Making Sense of my World: The Problem With Housing Development Fees

Thursday, May 08, 2008

The Problem With Housing Development Fees

I have previous written about the unfairness of development fees and now many municipalities find themselves in trouble trying to balance budgets because of their gross irresponsibility in leveling fair taxation.

Without going back and pulling actual figures, I know that in my area (and certainly my reading of news from other areas indicates the same problem) the percent of municipal budgets coming from development fees has been increasing. New developments are paying the whole shot to bring a neighbourhood up to a certain standard on those developments at the same time taxes are paying for similar upgrades to other areas. The new developments are essentially being double taxed because these fees are so excessive.

The fees are tacked on the cost of a home. So, in Vancouver developers have claimed up to $60k of a home is development fees. Does this hurt the established home owner? Hardly, the entire stock of homes goes up a proportional amount. New and existing homes are not priced differently based on the older homes didn't have the excessive development fees and costs to build, but rather relative pricing as to what you get. So, new homes get more expensive, but so do existing homes. The established home owner re-coops that increase through the sale of their home.

The first time buyer see the cost of housing up the full cost of development fees. $60k over 30 years a 6% is $129,600. It is an extra $360/month. This is the burden transfer essentially to younger people. It would probably only cost existing home owners an extra $25-50/month to pay their fair share and not transfer this burden to youth.

But hey, youth are going to be able to pay that, their enormous student loans, the increased tax burden due to an aging population, that extra $25-50/month in property taxes that's going to come now anyways, and while we are at it, we can give them a lecture on their social responsibility while they feed their kids Kraft dinner.

4 comments:

Jay Walker said...: Well, if the young people of the example can afford to buy in Vancouver proper, then yes, perhaps $60K would be the highest, but this is likely for an SFD that would be in the $750K range.

In Kelowna, where the average new house is around $500,000, the DCCs are $24,800 and for multi-family, around $19,900. For multi in Surrey its $23,200 and $20,900 in Abottsford.

I guess the question is who should pay these DCCs. If young people want to live in brand new houses in brand new subdivisions, then they'll have to pay DCCs (they aren't directly "tacked" onto the price of a house; it's market dependent whether the developer can recover it).

Also, many existing houses have already paid their DCC's - you are suggesting that they in effect, pay them twice.

There are relatively strict rules around DCC collection (as I know because in one appraisal I did, a developer was suing the municipality, requiring me to become far more conversant with DCCs than I really wanted to be). They have to be for things that have budgets attached to them, and they can't be collected twice (meaning that if, for instance, three lots were being created from one, only 2 DCC units can be collected).

I guess its fair to ask who should pay for new residents and all the services they consume.

In Kelowna, where I live, the population has nearly doubled since I got here 15 years ago. Should I pay extra for all the new residents arriving? Since I paid my own DCCs (yes I moved into a new house), then it seems kind of unfair that I should be requested to subsidize newcomers.

Make no mistake, developers would be quite happy to have existing residents subsidize their housing developments, by reducing DCCs below what the actual cost of providing services to those new developments are. Doesn't seem fair that I, "suffering" in my older house, should be picking up the tab for those enjoying new digs.

Jay Walker
The Confused Capitalist; 6/24/08, 10:16 PM
Deborah said...: You completely missed the point. New homes go up in price, so do "used" homes and the increase is relative.

There is absolutely no question that these fees are in excess of what they getting in return and they are subsidizing general budgets.

As a result municipal budgets all over North America are a disaster due to the housing down turn. Taxes will be going up regardless and the illusion that the argument of why people should pay for the DCC will dissolve. If the fees were equitable and fair, budgets would not fall apart with a housing down turn.

So, the higher the fees were when you first entered the market, the more you were gouged regardless of whether you bought new or old.; 6/25/08, 4:07 PM
Jay Walker said...: DCC's don't provide immediate services, in most cases. They are pooled for items that are required to be budgeted - usually anticipated future expenses, such as sewer trunk expansion, road expansion and so on.

These breakdowns are available when you dive right into the DCC creation, and you can request them from your local municipality.

Obviously, due to the building boom that was previously ongoing, DCC's are going to be collected alot more than during stagnant building periods, sure I can see that, absolutely.

However, as to DCC 's "paying the shot" to bring a whole neighbourhood up to standard at the same time taxes are used to upgrade existing areas, I think this is rare. I can think of many, many, neighbourhood improvements in Kelowna and the surrounding area (eg extension of sanitary sewer, curbs, water, etc.), that a defined group of homeowners must vote on, approve, and then pay for (either as a lump sum, or as an additive amount on their taxes over a 20 year period).

I'm not sure what examples you have specifically but, dealing with property taxes and municipal fees on a regular basis, I don't think you are generally right, in BC. Perhaps in other areas, yes.

Further, I remember an article in the Vancouver Sun, probably early 1990's, that suggested DCC's then in Surrey would have to be around $20,000 to $25,000 for an SFD, to pay for the actual costs of having the new residents there. I think those fees were then around $10,000.

In short, no one likes fees, but the bottom line is that expanding into an area, or an expanding population in an area costs money. The question is: who should pay for it? To me, it's fair that the resident creating the marginal cost, should pay the marginal cost.

Jay; 7/29/08, 12:26 AM
Deborah said...: I completely diagree. People have to live somewhere and we've simply gone from collectively paying the common costs to your argument. So, you have people who didn't pay that now single out others. So the new guy is paying twice, he's covering the collective costs for everyone and paying what used to be collectively paid.; 7/30/08, 8:53 AM