Growth and development costs: A heavy load on new homeowners

The concept of growth pays for growth was introduced by the provincial government many years ago. Development cost charges (DCCs) were established to fund new infrastructure, including the sewers, water, drainage, parks and roads required to accommodate new housing developments. The idea was straightforward: The cost of expanding or upgrading services should be shared among new developments.

While the industry never objected to this concept, the introduction of DCCs and community amenity contributions (CACs), has resulted in an overwhelming burden on the production of building new homes. These charges have been accumulating, amounting to as much as 30 per cent of the total cost of a new home, as demonstrated by recent studies.

Skyrocketing charges

Despite B.C.’s guidelines calling for DCCs to be reviewed every five years, multiple municipalities have lapsed and then sought to correct their charges after 10 or more years in one fell swoop. This has seen DCC increases as high as 250 per cent in Mission, 120 per cent in Langley City, and 83 per cent in the Township of Langley.

In the case of the Township of Langley, the increase as it applies to single-family homes represents more than $45,000 per door in addition to the $40,000 already being applied. When adding Metro Vancouver Regional District increases, this layers on approximately $15,000 dollars per door for a total of more than $100,000 in government-imposed taxes, with little or no protection for in-stream applications. Such unpredictable cost increases are making it impossible to plan projects and rendering many unviable.

A naive outlook

Some municipal politicians and staff hold a naive belief that DCCs do not affect the end price charged to consumers because developers will charge what the market will bear. The problem with this is twofold. One, DCCs are built into the cost of the new home, which inadvertently places the responsibility of infrastructure improvements onto the new homeowner versus sharing the costs with both new and existing homeowners. Two, these charges form part of the cost that must be covered by builders estimating their ‘potential revenue’ at the beginning of the planning and financing process.

In a contracting market with increasing construction costs, extended approval processes and rising interest rates, the market stresses are real, and more projects will continue to be delayed or shelved due to the numbers not penciling out.

The recent withdrawal of a project in Surrey City Centre is an example of how escalating costs can lead to changes in project dynamics. More than 400 below-market units were redirected as market units because the project couldn’t meet B.C. Housing financing criteria and was no longer financially viable.

Tipping point

While the housing market has thrived over the past decades or so, driven by high demand and low-interest rates, the residential construction industry has willingly absorbed the increasing DCCs and other fees as the cost of doing business. However, the landscape has shifted dramatically, and these charges are now becoming cost prohibitive.
They pose a grave threat to the feasibility of providing new
housing precisely when increasing the housing supply has become a top governmental priority.

At this critical juncture, when housing supply is paramount, uncontrolled spikes in imposed charges are terminating projects in real-time. The repercussions are far-reaching, as cities in dire need of housing supply stand to lose not only DCC revenue but also the tax income these projects could generate for decades.

The solution lies in rationalizing these charges within a framework of predictability, certainty and reasonable limits, while safeguarding on-going projects. We earnestly call upon all municipalities, including the Metro Vancouver Regional District, to halt the unbridled increases in charges and actively pursue a sustainable, affordable housing future for all.