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Can Property Taxes and Development Charges Help Shape Metropolitan Areas?

Working paper #458
Andrejs Skaburskis and Ray Tomalty

This study reports on a survey that sought the opinions of developers in Ottawa and Tor onto on property taxes and development charges and the effect of these instruments on land-use, density, and the timing of development. The results show that developers do not consider property tax differences in their planning decisions. Spatial differences in development charges are recognized and the instrument can be used as a planning instrument to help redirect growth in ways that help rationalize infrastructure development. Developers did not see development charge differences as reflecting cost differences, nor did they see the charges as easing the development approvals process. The high degree of uncertainty regarding future markets eliminates, in the developers’ view, the effect of the fiscal instruments on the timing of their decisions. Developers build when a reasonable return is possible and do not wait for development opportunities to ripen in ways that would yield even greater profits. The effects of the fiscal instruments are therefore due primarily to their substitution effects. The study supports the use of development charge schedules that accurately reflect the differences in the social cost of building types, density, and location.

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