Developers in Metro Vancouver are getting a reprieve on increased development cost charges in a deal between the province, federal government and regional district to delay a rate hike in exchange for $250 million in federal funding for the Iona Wastewater Treatment Plant.
This deal was struck earlier this year, but came into force on July 10.
Former housing and municipal affairs minister Ravi Kahlon, who switched roles and took over the jobs portfolio on Thursday (July 17), said on Wednesday that the reprieve is a response to a shifting market as supply increases and house prices drop. Overall, this is a good thing, but it causes some problems, he said.
"It also creates a new challenge, which is those that are trying to build housing are now trying to make their projects viable with declining rents, declining sale prices," he said.
Critics call it a "reckless bailout" of Metro Vancouver, arguing the regional district brought fiscal challenges upon itself.
"We're subsidizing inefficiencies and failure on the part of Metro Vancouver," said B.C. Conservative MLA Tony Luck, the municipal affairs and local government critic.
Development cost charges are fees paid by developers to municipalities to fund infrastructure improvements in growing cities and towns. Depending on the municipality or district, these range from water and sewer upgrades to new police stations and fire halls.
Metro Vancouver Regional District had not raised these rates for nearly 20 years. After a lengthy process that began in 2019, the regional district more than tripled rates using multi-year step-by-step hikes. This included a provision that developers who applied by March 22, 2024, could pay the old rates if their project had all necessary permits by March 22, 2025.
The deal that just went into effect, facilitated by the province, extends this to March 22, 2026. This will save builders an estimated $220 million, depending on the number of units built. In exchange, Metro Vancouver can access $250 million in federal funding for phase one of the Iona Wastewater Treatment plant reconstruction, which, with a price tag of $9.9 billion, will be one of B.C.'s most expensive infrastructure projects ever.
Heather McNell, Metro Vancouver's deputy chief administrative officer, said the district had been trying to get the federal government to chip in for Iona for years, and these were the strings attached to get the deal done.
McNell pushed back on the notion that Metro Vancouver has mismanaged its finances and increased development cost charges too much, though she did acknowledge that the added costs can make it difficult for homebuilders.
"We've been working closely with the development community, and we've heard that the stacked amount of charges, from all levels of government combined, were creating a challenging environment," she said.
She added that development cost charges are one of the few ways to pay for infrastructure without raising taxes.
Luck's central argument is that other taxpayers shouldn't now be forced to pay for expensive development in the Vancouver area, while the regional district gets to put off the inevitable.
"All we're doing is kicking the can down the road," he said. "Eventually, these chips will come due, and they've got to be paid for."
He also does not like the idea of subsidizing Metro Vancouver's housing market when there are other places in B.C. where land is cheaper and housing development is also needed.
"There are other communities that are probably as deserving, if not more deserving," he said.
While all this is happening, Metro Vancouver is undergoing a governance review after complaints of soaring costs at projects such as Iona, along with high staff salaries and exorbitant spending on travel.
Kahlon backs the regional district's decision to raise rates after what he said was years of inaction, and is pleased to strike a deal he called a "win-win," but promised the province is watching.
"We will keep a look over their shoulders to make sure that things are being done above board, whether that's looking at salaries, whether that's looking at their projects and how they deliver them," Kahlon said.
