The City of Victoria’s proposed increases to development cost charges could hamstring the home-building industry and threaten housing targets over the long-term, according to development experts.
Last week, Victoria council endorsed proposed DCC rate changes that would in some cases more than double and even triple the amount developers would pay for required infrastructure upgrades to handle new development.
“The industry is not in a good situation right now. Lots of projects are on the fence and this is going to tip them over,” said Kathy Whitcher, executive director of the Urban Development Institute Victoria, a national non-profit association of the development industry.
Whitcher said developers are already dealing with high interest rates, increased labour and supply costs, and the prospect of a new development cost charge program to pay for regional water-supply programs. A consultant’s report done for the UDI said that could add $9,044 in development cost charges for each new single-family home and $7,914 per townhouse and duplex.
Victoria’s proposed rate changes, the first significant change since 2018, would see the DCC for a single-family home increase to $24,582 per lot from $6,871, while medium-density development — three or more units with each having ground-level access outside — will increase to $14,529 per unit from $6,238 and high-density units jump to $10,207 per unit from $3,335.
“The DCC rate increases are outrageously high,” said Casey Edge, executive director of the Victoria Residential Homebuilders’ Association.
Edge said there is nothing stable about a 258 per cent increase in charges for low-density residential or 133 per cent increase for missing middle housing.
“To build housing, the numbers must work. Those numbers are challenging now and getting further out of reach,” he said.
Development cost charges are collected by the city for water, sanitary sewers, drainage, parks and transportation upgrades to service new development.
Whitcher said taken altogether the city and the Capital Regional District’s added costs could really “put a nail in the coffin of the industry.”
She said a consultant’s report, prepared by Urban Systems and based on an analysis completed by the city, likely underestimates the impact the increased rates will have.
The analysis, which used a land-use model developed by Licker Geospatial, estimated the result of the new rates will be a one per cent drop in the number of units built by 2030 and a six per cent drop by 2050 — in hard numbers the estimate is there will be 27,000 new homes built by 2050 instead of 29,000.
“If the economy continues to go in the direction that it’s going, it’s going to be more than the projected [loss of] 2,000 units,” Whitcher said, adding that she expects DCCs to increase again before 2050.
Council seemed convinced the loss of 2,000 units made sense given the increase in revenue to cover infrastructure costs, with councillors saying the rates found the right balance. They also noted Victoria’s current rate structure boasts the lowest DCCs in the region.
Mayor Marianne Alto said it’s a complicated issue and difficult to find the right balance.
But she said given the trend to building smaller private spaces, it is down to the city to provide amenities like parks and open space for a growing population, as well as ensuring the water and transportation infrastructure keeps up with the growth.
“There aren’t a lot of levers we can pull from a municipal government perspective in order to create those pools of money, and I think it is justifiable to attribute at least some of that to development because it is development that is allowing more and more people to come and be Victorians.
“[The money] has to come from somewhere. And one of the places that comes from is development charges.”
Victoria, which is mandated to build 4,902 homes by Sept. 30, 2028, under provincial housing targets, is ahead of that goal according to its 2023 annual housing strategy update.
Released last week, the report shows the city has made some progress and last year hit a 30-year high with a total of 1,567 new homes brought to market, while it also issued 785 building permits. Victoria is now poised to hit a supply target of 6,000 units by 2025.
The report said housing targets have been met in the market rental and strata condominium categories as well as housing for those with very low incomes. The report highlighted that the primary rental market in Victoria increased by 896 homes in 2023, bringing the rental inventory to 18,987 units.
But it also detailed the city is falling behind with non-market homes for low- and median-income households as well as missing-middle townhomes and multiplexes. In the missing-middle category, the city had hoped for 1,000 new units, but saw only 122 building permits issued last year.
It also said the rental market remains tight as demand is high — the city’s population grew two per cent last year to an estimated 99,792, with expectations that could be 142,000 by 2050.
“We have done a lot but not enough,” said Alto. “And I’m pretty sure I’ll be able to say that to you next year as well, that we’ve done a lot, but not enough.”
She said the number of homes completed last year was amazing as the city can only set the table for developers, but can’t compel them to build.
Alto said while the DCCs might be a headwind for some developers, the city is trying to make navigating the municipal approval system as simple as possible while still paying attention to things like safety, legality and design.
Note to readers: This story has been updated to clarify who carried out the analysis contained in the consultant's report to council.
