Ottawa, Metro Vancouver clash over development fees

Key Takeaways:

• Metro Vancouver has voted to implement significant development cost charge increases to fund infrastructure projects in a ‘growth pays for growth’ strategy.
• The move has drawn stern criticism from Federal Housing Minister Sean Fraser.
• The fees are set to increase starting in 2025.

The Whole Story:

Construction fees are about to jump in the Lower Mainland and the federal government is not pleased. 

Officials with Metro Vancouver, a federation of 21 municipalities in the region, have voted in favor of significant development cost charge (DCCs).

Rising fees

The fees associated with building new residential and non-residential buildings across the region will go up significantly over a three-year period between 2025 and 2027. The fees vary between municipalities and by project type, but will triple in some cases. 

Metro Vancouver plans to use the revenue generated by the fees to fund billions of dollars worth of growth-related park, water and sewer infrastructure over the next 30 years.

While consulting with industry leaders, Metro Vancouver found opposition to the raises, but determined that the impacts were comparable or less impactful than other factors. 

“Many in the development industry expressed the rate increase would have a negative effect on residential and industrial development,” reads Metro Vancouver documents. “Given the challenges industry is already facing, such increased financing and construction inflation and other DCC increases and building code changes, the development industry expressed the proposed DCC is another charge adding a burden to development.”

Metro Vancouver commissioned a study to examine the financial impact of the proposed DCCs. The findings in the study concluded that the proposed DCCs will have a “commensurate impact” to the financing rate changes over the past 12 months, but “significantly less of an impact” than the construction inflation and changes in unit prices over the past 12 months.

Criticism from Ottawa

Even before they were approved, the increases drew the attention of Federal Housing Minister Sean Fraser, who wrote to the board asking them to rethink the plan as it goes against Ottawa’s strategy.

“Significant increases to development charges have the potential deter development by offsetting the impact of other measures that reduce the cost of building,” wrote Fraser in a letter to Metro Vancouver. “When projects do advance, increased charges on development can lead to higher housing costs for renters and homeowners, making it more difficult to find somewhere affordable to live.”

Fraser argued that as part of their Housing Accelerator Fund applications, cities in the region have proposed various initiatives to help get more homes built, more quickly, including waiving their own development charges. 

“While I also appreciate that some hold the perspective that ‘growth pays for growth,’ we will all pay for stagnation as a result of a lower pace of construction,” wrote Fraser. “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.”

Increasing scrutiny

It hasn’t just been talk. In September, Fraser announced he would postpone the announcement of Housing Accelerator Fund deals in Surrey and Burnaby due to the DCC increase plans. 

Following Fraser’s comments, the Vancouver Regional Construction Association asked its members for their thoughts. 

“We sent a survey to our members in September in response to the Federal Government postponing the Housing Accelerator Fund announcement in Surrey and Burnaby,” said Jeannine Martin, VRCA president. “The general response was that we need to find ways to fund aging infrastructure. However, increasing developer fees to fund aging sewer systems and parks is not going to help alleviate the housing crisis.” 

Fraser said he will be re-examining the proposed initiatives in each city’s application, and will make “necessary adjustments” where the initiatives conflict with Metro Vancouver’s DCC plans.