New housing starts mean $100,000 per home needed to fund infrastructure: report

As Canada aims to build homes faster, both the public and private sectors will need to boost spending on municipal infrastructure, a new report from the Canadian Urban Institute says.

The report, funded by the Canada Infrastructure Bank, estimated the average cost of infrastructure needed to support housing likely exceeds $100,000 for each newly built home. That includes funding for resources such as public transit, roads, water lines, schools, fire halls or recreational facilities.

The Canada Mortgage and Housing Corp. forecasts Canada will require an additional 3.5 million housing units by 2030, on top of the 2.3 million already projected to be built, to restore affordability to levels seen in 2004.

That level of increased housing starts — more than 500,000 homes annually — is equivalent to building a new city the size of Calgary each year, for seven years, noted report author Michael Fenn, Ontario’s former deputy minister of municipal affairs and housing, who has also served as a municipal chief administrator in Hamilton and Burlington, Ont.

“Canada’s housing crisis is in large measure an investment crisis,” said Canadian Urban Institute CEO Mary W. Rowe in a press release.

“Yes, Canada needs more housing, but to realize this goal, we need the necessary infrastructure — the water lines, streets, sewers, storm drains, and all the other essential municipal services — that make new homes possible.”

While some new housing will benefit from pre-existing infrastructure, the report said there are barriers to financing newly required projects.

For example, municipalities are often reluctant to either incur debt or pass along capital costs through property tax hikes for political reasons.

In some cases, growth is stifled by municipalities insisting developers shoulder the financial burden by pre-paying for the full capital cost of long-life infrastructure. The report noted there is also municipal opposition toward leaning on the private sector to deliver public infrastructure, especially if it involves transferring ownership or control.

It proposed multiple alternatives, such as moving away from requiring pre-paid development charges to an approach that provides secured payments over the lifetime of the asset.

Municipalities should also develop new financing tools that allow them to share the costs of infrastructure among those who benefit from it, including developers, the report recommended. It said developing tools such as land value capture and tax increment financing can help cities deliver more services.

Other recommendations include leveraging private capital to invest in public infrastructure through measures such as utility and development corporations. It said financial risks should be shared with institutional investors that are in a better position to absorb them.

“Municipalities often face challenges financing the critical infrastructure they need to help unlock new housing developments,” said Canada Infrastructure Bank CEO Ehren Cory in the release.

“This report demonstrates there are a variety of new financing supports … that can help municipalities to build the infrastructure needed for housing ahead of population growth.”

This report by The Canadian Press was first published June 12, 2024.