Kelowna cracks down on carriage home development costs

Key Takeaways:

• The city of Kelowna is rethinking its development cost charges following advice from the province and to help fund infrastructure for projected population growth.
• The changes in include bumping carriage home DCCs from $2,500 to at least $23,000.
• The city would also create a new light industrial category to capture shifts in the industrial market.

The Whole Story:

The city of Kelowna is looking to boost revenue as construction costs increase and its population is forecast to boom.

If approved, the development cost charges (DCCs) would rise for some types of new homes and create new categories for industrial developments. 

Chain reaction

In a report to council, officials explained that labour shortages and an oversupply of construction projects flooding the market have caused upward pressure on construction costs, with tender costing coming in significantly higher than engineering estimates. 

According to the city, construction and land costs in the DCC Program have not been updated in more than three years and since that time construction costs have increased on average by 20 per cent and land costs have increased more than 40 per cent. All project costs in the proposed update reflect 2021 costs so are approximately a year old and may not reflect the recent surge in construction and land costs.

“If construction and land costs continue to trend upward, the DCC program costs may need to be updated within a year of the adoption of this update to keep pace with inflation,” wrote city staff in their report to council.

Carriage homes

One of the biggest proposed increases is to carriage houses. The city estimates that 30 per cent of single-family homes in Kelowna will be built with suites or carriage houses. Council agreed in

2008 to charge a flat fee DCC of $2,500 for all secondary suites and carriage houses which would normally be charged a much higher rate equivalent to a condominium.

The city explained that this practice was flagged by the province as an area that needed to be amended because it provided a specific land use subsidy which is not permitted, as any subsidy must be applied evenly for all land uses.

The city is proposing a new category for Carriage Houses and assessed a higher DCC in the range of $23,000 to $28,000, which officials say better reflects the actual infrastructure impact of the stand-alone units.

Light industrial 

Kelowna has some of the lowest Industrial DCCs in the province that staff say does not fully fund the servicing demands of the emerging light industrial development trend.

In their report to council, staff proposed splitting the industrial category into two categories – light industrial and heavy industrial to better reflect servicing costs.

The light industrial DCC is approximately 50 per cent of the commercial DCC rate and is more in line with the cost of servicing this development form. 

“The heavy industrial DCC is consistent with the previous DCC Program and collects DCC based on a gross site area for land intensive industrial developments like gravel extraction, wrecking yards, outdoor storage, and asphalt and concrete plants.”

Location, location, location

Certain areas of the city have seen higher rates leading up to the latest proposal. Kelowna’s city centre represents about 85 per cent of the new residential units and DCCs have increased less than 5 per cent per year for the past three years. Cumulative increase in residential DCCs, excluding carriage houses, for the three years since the last update is approximately 14 per cent.

However, the city’s Southwest Mission is nearing buildout with some of the infrastructure already in place. This area is seeing the smallest increase – less than 3 per cent per year since the last update in 2019. But it still has the highest overall DCCs due to high costs of extending services to the area at the southern boundary of the City. Cumulative increase in residential DCCs, excluding carriage houses, for the three years since the last update is approximately 4 per cent.