The Goose that Laid the Golden Eggs, one of Aesop’s Fables, is a story of an impoverished farmer and wife who have the good fortune of coming into possession of a goose that lays golden eggs allowing them to grow their family, provides security, and a stable home, and generally improve their circumstances and those close to them. More confident and secure, and motivated by the notion that the goose must have a vast reservoir of gold within, they kill the goose only to find that there is no perpetual reservoir of gold and that the goose is just a goose.
This fable, wrapped around the moral message that ‘killing the goose that lays the golden eggs’ is a short-sighted destruction of a valuable resource motivated by greed, somewhat parallels what is currently manifesting in the residential construction industry, particularly in the Greater Vancouver catchment.
DCCs and CACs
Growth requires infrastructure and services, and many years ago the concept of “growth pays for growth” was adopted by the provincial government and the guidelines and framework for Development Cost Charges (DCCs) that could be imposed on new development by municipal governments were introduced.
DCCs were specific in terms of what they were to be attributed to – “development cost charges [are applied] on new development to pay for new or expanded infrastructure such as sewer, water, drainage, parks, and roads necessary to adequately service the demands of that new development.” The calculations can be complex but essentially the cost of expanding or upgrading services required to support each new development was to be divided by the number of units or new square footage and charges levied accordingly.
Industry never objected to the idea of growth paying for growth, but the imposition of DCCs and the adjunct Community Amenity Contributions (CACs) which cover a wide and elastic criterion of additional services and or facilities triggered by new development have begun to take on staggering proportions of the fees and charges imposed on building new homes.
IMPACT ON HOUSING
Recent studies including ones from HAVAN, CHBA-BC, CHBA, UDI, CMHC, CD Howe, and others have empirically demonstrated that in the Metro Vancouver area government-imposed charges including DCCs, CACs, and a host of other charges, taxes, and fees applied from all levels of government amount to as much as 30% of the cost of providing a new home. Both the provincial Development Approvals Process Review (DAPR) and the BC/CMHC Expert Panel on Housing have identified the need to recast development finance models as the status quo is now an inhibiting factor in the provision of an expanding housing supply.
Industry and associations such as ours have long stated that municipalities look at new development as an “ATM”, that they don’t have to fund but rather from which they can secure unlimited sources of revenue. In some respects, the housing market fueled by high demand and low-interest rates over the last decade or so absorbed the increases in DCCs and other charges as the “cost of doing business”.
However, circumstances have changed and now these charges are becoming prohibitive, threatening the financial viability of the provision of new housing at the exact same time when the need to dramatically increase supply to address the housing crisis has come to define the platform of every level of government.
We have seen a tsunami of increases and an expansion of charges from almost every municipality in our catchment compounded by significant increases in DCCs at the Metro Vancouver level regarding sewage, water, parks, and Translink. Despite BC guidelines calling for DDCs to be reviewed every five years, multiple municipalities have lapsed and then sought to correct their charges after ten or more years in one fell swoop. This has seen DCC increases as high as 250% in Mission, 120% in Langley City, and 83% in Township of Langley.
In the case of the Township of Langley, the increase was imposed with little or no notice, expedited as quickly as possible in a highly accelerated manner, with effectively no industry consultation, and any comments from industry effectively discounted. The increase as it applies to single-family homes represents over $45,000 per door over the $40,000 already being applied. When adding Metro Vancouver increases, this layers approximately an additional $15,000 dollars per door for a total of over $100K with little or no protection for instream applications. How can unpredictable increases in costs of this magnitude be penciled into the proformas of projects presented to lenders and or investors? In many instances, as we are now starting to see, projects are being rendered unviable.
A NAIVE OUTLOOK
There is also an undercurrent of opinion amongst municipal politicians and or staff that DCCs do not affect the end price charged to consumers as the developer will charge what the market will bear. This is a very naive position as paying for these charges forms part of the cost base that must be covered by potential revenue, and in a contracting market, coupled with today’s interest rates, accelerated construction costs, and the timelines required to achieve approvals, we will continue to see more and more projects being delayed or shelved.
This was just seen with a project in Surrey City Center of approximately 1200 units which included over 400 below-market units withdrawn from the process that will now be redirected as market units because the project no longer penciled out and couldn’t meet BC Housing financing criteria. There are multiple projects across many municipalities that even being approved can no longer move forward as the additional costs render them unviable including 1000’s of non-profit and or purpose-built rentals. The Federal Housing Minister withdrew the grants that would have been made available to Burnaby and Surrey through the Housing Accelerator Fund upon learning of the magnitude of Metro DCC increases that were approved by both cities.
We have long lobbied for GST to be suspended for purpose-built rentals and the relief to make those projects viable is now being eroded by the unrestrained increases in charges of all stripes. DCCs are expected to be paid on the issuance of development permits and in an environment of exceedingly extended approvals processes the cost of paying for these charges long in advance of potential recovery is prompting one developer after another to request a deferral.
The bottom line is at a time when delivery of housing supply has reached critical proportions the unfettered increases in imposed charges are not just threatening but are killing projects in real time. The impacts are compounding as cities in need of the housing supply will suffer from the loss of not only the DCCs but also the ongoing tax revenues these projects could generate for decades.
PREDICTABILITY AND CERTAINTY
It has been said that the housing crisis needs a “wartime-like’ effort by all levels to solve the shortage of housing and maintain the healthy growth of our economy. In that vein, we now more than ever need to see a rationalization of these charges into a framework of predictability, certainty, reasonable limits, and with protection of in-stream projects to ensure they can be delivered. We need more accountability in terms of attribution of DCC/CAC revenues that in many instances clearly benefit the broader community well beyond the scope of the subject development.
HAVAN is advocating at every level in this regard and every member needs to become engaged in pushing back on these policies that will threaten not only the delivery of homes but the ability of members to operate a successful business. It is not only major developments being affected as these charges trickle down to the provision of one-off and custom builds where clients will face unanticipated increases of 10’s of thousands of dollars when budgets are already ballooning due to inflating construction costs, and the higher cost of borrowing.
The message to the province and all municipalities, including Metro Vancouver is simple:
Stop Killing the Golden Goose!!
HAVAN continues to work with CHBA BC and CHBA to advocate for all levels of government to work together to address the challenges of the housing industry including zoning restrictions, density limits, and NIMBYism.
Looking to stay up-to-date on Metro Vancouver’s residential housing industry? Sign up for Ron’s weekly Monday Morning Briefing and other HAVAN emails here.
Quickbites …
- The Daily Hive reports on the Metro and Vancouver DCC increase pushing cost base by over $24K
- Livable City offers this very insightful chart comparing the existing structure of charges in Vancouver, the impact of new charges being proposed, and how this affects cost and more importantly, the income increase required to service the increased cost base.
- Please see the BC Housing New Homes Registry September report. Spoiler alert: registrations are down! The report as usual provides a detailed breakdown by housing genre and region.
- Here is the latest edition of the Rennie Landscape that reviews and looks forward to what we can expect under the prevailing market conditions.
