Continuing on in exploring myths that undermine the ability of communities to achieve economic development and have a proactive and positive working relationship with the development community – this one looks at the question of power and privilege.
Some local governments extrapolate from their role as the agency that issues permits for development to a position that they are centrally responsible for the benefits conveyed to a community by development industry. From this extreme position, there is a belief that there are no “rights” to develop, just privileges that the local government in their significant wisdom and benevolence grant – and therefore they feel fully entitled to require nearly anything they desire from anyone wishing to develop or build.
This position most recently has been seen in some municipalities endeavouring to extract all or a major amount of the value of so-called “land lift” caused by changing zoning, while consciously remaining blind to the extreme risk involved in buying and rezoning land – as well as the charging of excessive community amenity charges or other similar extractions.
While it can be a “power” thrill for a local government to believe that its role in granting development permits means that it truly is the sovereign power in the real estate sector, in reality it is not the case. The development industry is fundamentally part of the larger regional, national and global economy and is largely independent of the local government because it is comprised of financiers and professionals who have a high degree of mobility and they simply take their money and expertise elsewhere if a local government is unhelpful. The only developers who are not relatively mobile with their capital are the very small mom-and-pop operators who build a few homes a year – and tend to be the pillars of the local community. Every penny they make gets spent in the community and they have little room to move financially – and so hitting them hard helps no-one.
It is always unfortunate to see an arrogant local government making it difficult for developers to work in the community – but then because little development is occurring, they start spending scarce public funds trying to figure out how to get economic development.
The “sovereign” attitude only exists in cities with extremely high demand for development and only lasts for a period of time, until the economy takes a downturn, or the development industry simply moves its focus to a nearby community with a less arrogant position. When a local government unnecessarily makes development less viable, less development correspondingly occurs and over time, land and housing prices can rise to untenable levels in a desirable city (eg: Vancouver in the late 1990s). In a less desirable community or one there the development industry is a major piece of the economy, any reduced development undermines the prosperity of the entire community, especially for the blue collar workers who comprise work in in the development and construction industry.
While developers can often become wealthy, they take major risks to do so and the bottom line is that no bank will finance their project unless there is a decent level of profit – so if the project is financeable, it is profitable – and if it is managed well, they make good money– and so it should be. More importantly, in most cases, the profit doesn’t disappear into a single person’s bank account out of country – it is instead paid out in salaries and business operating costs throughout the community. In a typical growing regional city, the direct and indirect economy associated with development can be 20% of the economy – and thus, the income of one in every 5 homes on any street is connected to a developer.
Development on any given piece of land is not a “right”, but neither should be seen as an excessive and rare privilege granted solely by the local government – and only granted at a towering price. In reality, development is a major part of most communities’ economies and it will continue regardless of a community’s attitude – although it may just be reduced or seriously stalled if the community is overly hostile or demanding or ineffective. A decline in development has consequences of reduced employment, economic growth and no upgrades in infrastructure or addition of new community amenities. In this context, neither public nor private interests are achieved.