Following on last week’s MMB concerning the pending increase in DCCs being considered, a letter sent by Federal Housing Minister Sean Fraser to the Metro Vancouver Regional District Board was released last Wednesday wherein the Minister asked the Board to reconsider the approval of the proposed increase in DCC charges for a year pending more consultation and analysis on their impacts. The Minister also stated in this letter that grant applications by Metro municipalities that were in favour of the implementation would be re-evaluated.
Many of the Minister’s comments could have been lifted directly from the HAVAN, CHBA-BC, and CHBA playbook: “A ‘growth pays for growth’ approach ignores the value that new development, new property tax bases, new businesses, and new neighbours bring to our communities. I am concerned that at this particular moment in time, a drastic increase in development charges will inhibit our ability to seize the opportunity to incentivize a rapid increase in construction.” He goes on to suggest that Metro “… delay the fee increases, to allow more “in-stream” housing developments to advance before fee hikes affect their viability … during that delay … Metro Vancouver could review its fees to expand exemptions for purpose-built rentals and non-market housing.”
In response to the Minister’s request, an amendment to delay the implementation of DCCs for a year to allow for further consultation, short- and long-term financial analysis, and development of an asset management plan was tabled Friday.
HERE’S HOW IT PLAYED OUT
The Metro Vancouver Regional District Board voted 23 to 17 in favour of increasing DCCs applied to new housing in the region, irrespective of the Minister’s request.
The Metro Board consists of all 21 Metro Vancouver mayors with the balance consisting of a selection of councilors and non-elected appointees from each municipality, and interesting to note that Vancouver, Coquitlam, North Shore, and New Westminster councilors voted to delay implementation but were outvoted by Burnaby, Surrey, Richmond, and Langley.
Minister Fraser seems to get it, and commented after the DCCs were approved: “I have concerns that moving forward with significant increases in development charges given extremely challenging market conditions could deter home building that would otherwise occur in the absence of such costs.”
The Minister’s comments echoed those offered by HAVAN in a direct letter to Metro Board members prior to Friday’s vote “We are hearing from our members of projects that are being postponed, or even stopped, due to financial viability. Interest rates, inflation, staggering increased DCCs and CACs at the municipal level, and other fees and charges being levelled at the construction industry are putting up barriers that are having a direct impact on our ability to build the significant amount of new housing that is needed in the region.”
Provincial Housing Minister Ravi Kahlon essentially supported Fraser’s proposal calling it reasonable, but many of the mayors considered this as unwarranted interference in municipal affairs with Brad West of Port Coquitlam describing the inference to withholding or adjusting funds potentially coming from the Housing Accelerator fund as “… Akin to hostage taking …”
ECONOMIC IMPACTS
The impact of the vote to proceed will reflect increases on single-family homes between $18,506 and $24,106, a new townhouse could increase by $16,952 to $22,182, and the cost of a new apartment could increase by $11,360 to $14,657 per unit after the new by-laws are fully adopted. It is important to note that these charges will be in addition to any increases in DCCs and or CACs being proposed by individual municipalities.
The increased charges will now come into play as the Board effectively shrugged off the concerns of industry stakeholders, and both federal and provincial housing ministers, with many directors sharing sentiments expressed by Brad West “I don’t think this is about affordability at all, I think this is about politics.” With all due respect to Mayor West, it’s not about politics – it’s about economics. Ravi Kahlon has often stated that to address the housing and affordability crisis we are facing we need to take politics out of the discourse.
West also offered the comment ‘that these charges would not affect prices as developers will charge whatever the market will bear.’
It is somehow lost in the posturing that DCCs are a direct impact on the cost base that must be covered, and such increases must be carried now for extended periods of time in a high-interest rate environment while facing declining market prices, and sharply inflated construction and labour costs. The statistics reported by every agency tracking our industry indicate that prices, sales, and starts are down and continuing to trend down, so what happens, Mayor West, when the market cannot bear the cumulative impacts of these factors and the project no longer pencils out?
14 YEARS LATER, THE TIME IS STILL RIGHT
I would like to refer you to a report commissioned by CHBA in 2009 and prepared by the Altus Group entitled “The Time Is Right – Alternatives to Development Charges.” The report is comprehensive and even though it is 14 years old it is still extremely relevant and reflects the fact that the municipal governments refuse to consider the impact of these charges which have now reached a critical tipping point.
From the report “Municipalities are relying increasingly on development charges ultimately borne by new home buyers, to finance basic urban infrastructure. This approach to financing basic urban infrastructure is both unfair and inefficient.”
The report notes that downloading the cost of infrastructure that benefits the whole community onto the new home buyer is essentially subsidizing existing households, with this approach reducing affordability. The report also notes that the allure of DCCs is in being able to offset tax increases that might have to be levied on the entire community even though municipalities could finance at much more attractive rates over longer periods of time and spread the costs over many more doors.
The conclusion was that shifting the burden of infrastructure financing from the homebuyer onto the taxpayer at large brings greater equity and efficiency to housing and mortgage markets, enhances housing affordability, and supports increased housing supply.
Jennifer Keesmaat, former Chief Planner at the City of Toronto, shares this view stating: “To avoid raising taxes, municipalities and regions across the country have been adding fees to the development of new housing for decades. In doing so, they sidestep the difficult conversations about who pays for infrastructure, putting the burden on new homeowners, instead of existing ones.
This is a model that worked (sort of) in a low-interest rate environment. But it doesn’t work today, and we need a new model for funding new infrastructure. Should homeowners in Canada – nearly 40% of whom have their mortgages paid – bear a little more of the burden of infrastructure delivery?
HEADING IN THE WRONG DIRECTION
It is an important question to ask because when newly rezoned developments are being put on the shelf, you know the math is not working. Upping development charges at this moment is the wrong way to go.
Echoed by Bob Ransford, Urban Development Specialist, and several others including Brent Toderian, former chief planner for Vancouver, and Michael Mortensen, of Liveable City Planning.
Per Ransford:
“It’s nonsensical to finance urban infrastructure for growing cities with targeted taxes on new homeowners who finance these costs with residential mortgages when governments can borrow more economically. Federal & provincial reform is URGENTLY needed.”
Per Toderian:
“Thus, my general position on development charge increases needed for infrastructure that growth is dependent on, in the context of brutal new financial conditions added to already challenging contexts, is to exempt downtowns and strategic urbanizing areas from such increases!”
Per Mortensen:
“Metro is pushing home ownership further out of reach – adding new infrastructure to new home mortgages rather than financing it more broadly at lower government rates.”
There would also be room to question as to how much of the increase in the Metro charges will be going to address the costs associated with the stalled North Vancouver water treatment plant where the contract was collapsed, and the costs ballooned from $700 mil to $1 billion.
It is highly unlikely that the development finance model will change any time soon as the municipalities find it far to accessible and easy to extract the required funds from the new home development sector, but as noted, we are at a tipping point with enormous pressure to increase supply and mitigate costs.
It remains a fact that 95% of housing is built by the private sector and when this sector can no longer move forward due to a lack of financial viability there will be no DCCs, other charges, fees, or taxes available to support any infrastructure or growth or even the existing fiscal positions of the municipalities. It is imperative that we continue to advocate for change, and it will be interesting to see how the feds and the province respond.
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.
QUICK BITES …
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Dan Fumano in the Vancouver Sun provides some insight into the sharp decline in residential land sales over the past five quarters. This decline will obviously compromise delivery of housing because when you don’t feed the front end how can housing be delivered at the back end. This trend is on top of projects being postponed, or collapsed and offered for sale as they no longer pencil out.
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From The Conversation, a look four homegrown housing provision solutions working to create new and effective means of delivering housing including the Whistler Housing Authority model that grew out of the need to provide affordable options for the local employees and business operators. WHA is currently delivering over 100 new units.
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Will the new rules on short term rentals (Airbnb) introduced by Housing Minister Ravi Kahlon help our hinder rental availability and pricing, and what will be the effect on tourism, film industry, and conventions in a landscape already seriously short of short term rental/ hotel options?
