The Bank of Canada’s recently announced key interest-rate cut will mean little to Canada’s multi-residential market, says an Altus Group analyst.

“It’s helpful, but it’s not going to fix anything,” said Alex Beheshti in an interview with Connect.

People argue that there is a Goldilocks zone for interest rates and housing. But interest rates will always interact with existing housing policy, he added.

The BoC reduced its benchmark lending rate by 25 basis points to 4.75% earlier this month. The reduction was the first in four years.

Beheshti likened the multi-residential market to a ship with a sail full of holes. Although the wind is blowing, the ship is not moving very far, even with the interest-rate cut.

“You have very light wind gusting because the Bank of Canada has very high rates right now to try to suppress economic activity, to deal with general inflation,” he said. “The ship is not efficiently moving forward, because wind is not blowing [sufficiently] and because the sail has giant holes in it.

“The wind can blow more, we can lower interest rates, and we can increase economic activity, and the wind can blow a little bit stronger, and certainly the ship will pick up speed. But that ship is not going to move at speed efficiently, because it has these holes in it.”

With interest rates on the way down, it’s time to discuss how to ensure that development fees are being charged in the most efficient way, he believes.

He called for a national discussion on the development-charge system to ensure that fees are being charged in the most efficient way.

“People who provide criticisms of the development-charge system, their objective is to completely eliminate them,” he said. “That’s completely obscene. We will never eliminate development charges. It’s just never going to happen. At some point, somebody’s got to pay the piper on whatever it is use need: roads, pipes, busses, transit, etc.”

In addition to examining whether development fees are being charged efficiently, municipalities need to examine how funds are being spent. He noted that Ontario long-term care home developers have to pay development fees but their residents do not necessarily receive the same services as residents of multi-family buildings. And, long-term care centres are not even a municipal responsibility.

Some municipalities, like the City of Toronto, are sitting on large financial reserves derived from increased development charges, while services have not expanded accordingly, he contended.

“Why is this money not getting out the door?” Beheshti asked. “The city is bleeding, is screaming at the edges. I am a resident of Toronto and, regardless if you’re pro development charges or anti development charges, we should all agree that the money we do collect should be spent efficiently.

“And, there’s always this avoidance by municipalities to ever really engage on that issue. Is the money we’re collecting being spent efficiently and correctly? Nobody is defending the consumer here,” he added noting that purchasers and renters end up paying the development costs through mortgages and rents.

The discussion, he contended, always comes down to whether people are for or against development charges without delving into the nuances related to development and fees. He also called for an examination of services that development charges are intended to cover.

“For example, are we providing water or wastewater services?” he said. “Is it appropriate to pay for that in lump sums, where that lump sum then gets transformed into a person’s mortgage, where they are paying a lot higher rate for servicing that debt than a municipality would? Municipalities, and governments in general, can get a lot better rates than households can, and so that delta between what a private mortgage goes for and what a government can get in terms of debt financing is an additional burden that is unnecessary.”

He noted that, for the most part, households pay user fees for electrical services rather than lump sums, as is the case with services linked to development charges. Infrastructure cost inflation must also be evaluated, he argued.

“The amount that we we’re going to need to tax or charge in user fees or whatever is ultimately going to be determined by how much this stuff costs to build,” said Beheshti. “You have to tackle both sides of that ledger at the same time.”

Some of the charges associated with services are fair. But, depending on locations across the country, the way that the money is being spent is not fair, because municipalities are “changing the goalposts,” he asserted.

Several municipalities have become addicted to increasing development charges. He noted that Vancouver and Toronto have the lowest property taxes in Canada but the two cities also charge the highest development fees.

But Alberta is a good example of a place that has not become addicted to development-related levies or charges.

“B.C. is not as bad as Ontario,” he said. “No one is as bad as Ontario.

“Ontario is the train that has just lost all control over what’s going on. I really think it behooves the [provincial] government here to get really serious about it on all those lanes that I’ve talked about.”

Beheshti reiterated that he is not saying development charges should be eliminated. In his view, growth should pay for growth, but stagnation should also pay for stagnation.

“Between those two poles, you have to have that holistic conversation about what is it appropriate for whom to pay,” he said.

Pictured: Alex Beheshti, Altus Group analyst.