Langley Township DCC’s require 75-90% increase to pay for growth

Were you watching the Raptors game? Probably. Don’t worry – I’ve got you covered.

The two most controversial events of the day was a Council debate over soil deposits on farmland and the pubic input opportunity on the proposed Tree Protection Bylaw. But first things first: a proposal to increase DCC’s by 75-90% was presented to Mayor and Council in the afternoon session. In case you’re wondering, that’s an increase from $14,437 to $27,458 per apartment unit.

What are Development Cost Charges (DCCs)?

Copy of Untitled(3)Sara Stevens from Urban Systems presented the proposal to Mayor and Council during the afternoon session with a comprehensive report on Langley’s DCC program and a recommendation for significant increases (see presentation video here and full slideshow here).

“DCCs are charges levied on development to help pay for the costs of expanding and upgrading transportation, utility and park infrastructure to meet the needs of growth.” -Urban Systems

While pointing out that DCC’s are the mechanism that allows for growth to pay for growth, Stevens also points out that the model is a contrast to negotiation fees with a developers on a case by case basis which can lead to uncertainty and unfairness among the development community and irregular revenue to the Township. DCC’s pay for arterial roads (such as 72nd Avenue and 208th Street), trunk sewers, water mains, pump stations, major storm sewers, park acquisitions and park improvements.

2012 vs 2019

The last time that the DCC Bylaw was updated was 2012. In that time, we’ve had significant increases to land acquisition costs, added population projections (84,000 more over the next 25 years) and new parks/infrastructure information (not to mention, the new Brookswood-Fernridge OCP). The single largest culprit for the necessary increase is that land values have increase 200-400% since 2012 and construction costs are 30% more.

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The sticker shock for Council came with the fact that the DCC recoverable costs have almost doubled since 2012. The $782 million needed in 2012 is now $1.418 billion (a whopping +82% increase). Logically, a lot of this is “catch up”, since it becomes obvious that by shortchanging the DCC program over the past 7 years, we haven’t been recuperating what is required to pay for growth. Therefore, development over the past 7 years (which, as a resident of and REALTOR in Willoughby, I can say has been quite rapid and extensive) has been getting a huge “break” by not paying for the infrastructure that is required.

DCC Sticker Shock

What this translates into for the DCC rates are increases of 75%-90% based on the property type:

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These are not insignificant increases and there will definitely be some adjustment required by the development industry. However, as Stevens points out, had we updated our DCC Bylaw annually, as recommended, it would only have been a 9% increase per year.

The proposed 75-90% increase would vault the Township of Langley to the highest of compared municipalities (CAC’s and case-by-base contributions are not included):

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Development industry response

Based on the Local Government Act, developers benefit from “rate protection”. This will help those who have an application in and who can get their rezoning or development permit approved within a year of bylaw adoption will qualify for the old rates.

Also according to the Local Government Act, the development industry must be consulted when making changes to the DCC Bylaw. Stevens made it clear that the development industry did not question the need to increase the rates. However, they did lobby to have the rates phased, as the City of Surrey had previously adopted. They also wanted to see more frequent changes to the Bylaw as opposed to the 7-year lapse.

The response of the Township, however, is that phasing the increases would have a negative impact to the DCC reserves which would lead to a $12 million shortfall.

Stevens outlined some key considerations of the overall proposal, including:

  • Will the charges deter development?
  • Will the charges disourage construction of reasonably priced housing?
  • Will charges discourage development designed to result in a low environmental impact?

Do DCC’s affect housing affordability?

Stevens noted that in 2012, the DCCs accounted for 5% of the MLS Benchmark Price of $545,000 for a single family home. In 2018, this benchmark was $1,067,700. The proposed DCC’s would actually bring these charges back up to the 5% range, as they have obviously fallen behind. The result of this lag has been that developers have benefited from increased prices, but not increased contributions to the Township (my note, not hers).

This said, will such a sharp increase in development cost charges not increase the cost to the end user – the home buyer – as developers “pass down” their fees? Stevens’ answer to this question was an emphatic “no”. If anything, what we will see is that the increased charges can push down the prices of the development land as developers are less willing to pay the higher prices on raw/redevelopment land. However, she did qualify this answer. If developers do pull back so much that harms supply (as we are already witnessing in the region), it can indirectly affect housing affordability as more buyers compete for lower inventory. Good ol’ supply and demand.

What next?

Sara Stevens anticipated that the bylaw would go through first, second and third readings which would then send the proposal to the Inspector of Municipalities. This approval could take 1-2 months. It would then come back to this Council for adoption, likely around Fall.

Council Reacts…

Councillor Kunst educated on MAF

Councillor Margaret Kunst asked for some clarification on the Municipal Assist Factor that was mentioned in the presentation. The MAF is the amount that the municipality pitches in to growth related infrastructure beyond the DCC program. Kunst wasn’t clear why the MAF, which is proposed to remain at 1% in the Township, was increased in Surrey to 5% or more.  Stevens had not studied the Surrey market, but indicated that it would likely have been a strong signal to the development community of their support.

Personally, I wondered if Surrey’s ability to do so was not the result of its more responsible planning, and other similar revenue streams that simply aren’t called “DCCs”, but are still paid for by the developer (such as higher CAC’s). Additionally, the City of Surrey also has its own development corporation (Surrey City Development Corporation) that has provided over $50 million in profits to the City of Surrey between 2007 and 2017. An additional $5 million a year probably helps.

“In addition to providing the City with a financial return in the form of an annual dividend, SCDC assists the City in achieving strategic community objectives, such as growing the tax base, and helping Surrey grow into a more economically, socially and environmentally complete community.” –SCDC FAQs

Whitmarsh looks at phasing the increases

Councillor Blair Whitmarsh asked how long phasing in the increases would take, as seen in other communities. Stevens replied that most communities do not phase in DCCs because it is ongoing revenue that the municipalities and developers depend on for the infrastructure that supports their building. Surrey, again, was an exception to the rule with their 3 year phase in that ended in 2018.

Furthermore, Whitmarsh wondered why we are going from around the middle or bottom third of the pack, when compared to other communities, to the most expensive of most comparisons.

Councillor Long doesn’t want to be at the top

Councillor Bob Long was also troubled by being at the top of the list and inquired as to whether a different calculation could be made to put us closer to the middle of comparable communities. Stevens replied that they don’t set a target – it is a result of what money is required to pay for the growth (Brad’s note: we seem to cheer when it is announced that we are the fastest growing community, but we don’t seem as excited to pay for that growth).

Long also echoed a desire for potentially phasing in the increase, especially if this is what the UDI was asking for. Stevens responded that the only way to phase in the increases without increasing the MAF is to push back the infrastructure beyond the “DCC time horizon”. As she put succinctly, “less money in, you can’t deliver on the projects.”

Finally, Long re-asked the question, will this dissuade development? Reiterating what she presented earlier, Stevens reminded the Councillor that the consensus is that an increase in DCCs will drive down prices for raw land (Brad’s note: as I was taught from a very early age and again reminded when I entered the real estate industry: buyers drive the market, not sellers).

DCC-fergusonFerguson counters Urban Systems

Councillor Steve Ferguson was much more forward with his rebuttal that all of these increases will definitely affect the development industry’s bottom line. He also not-so-subtly alluded to a difference of perspective regarding the development industry’s opinion on taking such a significant hit, suggesting that perhaps those he had spoken to weren’t as understanding of the increases as Stevens is indicating. Ferguson also disputed Stevens’ argument that housing affordability would be unaffected, as he compared housing to candy bars: if the cost of production goes up, so does the purchase price.

Ferguson carried on by pointing out that a lot of the other communities that we are compared to are those with significant casino revenue. His point was to remind the development industry that we are competing with cities that are taking in an additional $6-7 million (New Westminster, Langley City), $11-12 million (Burnaby), $17 million, or $45 million (Vancouver) in casino revenue. Personally I do not buy into this lament. Casinos have their own monetary and social cost, but as I showed above, the City of Surrey has been able to profit from its own development company that exceeds its casino revenue. If we are considering extra revenue sources, why not bring this up as an alternative?

Woodward voices concern with development lobby

dcc-woodwardCouncillor Eric Woodward pushed back on his colleagues’ issue with the Township being at the top of the pack:

Is it the case that our rates are too high or that the other municipalities’ rates are too low? – Eric Woodward

Stevens navigated this question with sensitivity, stating that every community is different. The comparison charts are not meant to be a focus, as it really is a comparison of apples to oranges. For example, what isn’t included in the DCC comparisons is that the City of Surrey negotiates additional Community Amenity Contributions on a case by case basis. She also clarified, somewhat to Councillor Ferguson’s issue, that Burnaby is not on the list because they don’t really levy DCC’s at all, instead choosing to negotiate all of their fees completely on a case by case basis (which can create uncertainty for developers).

Woodward followed up with this line of questioning, likely knowing the answer, asking to what extent is the fact that we are more of a “greenfield” community mean that we need to pay more now: we have more raw land to develop, whereas the other cities already have a matured infrastructure. Stevens agreed that the cost for other communities is lower because of pre-existing infrastructure. The Township of Langley is still in an “expansion mode”, forcing us to pay more as we continue to spread out into “new land” (Brad’s note: consider the implications of this as we attempt to develop Brookswood-Fernridge at the same time as Willoughby over the next 25 years). Woodward pointed out that it would seem that roads and parks are the greatest cost as a greenfield community before taking a shot at Councillor Long, presupposing that the veteran Councillor may want to reduce park acquisition in hopes to limit or phase the DCC program.

Another issue for Woodward stemmed from an earlier UDI presentation to council. It seemed to him that the development industry lobbied to exclude specific projects in rural Langley and asked if that was true. Stevens responded that the original cuts had a 100-110% increase to the residential rates and that the development industry did, in fact, ask if Urban System could “sharpen [their] pencil in terms of whats actually needed here”. With a focus on the transportation program in particular, there were some rural projects that weren’t necessary for the next 25 years according to the the revised study.

Beyond Councillor Woodward’s usual criticism of UDI, he brought forward a concern that we may not have the volume of development in 20-25 years to pay for the rural infrastructure that is required, and we may end up paying twice the amount for those projects than if we did them sooner. He emphasized in his question whether or not we should be allowing the development industry to give this direction. He did concede that perhaps these were projects they could look closer at in 4-5 years at a future update and wasn’t looking to increase the proposal anymore.

“I know that it’s a bit jarring but I’m appreciative that developers here have had a pretty good deal I think over the last 7 years since our last update… I think we have to go to a catch up here and so I think it’s appropriate to see us at the top” -Councillor Woodward

Mayor Jack Froese says comparisons are “apples to oranges”

Mayor Jack Froese agreed with Councillor Woodward in stating that we should get a big thank you from the development industry for not raising the rates over the past 7 years, but it is time for them to go up. The Mayor did ponder the comparisons in a different way, noticing that Abbotsford hadn’t updated their DCC’s in quite some time as well and suggested there may be a similar wake up call fairly soon. Langley City, as others, has road networks and infrastructure in place so its not fair to compare. Mayor Froese was supportive of the proposal, recognizing it was time to catch up.

Council passes first, second and third reading

Later on in the evening session of council, Council unanimously supported the first, second and third reading of the bylaw, effectively sending it to the Inspector of Municipalities for Approval.

dcc-vote

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