, it is two and three-bedroom apartments in 4 to 6 story buildings and sometimes even higher, situated adjacent to core areas with a lot of shops and services.  In this regard, even parts of intercity near shopping malls could be considered a location for an apartment building or condo though the swampy nature of the area probably militates against high rise construction.  If the city has surplus land and buildings in these core areas, that is what should be used to stimulate density.

 

And of course, just selling land and hoping  that if you sell it, they will build, is ultimately not enough. You probably need to streamline the permit and approval process as well as rebate those costs with the amount of the rebate tied to the speed with which the building is constructed and put on the market. In addition, you probably need to lower the property tax rate on such structures to make them more lucrative for developers to build density buildings.  This is a key point and a neglected one.  To start, take a look at figures 1 and 2.  Figure 1 plots population density as a proxy for urban density in Ontario’s thirty largest municipalities and Thunder Bay ranks fifth from the bottom.  Figure 2 takes those same municipalities and plots their multi-residential total property tax rate from highest to lowest.

 

 

 

 

 

 It turns out that Thunder Bay has the third highest multi-residential rate – just after Chatham-Kent and Windsor.  According to the 2022 BMA Municipal Report analysis, the average multi-residential rate in Ontario communities was 2.04% but in Thunder Bay it was 3.12%. Other examples include Brampton 1.56%, Hamilton, 2.73 percent, Burlington 1.45%, Sault Ste Marie 1.77%, Greater Sudbury 2.98%, and Guelph, 1.99%.  Elliot Lake is higher at 4.0%, Belleville at 3.24%, Port Colborne at 3.45%, and Timmins at 3.35%.  My point is larger cities - of which Thunder Bay is still considered one - tend to have lower rates but Thunder Bay taxes its multi-residential more like a much smaller town.  Why is Thunder Bay so spread out?  True density is penalized by its property tax structure.

 

Now it should be noted that a high multi-residential property tax rate in and of itself is not evidence that it is discouraging density development. In general, municipalities with weaker tax bases tend to have higher rates in general to provide the same range of services often mandated by the provincial government.  In this respect, Thunder Bay is in good company with other cities whose former lucrative industrial tax base has seen decline – Windsor, Sudbury, Hamilton, and St. Catharines.  Thunder Bay just has high rates in general and it also has the third highest residential tax rates of these thirty municipalities.

 

What is more relevant is not the multi-residential tax rate per se but the difference between the multi-residential rate and the single unit residential rate in a given municipality.  The greater the gap between the multi-residential rate and the residential rate applied to a given value of assessed property, the greater the incentive to build single residential housing units as opposed to multi-residential units.  While Thunder Bay has some of the highest residential and multi-residential total property tax rates in the province, it also has one of the highest differences between the two.  Relatively speaking, the larger the gap, one would expect a  greater tax disincentive to invest in large multi-unit residential properties, all other things given.  As a result, one would also expect to see a relationship between the size of the gap and the degree of urban population density with a larger gap correlated with lower population density.

 

 

 

Figure 3 tries to do exactly that.  It plots a scatter-plot for Ontario’s thirty largest municipalities of municipal population density as a function of the difference between the two rates.  The larger the difference -that is the higher the gap between multi-residential and residential property rates – the lower the population density, all other things given.  Of course, all other things are not given and there may indeed be other variables influencing urban density not just in Thunder Bay but other cities as well.  After all, robust economic growth that pours more people into a fixed geographic space is also a way to increase population and urban density.  However, parsing everything out would require a fairly expensive study – this is after all, just a blog – but that would mean paying a lot of money to consultants for answers Thunder Bay City Council and Administration probably do not want to hear. Namely, Thunder Bay’s municipal tax system and development policies discourage density and encourage sprawl.  Rule of Thumb. If you want less of anything, tax it more heavily.

The Thunder Bay That Never Was

 

For all sad words of tongue and pen.

The saddest are these, “It might have been.”

John Greenleaf Whittier

 

As a result of its historic evolution from the twin cities of Fort William and Port Arthur, Thunder Bay has always had two former downtown cores that have been the focus of constant attempts at revitalization as well as a third commercial retail core in the former intercity area.  Three downtowns for a city of 125,000 is a lot of downtowns and yet the process of revitalization continues unabated.  The latest iterations are the recent local media stories dealing first with the downtown north core which being adjacent to the waterfront has emerged as the “entertainment” and “tourist” district.  A planned reconstruction of the downtown street here to emphasize walkability at a total of $13.2 million is now considerably above the original estimates.  And on the other side of town, there is another major streetscape project that is even more involved as it requires the complicated dismantling of the Victoriaville Mall which was placed on top of the major downtown intersection at Victoria and Syndicate.  This too will require many millions of dollars – about $11 million in one estimate - and is likely to see cost increases before we are done. 

 

The evolution of both downtowns has marked a return to more open street and pedestrian spaces that were blocked by the erection in the 1970s and early 80s by downtown street enclosing and blocking malls – Keskus on the north side and Victoriaville on the south. Keskus was finally demolished in 1999 to make way for downtown development centered on the arrival of the OLG Thunder Bay Charity Casino.  The result has been a more vibrant downtown area of shops and restaurants.  There is a similar expectation of this happening in the south side after the removal of Victoriaville Mall.  In the end, both downtowns along with the intercity area have evolved to some extent in a manner remarkably similar to the paths outlined in several Chronicle Journal newspaper articles and opeds authored in the late 1980s and early 1990s (CJ “Assign each city core its own specializations, Weds. July 26, 1989; CJ City at a Crossroads Series, November 16, 17 & 24, 1990).  That is “core specialization” with the north side downtown a “tourism-commercial” area given the presence of the harbour and waterfront, the south side downtown an “administrative-commercial” area given the concentration of city government there and intercity area as “commercial-industrial”. 

 

With some exceptions this is somewhat what has happened.  The former Port Arthur Downtown has a waterfront park and the arrival of the new Art Gallery will be an important addition to a critical mass of activities and functions making it a tourism and entertainment core.  The former Fort William downtown has City of Thunder Bay offices making it the administrative core.  Meanwhile, intercity has become the choice for new retail development.  At the same time, there is a lot of inconsistency given that the community auditorium is in the intercity area rather than in a spectacular waterfront setting, there is still a substantial city office and utility presence in the Whelan building in the north core and the main arena complex – the Fort William Gardens – remains in Fort William.  And then, a plethora of public buildings – Mini Queen’s Park, a new federal building, and the public health unit as well as assorted offices – went outside the Fort William Core to off of Arthur Street, the Balmoral Area and intercity.  However, given the long-established urban pattern and historical rivalry between the two twin cities, such is the weight of history and adjustment, and change takes a long time in Thunder Bay.  And there is the reality that private developers will develop land they own to realize a return and not necessarily to implement an urban planning vision.

 

Still, change has occurred but all of this change and development pales somewhat with the anticipated urban renewal and development plans of the 1960s.  Urban renewal gripped Ontario municipalities in the 1960s and the former cities of Port Arthur and Fort William commissioned consultants coordinated by engineering firm Proctor and Redfern to put together comprehensive studies and recommendations on their downtown cores.  They were comprehensive plans for renewal of the aging cores that included general land use, streets and traffic analysis, parking, pedestrian circulation, and transit that assumed that both downtowns would retain their comparative size and strength and remain centers of activity.  The Port Arthur Report was delivered in February of 1968 and the Fort William Report in April of 1969.  

 

 

 

The before and after illustrations are quite dramatic.  Port Arthur has plans for a dramatic waterfront park and civic centre and plaza, plans for streetscaping and a new senior complex.  Fort William’s downtown plan was even more ambitious with apartment blocks along Vickers Street, a new civic complex and riverfront park adjacent to the current city hall. The removal of the tracks along the Kam River was shown with a new thoroughfare and a set of high-rise riverfront dwellings along a park and boardwalk.  As for shopping, a new retail mall on land off of May Street to be called the Kam Center was proposed. As the accompanying illustrations show, the downtowns especially in Fort William were to be higher density areas and pedestrian intensive.  In many respects, the downtown areas would be “15 minute” cities with many services within walking distance of where people lived.

 

 

 

 

 

Alas, the reports presented an urban downtown picture that did not come to pass for a variety of reasons.  First, they of course were made immediately obsolete by the Amalgamation that fused the two cities together and the resulting politics created new initiatives that included two downtown malls as part of core revitalization.  Second, the plans failed to anticipate and realize the rise of the intercity area which after Amalgamation meant it was poised to be readily developed as the choice location given it was between the two population clusters.  Third, the 1970s much like the rest of the country saw a suburban housing boom that led to car intensive sprawl rather than infill in the downtown cores.  And finally, there was a massive overestimate of where Thunder Bay’s population was going given that the proposals assumed rather robust population growth for the Lakehead area that by 1986 was forecast under various assumptions to range anywhere from about 150,000 to 175,000.  Indeed, under such assumptions, Thunder Bay today would be well over 200,000 but such growth was not supported by the future evolution of either the city’s economy or its demographics

 

 

 

 

 

At the same time, the Port Arthur waterfront park envisioned in 1968 has in many respects come to pass though without the massive civic plaza.  And the rehabilitation of Arthur Street (now Red River Road) has occurred as well as the senior’s complex on Cumberland.  As for Fort William, the results are more disappointing in that there is no William McGillivray Boulevard skirting the Kam River and a riverfront park and boardwalk, or density high-rise housing along the riverfront or a new Civic centre adjacent to the current City Hall.  As for retail, the street blocking Victoriaville emerged in the late 1970s but not the proposed Kam Centre.  The urban reality that evolved reflected the needs and wants of the times as well as the political environment.  Still, it is fun to look back and wonder what might have been under different circumstances.  There may even be some ideas in those old plans worth exploring further.

Thunder Bay and Sudbury: A Tale of Two Economies

 

The Conference Board of Canada has issued its March 2023 Metropolitan outlooks for Thunder Bay and Greater Sudbury and the immediate news looks good for Thunder Bay.  As a result of the construction of a new provincial jail in Thunder Bay over the new two years, Thunder Bay is expected to see its real GDP grow 3.6 percent in 2023 making it number 1 out of 24 comparable CMAs for economic growth.  On the other hand, Sudbury at only 1.4 percent projected growth for 2023 is still doing well and expected to rank 12^th out of the same 24 CMAs.  Sudbury is doing well as a result of expected persistence of demand for nickel given the growth of the electric car industry. In terms of how Thunder Bay and Sudbury will fare in the longer term based on these economic drivers, the Conference Board projects that Sudbury will see some continued growth particularly in employment but Thunder Bay after the construction boom is expected to falter somewhat given the absence of a more robust long-term driver. 

 

Figures 1 and 2 plot both real GDP growth and employment growth for Thunder Bay, Sudbury and Ontario as presented by the Conference Board reports.  While 2023 sees Thunder Bay surpass both Ontario and Sudbury for growth, for the 2024 to 2027 period, Sudbury sees real GDP growth stay at about 1.5 percent while Thunder Bay falls to just over one-half of one percent.  Despite the anticipated slowdown in 2023, Ontario real GDP growth recovers to an average of over 2 percent for 2024-27. In terms of employment growth, Thunder Bay sees a surge to a 4 percent growth in jobs created for 2024 but eventually sees employment shrink moving into 2025 to 2027.  While Sudbury also is expected to see lower employment growth moving forward, it remains positive to 2027.

 

 

 

And finally, Figure 3 provides a retrospective on local investment spending for the two cities in terms of the value of building permits from 2014 to 2021.  Fluctuations notwithstanding, the long-term trend up to 2021 has been slightly positive for Sudbury, and slightly negative for Thunder Bay. Going forward, housing starts are an important component of building permits, and the provincial and federal budgets are expected to see some initiatives for boosting housing spending.  The Conference Board is forecasting that total housing starts in Thunder Bay will fall from 193 units in 2021 to 161 in 2023 but then start to increase reaching 237 by 2027.  Sudbury is expected to follow a similar pattern declining from 434 starts in 2021 to 269 by 2023 but then recovering to 301 by 2027.

 

 

 

Both communities have aging populations which in the absence of economic opportunities attracting large scale immigration means that investment, employment, and real GDP growth in the long term will lag the rest of the province. One potential game changer is of course in the area of mining for both communities given the global demand for critical minerals and the expected development of the Ring of Fire.  Tomorrow’s provincial budget may provide a glimpse of what might happen there in terms of infrastructure spending.

Ontario Budgets: The Long View

 

As we get ready for Ontario Budget Day, its always fun to look at the long-term picture to see where Ontario has been.  And by long-term, I mean the entire period in which Ontario has been a province of Canada – 1867 to 2022.  Figure 1 uses data from historic Ontario Budgets for the and from the Finances of the Nation fiscal and macroeconomic database to construct and plot real per capita Ontario government revenues and expenditures in 2020 dollars for the period 1867 to 2022.  Real per capita revenues have grown from about $40 per person in the 1870s to reach over 10,000 dollars today.  Expenditures have followed a similar pattern.  Much of the growth in per capita spending has occurred since the mid 1960s with the expansion of public health care as well as education spending.  From 1868 to 1965, real per capita expenditures grew from $22 to $1468 and since then has grown to reach $11,470.  Indeed, the implied annual growth rate of real per capita spending over this entire period works out to about 4 percent.

 

 

 

 

 

Figure 2 weighs in with a long-term picture of fiscal balance – deficits and surpluses.  Needless-to-say, a better measure would be a deficit to GDP ratio but Ontario GDP pre-1960 is more difficult to acquire though one day constructing estimates going back to 1867 is possible.  Over the entire 155-year period covered by this data, there has been a deficit in 87 years – 56 percent of the time.  Deficits were less common prior to 1945 with deficits only 46 percent of the time whereas since 1946 there has been a deficit two-thirds of the time.  However, the post-World War II period can be divided into two periods – one of consistent surpluses and one of consistent deficits.  The longest consecutive run of surpluses in Ontario history is from 1941 to 1967. In the period since 1967, Ontario has run a deficit 93 percent of the time. 

 

And there you have it. Happy Budget Day.

Urban Density, Rules, and Thunder Bay

 

The big rage in urban policy these days is the 15-minute city – that is, living in an urban area where everything is 15 minutes away.  One could argue that Thunder Bay has been a 15-minute city for decades – no part of town is more than 15 minutes away by car.  However, the modern incarnation of the 15-minute city is one where most things one needs in the process of daily life – medical services, schools, retail, services, etc…- are within a 15-minute walk from where you live.  This used to be a feature of early cities that persisted well into the 19^th century but with urban growth and the advent of the automobile and suburbanization, we have moved away from that.

 

Nonetheless, Thunder Bay is also trying to move into the new age and part of that process involved its new Zoning By-law that passed in April of 2022.  While not ostensibly part of an official plan to build the 15-minute city, it is designed to encourage urban density.  Among other things, the plan levels “residential zoning across the city, opening the door for homeowners to subdivide any detached house, build new homes on smaller lots, and even allow for residential housing in backyards”.  In part this is expected to expand the rental housing market by allowing for more basement apartments – many of which already exist – to come out into the housing stock fully and legally and expand affordable housing.  Even the Chamber of Commerce has got into the act by supporting this policy as a return to mixed use neighborhoods and the creation of “walkable neighborhoods” where you can walk down the street and get groceries or a cup of coffee.

 

Of course, the problem is that in Thunder Bay, as is often the case, the left municipal hand does not always move in accord with what the right municipal hand is doing.  There is a degree of policy inconsistency.  On the one hand, April 2022 saw a new zoning bylaw designed to encourage urban density through a process of infill while September of 2022 sees the same municipal entity initiating planning to expand the Parkdale suburban subdivision that also requires a substantial extension to the city’s sewer infrastructure.   On the one hand we want more density in existing residential neighborhoods, but we also want new suburban residential developments.

 

However, such inconsistency is minor given it is traditional not only in Thunder Bay but across municipalities in Ontario.  It is rare to find a municipality – especially in today’s era of “housing shortages” that would not jump at the prospect of new development and associated tax revenues and development charges.  The more serious issue for Thunder Bay is that despite being a city with a CMA population of 130,000, it really feels like a much smaller and spread-out place because of its historic development as two cities.  What is actually required is more density buildings in the four to eight storey range just off of existing commercial and retail areas – including the old downtown cores.  Simply allowing for more basement apartments in existing suburban neighborhoods does nothing for “walkable communities” as they all need cars to get anywhere anyway.  If anything, this makes a car-centric city worse. Pretending that more basement apartments in areas remote from shops and services will create walkability is simply aspirational urban planning.

 

What is starting to happen especially in some of the older “modern suburbs” built circa 1960 and going forward is basement apartments being allowed without consideration for the spillover effects of more residents and especially more vehicles.  The new zoning bylaw allows 1.5 vehicles per home but some of these rental homes now have 3 and 4 vehicles most of which end up being parked on the street.  The amount of traffic on some residential streets is noticeably higher – and one should note faster.  And if the new units happen to be close to the university or college, there are invariably a lot of overnight guests adding to the urban street scene.

 

Even all this could be worked around if the City of Thunder Bay actually followed up its plans with some type of concerted implementation.  Case in point. Snow removal. The city has calendar parking in residential neighborhoods to facilitate snow clearing.  That is on even calendar days you park on the even address side of the streets and on odd calendar days you park on the odd side.  This allows for easier and efficient snow clearing as one side of the street is always clear after a storm. 

 

The problem is there are now too many cars on some streets for the parking available at the homes, so they invariably need to be parked on the road and in the winter rotated from side to side.  That has become too bothersome for the average Thunder Bay resident who prefers to park willy-nilly wherever they feel like  and so there are always cars on both sides no matter what day it is.  And if snow is in the forecast, no one cares because facilitating snow removal is a community benefit and the constant turnover of new rental residents with weaker ties to the neighborhood means they do not care as much.  Moreover, the city rarely, if ever, tries to go down streets and ticket violators as part of a program of regular enforcement – no doubt because they are “short-staffed”.  On days when it does snow, the snow plough operator has difficulty getting through the street resulting in an uneven job.  And to make it worse, more often than not even the city plough operator does not follow the rules ploughing the even side on an even day when parking there is allowed and vice versa.

 

Thunder Bay has in many respects again become the wild west. Rules? They appear to have become voluntary unless someone decides they are not.  Try following the speed limit in a school zone with two large F-150s behind you and see what its like.  If you want rules, you follow them if you like, it is your choice, seems to be the mantra.  Yet, with increased density and more people living in closer proximity, following the rules should be more and not less important.  Thunder Bay has always been a place full of independently minded people doing whatever they want when they want and that appears to extend to the city government itself which makes plans and rules and does not enforce them or even try to implement them properly.  To be fair, some of this behaviour is continued fallout from the pandemic and a reaction to the rules and restrictions that were imposed.  There is a process of social and behavioural adjustment under way in cities across Canada, and it is not over yet.  Still, it remains that the long-term outcome here is not going to be some type of urbanite planning fantasy of happy renters and homeowners co-existing in walkable suburban communities strolling hand in hand to save the environment while the city wins urban planning awards.  Rather, it is going to result in a deterioration of urban quality and community life for many residents of Thunder Bay as a result of aspirational planning with no follow through.