Last month, real estate developers led by Wesgroup Properties wrote a letter to the Metro Vancouver Regional District Board expressing concerns about proposed increases to the district’s development cost charges in the region.
The district has suggested it could raise DCCs as much as three times more than the current rate over the coming years, depending on the charge, arguing it needs the money to build infrastructure.
But the developers said the charges could lead to a decline in profit of anywhere from 8% to 18%. In turn, housing starts, already declining, could drop even further as Vancouver still wrestles with a housing crisis.
The developers will be meeting with the Metro board on Oct. 17 to discuss the issue.
Green Street News spoke with Wesgroup’s senior vice president of development, Brad Jones, about the proposed increases and the reaction to the letter.
It’s been a few weeks since this letter was written. Are you happy with the response that you’ve received?
The timing of it coming out during the [Union of BC Municipalities convention] … was great because all the local councillors, mayors and major staff were all together, along with many media members in attendance. So, there ended up being quite a conversation through the UBCM about that.
We’ve been in touch with Metro chief administrative officer Jerry Dobrovolny. We’ve spoken with chair Mike Hurley as well as some other board members who had more questions.
Metro Vancouver is a really hard government to interact with. I would call it taxation without representation – citizens don’t elect the board and they don’t record their votes. So, it takes a lot of work to watch the meetings and go through the video.
But, clearly, looking back at meetings leading up to this, it wasn’t an easy approval for them. There were a lot of questions by board members going back over a year now as this has started to unfold, questioning why this was being done so quickly. Why was it being done without financial analysis or with wholly inadequate financial analysis?
I think it’s the first time our industry’s banded together in what I describe as a scrappy way where we did it separately from the industry associations, because we thought it was important that each group tell its own story because every project has a bit of a different path.
What effect are already increased charges having on home starts?
We’re now seeing serious declines. Canada Mortgage and Housing Corp.’s deputy chief economist had a great blog post talking about how housing starts were off by, I think it was 30,000 units nationally last year, and this year being worse. A lot of what he talked about in that article was the environment that governments created for private sector housing to go forward because the private sector builds 95% of housing in Canada.
How does it affect cities themselves?
Burnaby just put two community centres on ice because of declines in development funding, and that’s a direct result of projects not being viable. Primarily right now, I would say, due to fees and charges, I think the market’s certainly soft, but in some markets, I would argue we don’t have a supply issue right now in terms of how many units have been approved that can launch for sales.
We have a cost issue where to make a margin that the banks require to finance the project, the price just must be too high for what the market can bear today. As a result, what we see is projects are being delayed or cancelled.
Let’s say looking back five years ago, how much were fees compared to now? What’s the increase?
They vary across the region. I’ll just walk you through a bit of a sequence: 2015 in the City of Vancouver, between the City of Vancouver fees and the Metro Vancouver fees, cumulatively it was about $14,000 per unit.
Fast-forward to 2020, we now have City of Vancouver fees, Metro Vancouver fees, and that was the year the TransLink DCC was introduced, so it was $24,700. So, up almost $11,000 between 2015 and 2020.
This year, the total of the same fees is $37,500. The published rate that Metro inflates to by 2027 brings the total in a couple of years from now to $53,700 per unit.
What do you want to happen to fix these issues?
I think there’s a lot of questions to be answered by Metro Vancouver about the way they’ve been operating. Big picture, the way that we fund infrastructure in this country is broken. The growth rate of the population and the way that new residents move in Canada geographically – 40% of them land in two markets, in Metro Vancouver and the GTA. The Feds don’t fund infrastructure in any coordinated way that aligns with where people move in the country.
So, we have two regions taking 40% of national population growth, thereby putting the biggest infrastructure burdens on those two regions. The funding model of a third, a third, a third, federal, provincial, municipal has never changed. So, you have heightened demands on these two big urban markets in Canada, and politicians are incentivized to keep property taxes low because there’s a lot of people that purely vote based on property taxes.
Looking back, these fee increases used to be sort of inflationary increases. It’d be 2% to 3% a year, the market was going up at the same time, so it wasn’t really a big deal, but now we’re seeing these mass increases that are coming and these enormous capital budgets, Metro Vancouver’s capital budget that they’re funding based on this includes multiple projects that are in the billions of dollars – all landing at the same time.
So far, what do you think the chances are of any developer requests being met?
I think I’m optimistic that we’re being heard. So, a year to a year and a half ago when this conversation was going on, I think they thought the industry is probably crying wolf. Now, in each of their communities, they’re seeing housing starts fall. Their staff are coming to them and saying, “We’re not getting as much as in community amenity contributions because these Metro costs have gone up. This is impacting on how our city can fund a community centre, how it can fund a park.”
I think the context for them has changed. The other thing we’re seeing is historically high bankruptcies in real estate and real estate projects. We’re tracking project delinquencies internally, and there’s between 7,000 and 10,000 units just in Metro Vancouver that we’ve categorized as in serious financial distress or bankruptcy. That’s a massive amount of housing supply in our market that isn’t moving forward.
What’s next from a developer point of view?
We’re looking forward to the meeting on Oct. 17. Then following that, our hope is that we get in front of the Metro finance committee, so we’d like to see this move to the finance committee following that meeting. Our call at this point is really simple. What we’ve asked them to do is just pause for two years. The industry can’t take it right now. The housing industry can’t take it right now. This means jobs, this means employment, this means GDP decline. So, we’ve asked just do not implement this on Jan. 1, put a pause on it for two years, and then let’s work together as an industry.
Let’s go to the federal government and tell them together the funding model is broken. Housing is taxed at 30% right now from all levels of government, the federal government being the biggest beneficiary of that, and they return very little to the communities that take all the growth on a comparative basis. So, what we really want is that two years to just work through how we can make this better, let’s work together, find a way to get the infrastructure built. Obviously, this infrastructure has to happen because of population growth.
