The economics of Big

The economics of Big

We’ve all heard the story. A residential high-rise developer purchases and assembles land to build at some point in the future when market conditions and building climate is favourable. The land purchased was zoned for a specific medium height and density use, which theoretically determines the maximum selling price of the land at the time of purchase.

Max Land Price for Maximum Land Use Yield

But this is where things go wrong for a community. The buyer takes for granted that they can change the rules of the land use, density and height to their advantage. They propose an overbuild of the land with hopes that somewhere in the negotiations and settlement with the city and constituents, they’ll still arrive at a much higher yield of land use than what they purchased it for.

It’s in this conclusion of land cost to land use and height change that they make additional profit, or even the only profit possible.

During the process, if the outcome doesn’t look favourable the developer claims hardship and suggests that market conditions are such that they require special accommodation for height and density to make ends meet. The city yields and grants the accommodation because it seems reasonable. Yet, why? There was inherent risk to take such chances with the purchase in the first place. It was presumptuous that changing the law to influence the outcome of the project would be a done deal. Unless that is the current climate — the way it’s done.

So it sways in favour of the developer. The argument is presented by the city that the project is economically beneficial. The argument is presented that the developer will, in exchange for height and density, provide community benefits. Benefits that might include topical needs for the area; parking, parks, amenities and services. The deal is closed without further public consultation, approved and stamped.

After permits are issued, the developer once again claims hardship. That market conditions have once again changed and so they cannot afford to provide the community benefits. Consequently they won’t fulfill that part of the deal to the full extent and again the city yields. The project continues without rejection.

The lesson is clear to the developers and the city. To the developer the strategy can work and the risk was worth it. To the city they learn that they don’t have to be accountable and people have short memories.

What if risk is risk, and it sometimes means failure?

In business there is risk. Most business is built on risk and sometimes, often, they fail. In these instances where  business took on risk to do business and failed, we say, oh well, they knew the risks and failure was a good lesson. So why not of development? Is it not time for all in the process — developers, the city and residents alike to remind each other that risk is risk and we can’t create a false market condition that protects developers from exposure and failure? We gain nothing from protecting developers from risk, especially at the cost of the community.

What is the cost of big?

Clearly this strategy comes with an emotional cost to residents. Its disheartening to lose the fight for something like moral processes and fairness. But hearts repair and we move on.

But yet there is a real cost. Not just the cost of not receiving the negotiated benefits to the community for the crop that was reaped. No, it’s a greater cost.

This process of developers determining the course of land use in your area means that the real plan — that done by planners and thinkers — is not being fulfilled. This plan would have included buildings for professional businesses. It would have included amenities such as gyms, arenas, affordable cultural space, art space, educational space, young upstart entrepreneurial space, farm market space, daycare, clinics and more. All the kind of uses that could have afforded the land if it were PRICED AS ZONED.

Yet, when the developer determines land use and decides what product mix makes most money — residential — they effectively exclude the “other” uses forever and reinforce a market condition of inflated prices that can only support more residential.

In choking an area of potential business and cultural growth, it chokes the city. Business and culture are the engines of a city. Small business and big business alike. Revenue from businesses is a greater yield for any city than residential so it is a critical part of the mix.

Additionally, when developers fix the cost of entry for residents they define the mix of residents as well. Of course filtering to the highest paying as this makes most sense. No socio-economic judgements here — limiting the economic diversity of any area restricts the beauty and growth of culture, ideas and business.

So what is the real cost of this big development trend? The future of Burlington Downtown’s culture and business growth — and possibly Burlington itself. Burlington has evolved over the decades from a sleepy bedroom community of Toronto into a thriving self-sufficient, world class city. Indeed this has made it attractive and has driven land values through the roof. However it’s ironic that this same success is allowing big development to over-build residential and turn back Burlington’s clocks to a sleepy bedroom of primarily vertical residential units — in the name of intensification and profit.