The costs of front-ending servicing infrastructure

Today, local governments in Ontario do not service lands for development themselves. Indeed, they rarely take full advantage of their ability to fund works through debt. Instead, they transfer the risk to the private sector. In the absence of public investment in infrastructure, much infrastructure is "front-ended" by developers. Developers assume the initial cost of servicing land and recover their investment through the development process. In order to profitably service and develop the land, developers must build large-scale projects that cannot be accommodated within designated settlement areas.

In an interview, Geranium representatives noted that since public bodies are reluctant to provide infrastructure, private developers must operate at a larger scale to cover the cost of infrastructure themselves. This position has been echoed by other members of the development industry. In an opinion piece in the Toronto Star, real estate advertising agent Bryan Levman writes that small independent builders can't compete with large developers who have their own integrated building arms.120

Historically, Metro Toronto, the regional municipalities, and the Province undertook long-term comprehensive programs of infrastructure investment for several reasons. First, they sought to influence the location of population growth on a region-wide basis for reasons of efficiency -- the regional balance of employment centres, transportation systems efficiency, and protection of rural and agricultural lands. Second, it was understood that by virtue of their size, governments could raise capital more cheaply on equity markets.121 Finally, there was a general understanding that the government would establish the large-scale water, sewer and highway infrastructure network on which private development would grow.

Today, governments have to a large degree backed away from these roles. The transfer of the expense of infrastructure investment, and thus risk, to the private sector changes the incentives at work. The developer's drive to recover up-front investment compresses the expected time horizon of growth. When private developers pay for infrastructure, the incentive is to minimize capital costs, not to invest in quality. A cheaper solution today may mean higher operating costs in the future; costs that will be carried by local governments and their taxpayers.

120. Levman, Bryan. "Why we have a shortage of lots: Smaller builders getting shut out," Toronto Star. February 21, 2004, on-line edition.
121. White, Richard, "Urban Infrastructure and Urban Growth in the Toronto Region 1950s to the 1990s." Neptis Foundation. 2003.