Wed, 25 Oct 23 21:24:47 +0000

Dan Fumano: Metro Vancouver needs billions for infrastructure. Who should pay?

Column: Metro Vancouver is proposing to shield existing homeowners from bigger property tax hikes by shifting the burden of growth-related infrastructure spending to new construction.

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The Coquitlam Reservoir, shown in a handout photograph from 2022, requires major upgrades to accommodate expected growth in the Metro Vancouver region. jpg

People who plan cities will tell you that most taxpayers don’t usually think about their sewage and water — unless their tap water is undrinkable or their toilet doesn’t work. Or if they get a huge tax bill.

Metro Vancouver needs almost $35 billion for capital expenses related to water, liquid waste and parks over the next 30 years, with $11.5 billion designated as being connected to growth.

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There’s no easy way to raise that many billions. The debate now is how the burden should be shared between existing homeowners and taxes on new construction.

On Friday, Metro’s board of directors will consider proposed increases to development cost charges, or DCCs, which are fees charged on new construction to pay for growth-related infrastructure.

Metro’s fee adjustments, which have been in the works since early this year, would vary depending on development type and location, but represent huge increases across the board, as much as 255 per cent.

If the new fee structure is adopted, the DCCs for a townhouse, depending on location, would more than triple over the next three years, from $8,679 to $30,861. DCCs on a purpose-built rental apartment would also more than triple from $6,249 per unit to $20,906.

If Metro’s board of directors, a group of elected mayors and councillors from the region’s municipalities, approves the proposed fee structure, it would go to the province for approval, and could take effect in 2025.

One reason the proposed increases are so large is what Metro staff call “reducing the assist factor” — another way of saying shifting growth-related infrastructure spending away from existing property tax and utility rate payers, and onto new construction.

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As the report from Metro’s financial services department explains: “The concept of ‘growth paying for growth’ through DCCs has been encouraged by most Metro Vancouver board members for several years.”

“Growth paying for growth” has become something of an axiom in these kinds of planning discussions. Some variation of the phrase appears at least seven times in the Metro report going to the board this week for a decision.

But not everyone agrees that “growth paying for growth” is the best or fairest way forward.

On one hand, it seems reasonable that if new development necessitates expensive reservoir upgrades that wouldn’t otherwise be needed, for example, the new construction should pay for that.

But the debate circles around whether placing too much financial burden on new construction could jeopardize future housing supply, especially badly needed rentals, which most people in Metro agree we need.

This tension played out publicly last month when federal Housing Minister Sean Fraser abruptly and indefinitely postponed a planned announcement of millions in funding for housing projects in Burnaby and Surrey, citing Metro’s “proposed development cost charge increase.”

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At that time, Burnaby Mayor Mike Hurley, a Metro board member, told Postmedia News reporter Katie DeRosa: “The directors of Metro Vancouver are very determined that growth should pay for growth.”

There are two main reasons Metro is proposing such high increases right now, Metro CAO Jerry Dobrovolny said this week.

The first is inflation, he said: “It’s the same inflation that developers are facing: the price of concrete and steel, the price of labour.”

The other reason is the shifting of the burden for growth-related infrastructure away from existing ratepayers to new construction, he said.

“The key issue is: development can’t go forward without these projects. It’s not discretionary. The only debate or discretion is who pays for them.”

Metro is “absolutely” considering potential impacts to the housing market, Dobrovolny said, which is why they commissioned an outside real estate consultancy firm, Coriolis.

The consultant found the proposed DCC increases over three years would have “a commensurate impact” on the housing market to interest rate hikes over the past 12 months.

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That isn’t very comforting for the local development industry, which has found the recent interest rake hikes “crippling” for the viability of many projects, said Anne McMullin, CEO of the Urban Development Institute, an industry association.

“That’s very, very bad news,” she said. “Interest rates have had a massive impact on slowing down new construction.”

The UDI sent a letter this week to Metro’s board, copying Metro management like Dobrovolny as well as federal and provincial housing ministers, stating that the organization’s members were “outraged” at the proposed DCC hikes.

No one wants to pay higher taxes, McMullin said. But governments need to determine the best and fairest way forward, she said, and “this is not an equitable way of doing things or even a sound way.”

Others in the sector have also raised similar concerns with Metro about the fee increases. In April, Wesgroup Properties wrote to the Metro board saying they wanted to “respectfully convey … general concerns regarding the integrity of this process.”

“The Metro Vancouver Board of Directors consists of elected officials from various municipalities and regional districts, all of whom potentially have an interest in not increasing property taxes for their existing constituents,” Wesgroup’s letter said.

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“New housing is taxed at higher rates than oil-and-gas production, power generation, alcohol, cannabis and gambling, in addition to every other industry sector. If housing supply is a critical concern in our region, we must question why it is being taxed so heavily.”

Some might be tempted to dismiss such concerns as just another industry lobbying government for changes that help the viability and profitability of their business. Just about every industry does that.

But some people outside the development industry are also questioning the fairness of the “growth paying for growth” approach.

B.C. Non-Profit Housing Association CEO Jill Atkey has opinions on this subject that, she says, could make her “unpopular with everyone.”

Atkey doesn’t necessarily believe that lower DCCs will mean lower house prices and rents, she said, because developers will “charge what the market will bear,” so there’s no guarantee savings would be passed on to consumers.

But, she said, “It really does almost become a philosophical conversation. I think we really need to question why we want new residents paying for growth, when growth is something we all benefit from.”

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“I’m not sure how we arrived at this idea that those who have lived here the longest shouldn’t have to contribute to new sewage pipes or wastewater treatment,” she said. “It’s an important conversation as the region grows.”

Shifting this burden to new construction could pose a “particular risk for rental housing,” Atkey said, because those projects already have thin margins.

(The DCCs apply to purpose-built rental housing, but there are exemptions for non-market social housing, subject to Metro’s affordability criteria.)

There are also costs for communities that fail to make room for newcomers, Atkey said.

“Firefighters, nurses, teachers, service workers, all of those folks are the ones who get priced-out. So while homeowners might be comfortably housed, it’s not like their home equity is going to put out a fire in their house or help them heal when they’re sick.”

dfumano@postmedia.com

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