Why is Ottawa Overpaying Developers for Land?

Green Reality, South March Highlands

The City’s scarce environmental purchase funds appear to be used to overpay Urbandale and other developers when buying lands designated Urban Natural Area (UNA).

According to the Oct 12, 2012 staff report to the City’s Finance Committee, the going price for environmental land acquisition is $160 K / acre which is up 50% over the originally budgeted amount in 2010.

Considering that UNA lands are already undeveloped and cannot ever be developed, you have to wonder how this exorbitant price increase was justified over only 2 years.

Even if staff are using recent price increases for developed land, the math doesn’t work.

  • According to the Ottawa Real Estate Board, the average price of resale homes in Ottawa increased only 2.3% in 2012 over 2011 compared to 7.7% in 2011 over 2010.
  • Inflating the 2010 budget estimate of $101, 250 / acre x 1.077 x 1.023 = $111,554 / acre  in 2012
  • So why are staff agreeing to pay $160,000 / acre?

But is it even believable that land price increases for developed real estate should be used to justify massive increase in value for land that can never be developed?  On what basis would any reasonable person expect there to be any increase in value at all beyond inflation?

  • Allowing for inflation results in only a compounded increase of only about  4%

So how can a price increase of 50% be rationally justified?

  • It seems that either the process is corrupt  or the City managers that are responsible for these funds are so incompetent that they should be dismissed.

A review of land acquisitions from 1998 – 2010 reveals that the most that the City ever paid in the past was only $86 K /acre and that the only transaction in 2010 was at $71 K / acre.

What seems particularly odious is that the same staff were busy justifying a price ranging between $231 K /acre t0 $363 K / acre in Nov 2010.  The Coalition to Protect the South March Highlands asked the City to purchase 74 acres of KNL’s land in Beaver Pond Forest prior to it being clear-cut:

  • KNL Phase 9 is 110 acres of which KNL had already agreed to convey 40% to the City for free as UNA
  • City staff had estimated the value of the remaining 66 acres at $18 M or $231 K / acre for unserviced land that had previously been designated as NEA prior to granting Campeau development rights in the SMH
  • Note that KNL is a joint venture between Urbandale and Richcraft.  It seems that Urbandale has remarkably good fortune in extracting top-dollar from the City for land acquisitions and that City staff are often willing to pay it.

Since UNA land cannot be developed, and tax assessments are supposed to be never more than 3 years out of date, why does the City ever pay more than the assessed value of the land for taxes multiplied by the appropriate inflation adjustment?

So it appears that staff has misled Council on several occasions:

  • By using an estimate of $100 K /acre in the 2010 budget when the City had only paid $71 K / acre that year
  • By reporting to City Council  in 2010 that a fair price was effectively $231 K / acre or higher when Council was deliberating on the Beaver Pond Forest acquisition
  • By consistently overpaying developers by 50% when acquiring UNA land post-2010
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