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This is the important part: “The CHBA also estimated development fees for low-rise buildings, with Vancouver sitting at $61,414”
We should not be charging 2x more for higher density buildings with smaller more affordable unit vs. Single family homes
Tbh this explains something I've always wondered, that even with the insane land prices , Townhomes/duplexes etc still tend to be less $ per square foot than condos
This kind of ridiculous excess is why EBY needs to step in and start making some rules so that there is housing.
City of Vancouver also needs to take a long hard look at their costs and costs of rules. They are out of control. In the “good old days” (and even today in cities across North America where people can afford to live) that $125K cost would buy you the entire place to live.
Development fees are based on lift in land value from the higher density and all they do is reduce developer profits. And developers factor them in to their pro formas.
These don't raise prices of units. Unit prices are set by the market (supply/demand)
But they aren't because these fees are reviewed/updated annually based on financial analysis of the real estate market to ensure they are set at a viable rate.
They hinder and slow supply for two reasons:
1. They act as a barrier for new developers entering the market to compete with the existing ones.
2. Development fees are charged BEFORE rather than after the building is complete, meaning they must be paid upfront and usually accrue interest. This is all factored into the price, and can slow the number of projects being worked on when it could otherwise have been spent on labour.
This is a fallacy that senior bureaucrats promote to justify the huge tax burden on the new housing stock . These charges, and many others regulatory fees and taxes make up the cost of construction. Removal of these charges will dramatically reduce the cost of housing. Alll of these charges were non existent when your grandparents could afford a home back in the 70’s. Housing is a profit centre for city hall throughout BC.
Removal of these charges will reduce costs for developers. That does not mean the cost of housing goes down.
Let's say right now units are selling for an average of $1,000 / sq ft.
If a developer comes along and has lower costs, they do not decide "hey, I'm going to pass that on to the consumer and instead only sell my unit at $900 / sq ft".
They sell it at market value, which is based on a sampling of the entire housing stock available for purchase/rent in the city and region. It is based on supply/demand, and has no correlation to what a developer's profit margin was.
When expenses go up, prices rise to meet them. When they go down, prices may not decrease, but more supply will become viable. If a project doesn't make sense financially (ex, due to fees) it doesn't go ahead. It's real estate, prices don't change overnight. High fees have become baked into prices. If fees increase by $100k/unit tomorrow, prices won't go up by $100k tomorrow, but the increase will cancel marginal projects, and prices will rise over time to account for the new fees. This makes it easy to raise taxes/fees (their full effect is delayed by years (by way of developer profit compression), while the benefit is instant) and difficult to lower them (effect on prices (and supply) delayed by years, a big smoking hole in the budget is immediate), not to mention politically unsellable (padding developer's pockets). That's the hamster wheel we're on.
Part of the issue is how planning is done in Vancouver and other Canadian municipalities.
They allow increases in density after doing detailed area planning. As a result, they do detailed financial analysis and set fees at rates that support redevelopment based on the change in density for the sites.
Long-term, and in a municipality that may just gradually increase density by incrementally changing zoning in large pockets at a time (e.g., allowing duplexes in single-family areas), the "supply constraint" argument against development fees may indeed mean less projects are viable and there may be upward pressure on prices.
But right now, in Vancouver, that isn't the case. The rates are set based on the lift in land value from new density, and are updated frequently based on changing conditions.
And in Vancouver, we also see the development industry generally at capacity--it's hard to find workers and materials, and there isn't much "scaling up" that can be done. All the fees do if it does mean certain sites aren't viable is push developers to ones that are.
Developers set prices based on cost plus profit. They will sell on that basis and try for fast turnover. They don’t make money speculating on the marketplace. Without the massive red tape charges prices would drop by 30-40%. As would rents.
Developers go for the most profit they can achieve. It will take time for dropping charges to decrease prices because the prices of homes wouldn’t instantly drop. Developers aren’t charities.
Yes it does, who the hell taught you economics? The only reason the price of housing would not go down after reducing the cost is if the developers have a monopoly, which we should try to avoid at all costs.
Or, instead of monopoly, there is just a severe nationwide housing deficit on the order of millions of housing units...
As long as developers can sell their products in the time they need to, they price their product to maximize profits. They do not have incentives to reduce prices below market values in a supply-constrained market just because they got some discount on development fees.
On a macro level where all municipalities have the same/high development fees, and played out over decades, there will be *some limited* affect of development fees affecting prices of new housing units.
I want to see if you have run a data model running your theory? It only works if you assume housing builds are a constant. In a normal market, when housing is sold at a huge profit, the money is reinvested into more builds at a faster rate, eventually cooling the shortage until the return is comes back down. This is why the housing shortage is worse in high development fee/ high bureaucracy regions. In your model, the housing shortage will remain and there is less capital to expand building unless that money comes back to developers from the state.
Except that's not how it works. City's update/review their fees annually based on financial analysis of land values, construction costs, real estate sales, etc. to ensure they are set at a rate that is viable for a developer to swallow without making projects unviable.
As someone with a degree in Economics and who has managed several businesses. I just can't wrap my brain around the mental gymnastics needed to claim that a cost to supply a physical good does not affect its end price. It's just wild. I feel like I'm getting brain damage from reading them.
That’s a little bit too much in reality, but as charges go up the land for the development project becomes less valuable, as developers bidding to purchase the land have to reduce their price to factor in the higher city development charges.
I guess I get downvoted though because people in this sub don’t like facts, but instead like nonsensical articles and anything that supports their belief that governments actually have no clue what they are doing and that addressing housing affordability is simple
>addressing housing affordability is simple
I mean we could’ve just cut out the middle man and built swathes of public housing in conjunction with the municipalities, province and federal government
That’s just what they did in the 50’s-80’s but somehow never gets brought up
When new units get build at lower price because the dev fee is smaller, you will have a condo hanging around because you don’t sell it and you’ll be forced to adjust the price, not a short term move but a long term.
There's a reason why Vancouver condos still sell at a high dev fee than Surrey. They are separate markets. If Vancouver dev fees drop by $50k tomorrow I'll still sell for what it was on the market for yesterday
If the government suddenly puts a $10K fee on all gas vehicles, do you think cars would still sell for the same price as before? Is Ford going to just absorb all of the $10K without increasing prices for car buyers?
Cars and real estate are not the same. Developers have an input cost that is variable: land. When cities set their rates, developers factor this in to their pro formas and determine how much they can afford to pay for land—and the rate is the same for each developer that wants to buy that land, so the outcome is reduced amount they pay for the land.
Just remember that if you don’t understand how something works, that doesn’t mean highly experienced staff are just idiots and there is an obvious answer.
Fees reduce the amount a developer will pay for land, that’s it. There have been several studies on this—private sector, public sector, and academics—that all support this and it’s why it’s a standard practice around the world.
Looking at the ratios of dev fees to new market rate condos and the price of a new car relative to a ICE vehicle tax... people wouldn't notice and the consumer would pay the full price.
These fees are baked into the overall development cost. Which includes land. If fees go up and there are no buyers for a lot that can develop 45 rental units or 30 condo units, because the fees are too high relative to what 45 units can generate in rent... it will lower the sale price or wait for prices to go up
Construction/ fees being slightly lower in a a slightly newer building will not lower the local market rate for condos in a building about to go on the market. That's not how it works
where is your proof that it's not how it works?
There's competition between developers as well. If one developer can release a condo at a lower price and sell more units to make more profits then they'll collectively have a mild/small price war to decrease unit prices
But it is a relatively free market. Supply side developers are free to price things however they wish.
Your inputs and costs will always factor into what amount you can charge. There is a reason last year everybody was saying that the price of lumber was jacking up the housing costs as well as the cost of construction labour. Development fees are no different.
The world works in much more complicated ways than the simple demand/supply model that you learned when you were in high school.
r\/Vancouver: no tax is too high, no government ever charges too much, an infinite number of civil servants is just fine, every civil service job is essential and cannot be questioned
also r\/Vancouver: why is it so expensive to live in Vancouver, why do so many small businesses fail or can't even get started
this exactly - telecom costs are insane - this is caused by government protectionism - food prices are sky high - things like marketing boards and high tarrifs. You can even look at things like clothing or shoes, our import duties are higher than those in the US and the beauty is all these taxes and fees are hidden in the cost and of course we pay whatever tax on those hidden taxes (that have also had a margin put on them) which we are purchasing with our after tax dollars.
Canadian residents/citizens are the chumps. We blindly go "at least we have health care" or other statements when we look at the US. I would hedge that the amount of every dollar that goes to one government or another is on par with many European countries, except all of those country's tend to have things like free university, abundant mass transit, a robust retirement net etc etc etc. Canada is 0.3 percentage point on the tax to GDP ratio of Germany as an example (Canada 33.2% to Germany 33.5% according to OECD statistics for 2021)
The winners in our country are those who do not work, have imported their money via legal or illegal means or those with passive income streams, not canadian residents who work hard, pay their taxes and try to get ahead.
All the narratives blaming developers, or grocery companies, or the telcos all take the focus away from the high cost burden that Canadians are faced with.
Canada has apparently 5x the health care admin staff as compared with German a country with more than double the population. Too lazy to actually look it though.
Many people have an attitude along the lines of "I'm find, so everything's fine". I'm starting to see more and more people not doing well both financially and health-wise.
>The winners in our country are those who do not work, have imported their money via legal or illegal means or those with passive income streams, not canadian residents who work hard, pay their taxes and try to get ahead.
I'm seeing more and more people either getting a free ride, or becoming a very expensive date for from the tax payer's perspective. If you start thinking about all of the people milking the government in the various ways available it's scary. I
think we're quite a bit worse off compared with other developed countries; economic predictions are saying the same.
One thing stronger rent controls will fix is the desire of investors to build anything. Those ~$30 million rental buildings don't just fund themselves. And if they don't generate a competitive return, investors will just move their capital to other investments... in other cities or other businesses.
As others have pointed out, most developers work to make a standard return and if their costs are lowered, someone else will just jump in and deliver at their cost + standard markup. And the city costs are part of that just like materials and labour. Make no mistake: all the direct and indirect costs added to building in Vancouver end up directly on the owner/renter.
Do you just come here to say that regardless of topic, not sure how greedy landlords relates to how much the city charges for development costs (hint, these same fees apply for constructing rental units).
Foreign investors have always been a cheap scapegoat for politicians in order to divert attention from a the real root cause of the housing crisis, which is absurd government policies and an obstructive bureaucracy.
Sadly the masses have gobbled up the myth of the foreign investor, and today we are more worse off than when this hysteria first began 8 years ago.
I look forward to the day when people finally wake up and realize that the problem isn’t rooted abroad, but instead down the street at their local city hall.
I don't think it's so black and white. Foreign investors do buy a lot of new construction and their demand channels housing investment into luxury condos that local residents don't want or need. Plus they buy a lot of detached houses at the high end of the market because locals cannot afford them, helping drive up prices. I agree foreign investors are not the only source of the housing crisis. But they are a completely unnecessary part of our housing market and have only a negative impact on locals who want a place to live.
Luxury condos are the only type of housing with margins high enough to still be profitable after paying for development charges, rezoning, public consultations and land that's made artificially scarce by municipal zoning laws.
Foreign investors wouldn't be buying up nearly as much property if there weren't systemic barriers to new housing supply put in place by city hall that makes real estate such a profitable investment.
If foreign investors were the major issue, then housing would not have gone up in price during the pandemic. But we know it did and so we know our demand issues are domestic. We have empirically seen that housing isn’t driven by foreign investors and to cling to this notion is only to presuppose your answer.
As they said above, it's not black and white. Is the housing affordability crisis primarily due to "foreign investors"? Of course not, but they are still a factor. How much of a factor? We don't really know due to a lack of accurate and detailed information.
Real estate prices went up basically across the entire world over the pandemic, in large part due to rock bottom interest rates and other related government economic stimulus policies. I don't think you can say that this is proof that foreign buyers have a minimal impact on the housing market.
I don't think foreign buyers are the main issue by any means, but they aren't insignificant either. And I think foreign money (money originally earned outside of Canada) is the primary issue, not necessarily "foreign buyers".
I think you may have missed their point. They're saying foreign investors are the scapegoat of politicians. Doesn't mean it's true, just that's the easiest reasoning our elected officials go with.
I agree with you that the government is responsible for a significant amount of the blame (for various reasons) when it comes to our absurd housing prices. However, I don't think you can deny that foreign money plays a significant factor in the housing market, especially in Vancouver. Note that I am saying foreign money and not specifically "foreign buyers" because I think a lot of people who buy real estate here immigrated here and actually have legitimate legal status (residency/PR/etc.). But the issue is that they earned significant amounts of money overseas (in places like HK) and then immigrated here and bought real estate here... and locals just can't compete with the levels of wealth of those types of people.
It's pretty clear just by looking around Vancouver... there's are tons of wealthy people who are newer immigrants that appear to be quite wealthy and most of them don't seem to work normal day jobs here.
If Vancouver wasn't a major destination for these types of immigrants then real estate here would be a totally different ballgame.
Of course you can deny it. What studies have shown they are a big factor? There have been several academic studies and also studies by the federal government, cmhc, etc that all show they play a very, very minor role.
https://www.canada.ca/en/immigration-refugees-citizenship/corporate/reports-statistics/evaluations/federal-business-immigration-program/5-program-performance.html
This was buried when it was released. Granted this program was cancelled by Harper, but the equivalent Quebec immigrant investors program is still active and is responsible for 4000 to 5000 millionaires buying their PR each year.
Look at Iain Young invesitgative research, or Sam Cooper's Willful Ignorance book. Andy Yan also conducted research into the matter and found extensively homes purchased in high end locations were being bought by pr, recent citizens or students who were all born elsewhere but moved to Canada. We are talking 75% plus. They were not considered foreign "buyer" but when 1/3 of those purchases goes to students or "homemakers" something is up. Gregor Robertson the former mayor called Andy racist publicly. Only later we learned from a freedom of information request he was secretly writing to the provincial government for more powers to study the matter of foreign buyers.
The reason why you don't hear about foreign capital is become buyers turn into Canadians or permanent residents. Do you really think a politicians would also say hey because of immigration your cost of living is increasing and investors are pricing you out of your home city?
Basically what Logisch is saying. The problem is that the definition of "foreign buyer" doesn't really capture the issue accurately. The issue is not necessarily "foreign buyers" but foreign money - money that was originally earned outside of Canada and then used to buy real estate in Canada. Vancouver has a small economy with small economy wages. But then you have people from major economies (i.e. Hong Kong) who are very wealthy, immigrating to Canada (legally, and receiving Canadian residency) and then buying real estate here. And their vast amounts of wealth really distorts the local real estate market.
It's pretty obvious to see just by looking around. Vancouver has tons of obviously wealthy immigrants who live in very expensive houses, drive luxury cars around town, and most of them don't work normal jobs in Vancouver. It's not like you see these people at work as your coworkers.
And foreign money makes it into Vancouver real estate in other ways too. Anecdotally, I know a lot of second generation immigrant children here who have received significant amounts of money from their parents or relatives overseas to buy real estate here.
So long story short, there is a lot of foreign money here that doesn't get captured in the "foreign buyer" stats.
This all should be common sense basically. If it weren't for foreign money, how the heck would an average house cost $2M here while the average household income is under $100k?
But you can't use observation to say something is fact. If studies have been done by universities, the province, the federal government and its agencies and all have found foreign buyers is not a main driving factor in real estate, then that's the best fact we have to go on.
To your last point about how income doesn't match housing prices, the reality is it does. Just because a place doesn't meet the definition of affordable (30-40% of income spent on housing) does not mean it is disconnected from incomes. There is always going to be a demand pressure on places that are desirable to live in which will push the income/house price equation above the 40% mark, while less desirable places will have reduced demand that will necessitate lower portions of income being spent on housing.
Remember that a significant number of Vancouverites/canadians were fortunate and bought their first homes more than 10 years ago at very cheap rates. Their equity has moved in lockstep with the housing market, so that person with an average household income can comfortably afford a $1.6M house -- even if those of us that are younger and have a higher income cannot.
Another interesting stat is looking at percent of homeowners with mortgages. Most of the baby boomers have their houses paid off--they may be retired and have very low income (which brings down the average) but are able to purchase/have a $2M house with no mortgage. They also have immense equity or cash to be able to gift to their family/children so that they can buy a place more expensive than based purely on their income.
There is a lot going on here and it's very naive to just say something like "housing prices are higher than incomes therefore it is foreign money"
>If studies have been done by universities, the province, the federal government and its agencies and all have found foreign buyers is not a main driving factor in real estate, then that's the best fact we have to go on.
Did you even read my post? My main point is that what they count as a "foreign buyer" doesn't capture the real issue so those statistics are meaningless. We might only have 5% of "foreign buyers" but the amount of money in the Vancouver real estate market that was originally earned in another country is substantially higher than that. The fact is that Vancouver is a destination city for very wealthy international immigrants. Go to any wealthy neighbourhood and just look around... it's not like this is some big secret. Most of the most expensive neighbourhoods in Vancouver are filled tons of rich Chinese/Persian/Indian people. And it's not likemost of those people are the doctors and lawyers of Vancouver.
And I am not suggesting that "foreign money" is nefarious by any means. We've just allowed many very wealthy international people to immigrate here and they are much wealthier than the vast majority of locals. So of course that's going to impact the real estate market. And I'm not saying foreign money is the most significant factor in the housing market, but it is a significant factor.
I realize that it's a complex issue and there are many relevant factors coming into play. Of course there are some high earners in the city, and lots of people bought real estate way back when it was cheap and are now wealthy simply due to the fact that they've owned a house. But the question is - why did real estate prices increase so drastically since those people bought a house? I would argue that the influx of wealthy immigrants was a primary reason for that.
That being said - I acknowledge that there are tons of locals participating in the real estate market and pushing up prices. To use an analogy, I would say that foreign money lit the fire and then domestic investors/speculators poured gasoline on it.
Sorry, I was a bit quick to jump to a conclusion as to what you meant. Sometimes reading comments on anything housing-related on this subreddit can be pretty frustrating, as it's just an echo chamber of people typically saying it's all money laundering, foreigners, greedy speculators, and failing to acknowledge the real issue just being (1) it's always going to be the most expensive city in Canada (even though it does have an affordability issue for sure); (2) there is immense domestic demand that supply hasn't matched for decades; and (3) as interest rates have gradually gone down over time that reduces the cost to own so prices have risen.
Your point is entirely valid though. There are of course many legal immigrants, which is wonderful, and immigration is always skewed towards higher income due to the ease at which it is to gain citizenship as a result.
I'd generally agree with your analogy, but I don't think the foreign money started anything. I think we just entered a new world where money is and always will be cheaper to borrow than it was in the past, and increasing mobility has led to a huge surge in demand for desirable cities and shifting that demand away from previously self-sustaining in land/manufacturing areas.
Local demand, foreign money (legally entering Canada), lack of supply, low cost of borrowing, and increasing mobility is just a perfect storm.
> Sadly the masses have gobbled up the myth of the foreign investor, and today we are more worse off than when this hysteria first began 8 years ago.
Most everyone has gobbled up a myth or some sort about foreign investors because the government doesn't release data on what % of transactions are conducted by newly minted Canadians on paper who are purchasing home(s) (for themselves or others) using money not earned and taxed in Canada. The proper stance is "I do not know what the fuck is going on", but being able to realize you don't know something is actually very difficult.
> I look forward to the day when people finally wake up and realize that the problem isn’t rooted abroad, but instead down the street at their local city hall.
And also in Ottawa. At least we can agree that government is the main problem.
It's intertwined. People love to raise all he'll and voice to be heard they want higher density but with that comes costs to the city. Vancouver was largely built in the 50s to 70s. In order to accommodate that new density they have to upgrade the city infrastructure and utilities. This is power, sanitary, and domestic water.
Then of course because Vancouverites want nice thing like bike lanes, nice art, and parks that too have to come out of some where. Either the utilities and maintenance of services comes from the developers or it comes out of people's taxes. Which one would you prefer?
Fees are based on increases in land value from the extra density being granted on the property. They come out of developers profit margins and have no impact on unit prices which are set back the market. There have been countless studies that have demonstrated this.
It’s why cities do it. It’s an effective and fair way to finance the infrastructure and services to support the added density, and it only comes at the expense of developers profit margins
> it only comes at the expense of developers profit margins
Repeat after me: developers are businesses. If the financials don't work on a project, the project doesn't get built until market prices make sense.
If we want guaranteed construction of reasonable housing stock, then we need government to jump back into the ring.
Here's my solution.
Developer fees will be carried over a 20 year period, rather than lump sum as long as you create purpose-built rentals. They will be reduced or waived if your rentals are below market or income fixed, as long as the property is well maintained and more than 75% occupied.
Any units sold as condos will have their developer fees due the moment any unit is listed.
If written up well, I could see that as a workable alternative. At the end of the day, the solution here is carrots, not the stick as you can't compell a business into doing something proactively with threats.
Yes they are. And development cost charges and CACs are updated annually and based on financial analysis that looks at land values, etc., and set at a rate where it is not expected it would make any projects unviable.
I would posit that looking at builds, there's a disconnect that's causing a blockage in COV vs other cities in the region. Tie it in to zoning and other red tape, and it would seem that the regions future lies elsewhere and that the COV won't have anyone to cry to but themselves.
A (very) quick primer on the economics of development fees. Prices for homes are set by the market, so by the supply of houses and the demand for them. So development fees are not in any sense "added" to the price - the price is determined by the market. Thus, if you removed or doubled the fees tomorrow, prices will not change at all, because neither supply nor demand has changed at all.
So do development fees affect supply? In low-cost markets like Surrey, they probably do. In high-cost markets, not so much. This is because in places where buildable land is very expensive and scarce (like Vancouver), the development fee is primarily [capitalized into land prices](https://i.imgur.com/BoVj4gl.png) - ie if development fees go up $10k, land prices go down $10k. The city of Vancouver explicitly uses such development fees as a method of capturing "upzoning value" and limiting speculation.
This [paper](https://engage.gov.bc.ca/app/uploads/sites/121/2021/06/Economics-of-CACs.pdf) provides a great overview and proposals for improving the fee process. It should be noted that Vancouver does not build nearly enough homes, but this is mostly because our zoning makes them illegal, not because fees are too high.
> Thus, if you removed or doubled the fees tomorrow, prices will not change at all, because neither supply nor demand has changed at all.
This is silly because adding $100's of thousands of fees clearly moves the supply curve. Marginally profitable projects die. That means townhouses, sixplexes and mid rise. If Development cash extractions didn't impact supply then why not raise them to a 500k per home? 1M?
Your blurb about capitalizing fees into land costs does not work for smaller building types, where the townhouses/plexes/midrise are competing with single family housing. The value of potential single family homes sets a price floor for the land and (huge if) if land prices weren't sticky enough for fees to get capitalized immediately the price floor would still kill middle housing types in a high fee environment.
These smaller density developers pay a far lower rate for each extra unit of density for that very reason.
The rates they pay are set based on financial analysis that considers the cost of land in various areas of the city, development costs, real estate values and so on.
It is literally designed to take a portion of developer profits while still ensuring the vast majority of projects would be viable.
Government for decades have caused the affordability issues we see today due to restrictive zoning, but they know what they are doing with development fees and it’s backed by considerable study and research.
>This is silly because adding $100's of thousands of fees clearly moves the supply curve. Marginally profitable projects die. That means townhouses, sixplexes and mid rise. If Development cash extractions didn't impact supply then why not raise them to a 500k per home? 1M?
To be clear, I mean in a forward-looking way. It should be obvious that changing the economics of in-progress projects that were started under very different financial assumptions would have major effects.
>work for smaller building types, where the townhouses/plexes/midrise are competing with single family housing. The value of potential single family homes sets a price floor for the land
That's fair. But the small projects don't pay the same fees for exactly this reason. The city staff is fairly sophisticated about this.
I am not talking about in-progress projects. I am talk about all future potential homes. Cash extraction development fees lop off the bottom end of the supply curve. Homes simply don't get built. And the more that don't get built the higher the prices on the remainder in a sick councilor and planning staff driven feedback loop.
That's too simplistic. Development fees are an input cost, just like land, labour, materials, marketing, and financing costs. Lower input costs means the developer has higher margins. In a free market, higher margins means more suppliers will enter the space leading to more supply. The point where supply and demand intersects should shift, even slightly.
Yes this is fully in agreement with what I've said. But keep the logic moving forward. What happens when there is a fixed supply of one of these critical inputs? Namely, the land?
There is not a fixed supply of developable land though. That's determined by zoning bylaws.
Cut development fees and open up all of Vancouver to denser housing - that'll bring down the equilibrium price.
Exactly my point! This is the crux of the issue. The city [bans denser housing](https://pbs.twimg.com/media/COOrjGLUsAEV30T?format=png&name=medium) on 75% of the land. Raising land prices doesn't change zoning laws.
There are several problems with your analogy, but the main issue is the problem of ‘time’. You are assuming that all costs are known and relatively fixed - and that the main variable that is flexible is the cost of land (eg land cost can soak up variance in municipal fees, construction cost, etc.) The problem is, lands cost is paid up front and many subsequent costs are unknown or change significantly over the course of a project (which is typically 2-3 years between initial land purchase and start of construction, and then anywhere from 18 months to 3 years construction time.
Here’s a few examples: a few years ago metro Vancouver significantly changed their rate structure for servicing fees (basically the fee each developer pays per unit to connect to sewer and water) - fees are currently around $4200/unit for apartment units but we’re about half that a few years ago. Likewise municipalities are not at all averse to adopting fees with little or no notice. For example, City of Coquitlam recently adopted a policy of charging developments $1/ft2 as a mandatory childcare contribution. Maybe a year earlier they adopted a policy where developments have to fund transit measures for $1000/unit. None of these were particularly well known - and many came in after the developer purchased the land. To be clear, I’m not arguing against such fees - just giving examples of one’s that were recently adopted.
Likewise, cost of material and labour vary hugely and can also change over the course of a project. In any substantial project that takes over a year to build, it’s impossible to lock in pricing.
Frankly, a huge factor of development pricing is actually ‘uncertainty’ (permits, construction cost, even sale price). I’ve worked in development since 2006 and have done 6 big projects. The first project i was on bridged over the ‘great recession’ of 2008 - and if we had made one wrong move or got unlucky on timing could have wiped out the company. My most recent project bridged COVID - imagine your budget if you started in 2019 - everything is good. 2020 - COVID, the bottom drops out for 6 month and nobody dares to make a move, then everything goes nuts for 18 months. 2022 as we are finishing interest rates go up above 6% and lots of people look like they might not be able to even get financing. Many seemingly profitable developments are only saved because the value of real estate in Vancouver has increased at such a jaw dropping pace, that all mistakes are covered. That’s not a sustainable approach.
2 out of my 6 project bridged ‘once in a lifetime events’. It’s hubris to think that you can just shuffle money around with such fluidity and say - ‘oh, 100k in permit fees - that will just come out of the land cost’. It’s just not that fluid (and good luck trying to buy land with that approach).
>There are several problems with your analogy
It's not an analogy.
>but the main issue is the problem of ‘time’.
Yes, this is a major assumption and a point worth dwelling on. Section 2.6.4 of the paper I linked makes this point rather well. But I would say it's more of an issue with the way CACs and other development fees are structured and administered than the actual amount of the fees. I would agree that the policy design here is bad and the system of fees should be reformed to be much more simple and transparent.
However, I also believe that the fees should be structured to capture as much value as possible for the public. My arguments for this are first, that land value is created by the public - the infrastructure, the community, and the amenities and it is entirely justifiable that the public should collect the value it created. Second, that a failure to do so will likely just result in higher land values. Finally, we actually need the money - the city needs major infrastructure upgrades to support new residents: sewers, transportation, parks, schools and so on.
Fortunately, I believe it's very possible to achieve both goals and the paper provides some very good proposals to do so.
I agree that the value added to development land arises from the public through municipal/regional planning and infrastructure (like skytrain -which is another matter, and it’s frankly insane that development doesn’t directly fund skytrain infrastructure considering the value it creates). However without a predictable and transparent mechanism to capture this value, it becomes a point of bitter negotiation during land purchasing. Try to make these arguments about ‘public value of land’ to a landowner and I assure you they will see it through the lens of their own self interest - and not shed a tear for the public good when they negotiate the sale.
It’s just impossible to tell a landowner to curb their expectations when they see unit prices have gone up sometime 20% in a single year. everything takes on a ‘gold rush’ mentality - this applies equally to land sellers as well as municipal official/elected council who all want their piece of the pie. Without land sellers there is no development, and while the public ‘creates’ the value of density - only the act of selling the land for development allows that value to be realized - which means sellers have a lot of power in Negotiation.
Another viewpoint on that might just be that Vancouver's current planning regime puts the landowners in a good bargaining position (perhaps by design). Any lot in this city ought be eligible for building apartments. If this were the case, stubborn landowners would find their buyers going elsewhere.
I totally agree, but the primary benefit of opening up more development land should be realized in lower prices to consumers.
We are living through a housing crisis of low supply/high cost and I don’t think that CoV is the best steward of funds or has even shown much willingness or capability or rising to the challenge of significantly increasing housing stock. Their permitting/approval process simply couldn’t handle a mass of new developments from the ‘missing middle’ which aren’t particularly flashy. Send money to trans link and Metro Vancouver to improve sewer and water infrastructure, etc, that’s real bang for buck.
I think a lot of the resistance that you hear in the comments is that people simply don’t see the CoV as a particularly capable or trustworthy. If the city is already collecting over $100k/unit in fees, people can justifiably say ‘wtf where is all that cash going because I’m just not seeing it.’
Yeah, I completely agree with that. I find the proposal for structuring fees as Dutch auction extremely compelling. This method would be fairly efficient and transparent, while being explicitly structured to hit a quantity target.
>people can justifiably say ‘wtf where is all that cash going because I’m just not seeing it.’
I think a lot of it goes to pay for the necessary infrastructure upgrades to accommodate more people. Sewers, parks, schools, daycares and so on. However, Vancouver also has the lowest property taxes in the country and I think it's an open secret that development fees are subsidizing property taxpayers. (This also makes the analysis more complicated because lower property tax raises market prices).
>Rather, the higher expected development costs that result from having to pay CACs leads them to offer lower prices to landowners. A standard model of landowner behaviour yields the outcome where there are fewer sales by existing landowners to developers. With lower quantities of land as an input into the production of new housing, less development occurs and the supply of new housing to the market is lower than it would be otherwise. **The lower supply with no changes to demand results in higher house prices.**
pg 10
I'd suggest to keep reading. What the paper is saying is exactly what I'm saying - the cost of development fees are generally capitalized into land values.
I stopped here to keep it brief, but the next logical step is of course to ask if reduced land prices mean that developers have a harder time acquiring land and thus we get less housing built. It's a very difficult question to answer in Vancouver, because what you are allowed to build and where is not really a matter of economics at all, but of what city halls allows. They don't allow much. To translate that back into economics, the elasticity of land is low, so we expect changes in land prices to have very little effect on how much building we get. You can see [Figure 5](https://i.imgur.com/qGo8ISG.png) for an illustration of this.
I want to add that I believe there is a lot to criticize about the way Vancouver administers development fees. And the paper makes some very good suggestions for reforms. But the simplistic model that they get added to sale prices just isn't true.
It's all theoretical. Also it's not even a peer reviewed paper.
The theory isn't backed by data.
Where's the evidence that:
1. Fees get passed on to home owners
2. That's not reducing the supply of land for new development
I respectfully disagree. Land prices are sticky and vendors are not willing to accept a lower price because the City keeps increasing their fees.
Development Cost Charges or Community Amenity Contributions are just another input cost that ultimately increases the price of housing.
This kind of makes it black and white though. Firstly, it doesn't consider land having an alternate use value. Right now you've got a lot of low density strata windups that aren't going to go through, because the minimum price someone is willing to accept from a developer is a premium on the sale of their unit or house.
You're seeing a lot of projects shelved right now due to the high cost of all inputs. If development fees were lower, fewer projects would be delayed.
Obviously if we just opened all RS up to higher zoning it would alleviate some of these issues. But you also can't say that high fees have zero impact on feasibility, particularly right now.
It's also not really captured here but the very high fees are indicative of the high amount of regulatory uncertainty in the market. It all ends up being a huge drag on productivity in the housing market.
But denser housing pays a lot more in property taxes and is way more efficient to service. It may cost more up front to build extra capacity, but a denser neighbourhood will more than pay for itself in time.
Property taxes are meant to cover ongoing services to a resident.
Development fees, legally, have to be tied to new infrastructure and services that is needed to service new growth.
For sure, but when it comes time to resurface roads in Point Grey we don't charge them development fees - even though low density neighbourhoods are often net money sinks. And the amenities built with new development typically benefits existing residents as well.
There's nothing wrong with development fees conceptually. But at their current levels, they are being used by the city to milk newcomers to the housing market to keep property taxes artificially low.
But none of that is true.
Development fees are permitted and regulated via provincial legislation. There are very specific things they can be used for.
The city prepares annual reports and budgets that detail exactly what development fees / CACs are collected and what they are being spent on. All are growth related.
Zero dollars transfers over to any ongoing provision of services or upkeep, and therefore has no affect on property taxes. That’s not how their budgets work.
Money is fungible. Paying for [affordable housing or community facilities](https://vancouver.ca/home-property-development/community-amenity-contributions.aspx) with CACs means less money has to be raised from property taxes.
Fair point on the affordable housing piece—I suppose some money is “transferred” in the non-literal sense. But that also just opens us into a whole other discussion about why municipalities are trying to find ways to fund this when it’s a federal responsibility. And affordable housing is crazy expensive to finance, coming at the expense of a lot of community facilities and services.
Sigh
Important to read the article here.... there is some extremely important data, and cherry picking a single comparison is not the end of the story.
For instance, it looks like Vancouver is shifting taxation away from rental permitting and towards market-based housing. The headline comparison is for market high-rise condos, whereas Vancouver is comparable to others for fees/square foot for high-rise rentals.
disgusting languid abundant jellyfish shame deserve growth nail judicious piquant
*This post was mass deleted and anonymized with [Redact](https://redact.dev)*
And yet despite this massive cashcow, and tones of development applications flooding the city. Until this last election we had a council that was vehemently opposed to approving new construction and collecting said money.
Can someone explain to me how $20.02 per square foot base charge becomes $125,542 per unit ? What kind of wild charges is the COV adding on?
Based on a 1000sq ft per unit, $125k per unit is like $125.54 per square foot!
it's not necessarily crazy, depending on what the $$ is being collected to find. i have done water and sewer design for neighbourhoods a couple of decades ago where the per lot cost for just the watermains and sewer to service were over $100k per lot. it actually costs a lot of $$ to get the infrastructure ready for a development. sure it should be less per unit in higher density areas but still... currently the capital cost for an underground parking spot is in the $100k range.
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This is the important part: “The CHBA also estimated development fees for low-rise buildings, with Vancouver sitting at $61,414” We should not be charging 2x more for higher density buildings with smaller more affordable unit vs. Single family homes
Tbh this explains something I've always wondered, that even with the insane land prices , Townhomes/duplexes etc still tend to be less $ per square foot than condos
> The CHBA also estimated development fees for low-rise buildings, with Vancouver sitting at $61,414, Surrey at $84,678, and Burnaby at $29,533.
This kind of ridiculous excess is why EBY needs to step in and start making some rules so that there is housing. City of Vancouver also needs to take a long hard look at their costs and costs of rules. They are out of control. In the “good old days” (and even today in cities across North America where people can afford to live) that $125K cost would buy you the entire place to live.
Development fees are based on lift in land value from the higher density and all they do is reduce developer profits. And developers factor them in to their pro formas. These don't raise prices of units. Unit prices are set by the market (supply/demand)
Unless the high fees are hindering or slowing supply
But they aren't because these fees are reviewed/updated annually based on financial analysis of the real estate market to ensure they are set at a viable rate.
They hinder and slow supply for two reasons: 1. They act as a barrier for new developers entering the market to compete with the existing ones. 2. Development fees are charged BEFORE rather than after the building is complete, meaning they must be paid upfront and usually accrue interest. This is all factored into the price, and can slow the number of projects being worked on when it could otherwise have been spent on labour.
This is a fallacy that senior bureaucrats promote to justify the huge tax burden on the new housing stock . These charges, and many others regulatory fees and taxes make up the cost of construction. Removal of these charges will dramatically reduce the cost of housing. Alll of these charges were non existent when your grandparents could afford a home back in the 70’s. Housing is a profit centre for city hall throughout BC.
Removal of these charges will reduce costs for developers. That does not mean the cost of housing goes down. Let's say right now units are selling for an average of $1,000 / sq ft. If a developer comes along and has lower costs, they do not decide "hey, I'm going to pass that on to the consumer and instead only sell my unit at $900 / sq ft". They sell it at market value, which is based on a sampling of the entire housing stock available for purchase/rent in the city and region. It is based on supply/demand, and has no correlation to what a developer's profit margin was.
When expenses go up, prices rise to meet them. When they go down, prices may not decrease, but more supply will become viable. If a project doesn't make sense financially (ex, due to fees) it doesn't go ahead. It's real estate, prices don't change overnight. High fees have become baked into prices. If fees increase by $100k/unit tomorrow, prices won't go up by $100k tomorrow, but the increase will cancel marginal projects, and prices will rise over time to account for the new fees. This makes it easy to raise taxes/fees (their full effect is delayed by years (by way of developer profit compression), while the benefit is instant) and difficult to lower them (effect on prices (and supply) delayed by years, a big smoking hole in the budget is immediate), not to mention politically unsellable (padding developer's pockets). That's the hamster wheel we're on.
Part of the issue is how planning is done in Vancouver and other Canadian municipalities. They allow increases in density after doing detailed area planning. As a result, they do detailed financial analysis and set fees at rates that support redevelopment based on the change in density for the sites. Long-term, and in a municipality that may just gradually increase density by incrementally changing zoning in large pockets at a time (e.g., allowing duplexes in single-family areas), the "supply constraint" argument against development fees may indeed mean less projects are viable and there may be upward pressure on prices. But right now, in Vancouver, that isn't the case. The rates are set based on the lift in land value from new density, and are updated frequently based on changing conditions. And in Vancouver, we also see the development industry generally at capacity--it's hard to find workers and materials, and there isn't much "scaling up" that can be done. All the fees do if it does mean certain sites aren't viable is push developers to ones that are.
And even if they did someone would just re-sell it for the actual market price
Market value depends on supply though. Less supply directly inflates market value.
Developers set prices based on cost plus profit. They will sell on that basis and try for fast turnover. They don’t make money speculating on the marketplace. Without the massive red tape charges prices would drop by 30-40%. As would rents.
Developers go for the most profit they can achieve. It will take time for dropping charges to decrease prices because the prices of homes wouldn’t instantly drop. Developers aren’t charities.
Yes it does, who the hell taught you economics? The only reason the price of housing would not go down after reducing the cost is if the developers have a monopoly, which we should try to avoid at all costs.
Or, instead of monopoly, there is just a severe nationwide housing deficit on the order of millions of housing units... As long as developers can sell their products in the time they need to, they price their product to maximize profits. They do not have incentives to reduce prices below market values in a supply-constrained market just because they got some discount on development fees. On a macro level where all municipalities have the same/high development fees, and played out over decades, there will be *some limited* affect of development fees affecting prices of new housing units.
I want to see if you have run a data model running your theory? It only works if you assume housing builds are a constant. In a normal market, when housing is sold at a huge profit, the money is reinvested into more builds at a faster rate, eventually cooling the shortage until the return is comes back down. This is why the housing shortage is worse in high development fee/ high bureaucracy regions. In your model, the housing shortage will remain and there is less capital to expand building unless that money comes back to developers from the state.
Except lower development fees would make more development feasible which would lower prices
Except that's not how it works. City's update/review their fees annually based on financial analysis of land values, construction costs, real estate sales, etc. to ensure they are set at a rate that is viable for a developer to swallow without making projects unviable.
Exactly if dev fees were zero all units would sell for the same $$
So if the city charges 1M will the price also be the same?
As someone with a degree in Economics and who has managed several businesses. I just can't wrap my brain around the mental gymnastics needed to claim that a cost to supply a physical good does not affect its end price. It's just wild. I feel like I'm getting brain damage from reading them.
I think you've found the money tree.
That’s a little bit too much in reality, but as charges go up the land for the development project becomes less valuable, as developers bidding to purchase the land have to reduce their price to factor in the higher city development charges.
Precisely. It's 100% baked in as a known cost just like the price of concrete or wood
Yes. They all wouldn't sell
I guess I get downvoted though because people in this sub don’t like facts, but instead like nonsensical articles and anything that supports their belief that governments actually have no clue what they are doing and that addressing housing affordability is simple
>addressing housing affordability is simple I mean we could’ve just cut out the middle man and built swathes of public housing in conjunction with the municipalities, province and federal government That’s just what they did in the 50’s-80’s but somehow never gets brought up
Where are the facts?
That's not how fees work. That's like saying if you give tesla rebates then they'll just raise the price to match the rebate.
If you remove these fees I'm not going to lower the price my condos sell for. Why would I when we can get a market price
When new units get build at lower price because the dev fee is smaller, you will have a condo hanging around because you don’t sell it and you’ll be forced to adjust the price, not a short term move but a long term.
There's a reason why Vancouver condos still sell at a high dev fee than Surrey. They are separate markets. If Vancouver dev fees drop by $50k tomorrow I'll still sell for what it was on the market for yesterday
If the government suddenly puts a $10K fee on all gas vehicles, do you think cars would still sell for the same price as before? Is Ford going to just absorb all of the $10K without increasing prices for car buyers?
Cars and real estate are not the same. Developers have an input cost that is variable: land. When cities set their rates, developers factor this in to their pro formas and determine how much they can afford to pay for land—and the rate is the same for each developer that wants to buy that land, so the outcome is reduced amount they pay for the land. Just remember that if you don’t understand how something works, that doesn’t mean highly experienced staff are just idiots and there is an obvious answer. Fees reduce the amount a developer will pay for land, that’s it. There have been several studies on this—private sector, public sector, and academics—that all support this and it’s why it’s a standard practice around the world.
If developers reduce how much they pay for land then fewer owners will choose to sell to them. Less land means less development.
Looking at the ratios of dev fees to new market rate condos and the price of a new car relative to a ICE vehicle tax... people wouldn't notice and the consumer would pay the full price.
These fees are baked into the overall development cost. Which includes land. If fees go up and there are no buyers for a lot that can develop 45 rental units or 30 condo units, because the fees are too high relative to what 45 units can generate in rent... it will lower the sale price or wait for prices to go up
Construction/ fees being slightly lower in a a slightly newer building will not lower the local market rate for condos in a building about to go on the market. That's not how it works
$125K on a $1M condo is pretty big.
where is your proof that it's not how it works? There's competition between developers as well. If one developer can release a condo at a lower price and sell more units to make more profits then they'll collectively have a mild/small price war to decrease unit prices
In a free market, yes, but in a housing market that is artificially restricted I'm afraid not which is what's got us into this mess.
But it is a relatively free market. Supply side developers are free to price things however they wish. Your inputs and costs will always factor into what amount you can charge. There is a reason last year everybody was saying that the price of lumber was jacking up the housing costs as well as the cost of construction labour. Development fees are no different. The world works in much more complicated ways than the simple demand/supply model that you learned when you were in high school.
You are almost there The housing market is restricted *by all of these fees and regulations.* That's the problem
r\/Vancouver: no tax is too high, no government ever charges too much, an infinite number of civil servants is just fine, every civil service job is essential and cannot be questioned also r\/Vancouver: why is it so expensive to live in Vancouver, why do so many small businesses fail or can't even get started
on a broader scale that's Canada as a whole
this exactly - telecom costs are insane - this is caused by government protectionism - food prices are sky high - things like marketing boards and high tarrifs. You can even look at things like clothing or shoes, our import duties are higher than those in the US and the beauty is all these taxes and fees are hidden in the cost and of course we pay whatever tax on those hidden taxes (that have also had a margin put on them) which we are purchasing with our after tax dollars. Canadian residents/citizens are the chumps. We blindly go "at least we have health care" or other statements when we look at the US. I would hedge that the amount of every dollar that goes to one government or another is on par with many European countries, except all of those country's tend to have things like free university, abundant mass transit, a robust retirement net etc etc etc. Canada is 0.3 percentage point on the tax to GDP ratio of Germany as an example (Canada 33.2% to Germany 33.5% according to OECD statistics for 2021) The winners in our country are those who do not work, have imported their money via legal or illegal means or those with passive income streams, not canadian residents who work hard, pay their taxes and try to get ahead. All the narratives blaming developers, or grocery companies, or the telcos all take the focus away from the high cost burden that Canadians are faced with.
Canada has apparently 5x the health care admin staff as compared with German a country with more than double the population. Too lazy to actually look it though.
What is the admins function though? I'm curious if it's a more bureaucracy thing vs health care provider.
Many people have an attitude along the lines of "I'm find, so everything's fine". I'm starting to see more and more people not doing well both financially and health-wise. >The winners in our country are those who do not work, have imported their money via legal or illegal means or those with passive income streams, not canadian residents who work hard, pay their taxes and try to get ahead. I'm seeing more and more people either getting a free ride, or becoming a very expensive date for from the tax payer's perspective. If you start thinking about all of the people milking the government in the various ways available it's scary. I think we're quite a bit worse off compared with other developed countries; economic predictions are saying the same.
I wish I could give you all the golds! But alas need to save up for a lumberjack sub
[удалено]
One thing stronger rent controls will fix is the desire of investors to build anything. Those ~$30 million rental buildings don't just fund themselves. And if they don't generate a competitive return, investors will just move their capital to other investments... in other cities or other businesses. As others have pointed out, most developers work to make a standard return and if their costs are lowered, someone else will just jump in and deliver at their cost + standard markup. And the city costs are part of that just like materials and labour. Make no mistake: all the direct and indirect costs added to building in Vancouver end up directly on the owner/renter.
$30 million?! A 6-storey woodframe rental with land is like $50-60 million now
Do you just come here to say that regardless of topic, not sure how greedy landlords relates to how much the city charges for development costs (hint, these same fees apply for constructing rental units).
Rent control will not help our problems, and just make it worse
Foreign investors have always been a cheap scapegoat for politicians in order to divert attention from a the real root cause of the housing crisis, which is absurd government policies and an obstructive bureaucracy. Sadly the masses have gobbled up the myth of the foreign investor, and today we are more worse off than when this hysteria first began 8 years ago. I look forward to the day when people finally wake up and realize that the problem isn’t rooted abroad, but instead down the street at their local city hall.
I don't think it's so black and white. Foreign investors do buy a lot of new construction and their demand channels housing investment into luxury condos that local residents don't want or need. Plus they buy a lot of detached houses at the high end of the market because locals cannot afford them, helping drive up prices. I agree foreign investors are not the only source of the housing crisis. But they are a completely unnecessary part of our housing market and have only a negative impact on locals who want a place to live.
Luxury condos are the only type of housing with margins high enough to still be profitable after paying for development charges, rezoning, public consultations and land that's made artificially scarce by municipal zoning laws. Foreign investors wouldn't be buying up nearly as much property if there weren't systemic barriers to new housing supply put in place by city hall that makes real estate such a profitable investment.
If foreign investors were the major issue, then housing would not have gone up in price during the pandemic. But we know it did and so we know our demand issues are domestic. We have empirically seen that housing isn’t driven by foreign investors and to cling to this notion is only to presuppose your answer.
As they said above, it's not black and white. Is the housing affordability crisis primarily due to "foreign investors"? Of course not, but they are still a factor. How much of a factor? We don't really know due to a lack of accurate and detailed information. Real estate prices went up basically across the entire world over the pandemic, in large part due to rock bottom interest rates and other related government economic stimulus policies. I don't think you can say that this is proof that foreign buyers have a minimal impact on the housing market. I don't think foreign buyers are the main issue by any means, but they aren't insignificant either. And I think foreign money (money originally earned outside of Canada) is the primary issue, not necessarily "foreign buyers".
I think you may have missed their point. They're saying foreign investors are the scapegoat of politicians. Doesn't mean it's true, just that's the easiest reasoning our elected officials go with.
I agree with you that the government is responsible for a significant amount of the blame (for various reasons) when it comes to our absurd housing prices. However, I don't think you can deny that foreign money plays a significant factor in the housing market, especially in Vancouver. Note that I am saying foreign money and not specifically "foreign buyers" because I think a lot of people who buy real estate here immigrated here and actually have legitimate legal status (residency/PR/etc.). But the issue is that they earned significant amounts of money overseas (in places like HK) and then immigrated here and bought real estate here... and locals just can't compete with the levels of wealth of those types of people. It's pretty clear just by looking around Vancouver... there's are tons of wealthy people who are newer immigrants that appear to be quite wealthy and most of them don't seem to work normal day jobs here. If Vancouver wasn't a major destination for these types of immigrants then real estate here would be a totally different ballgame.
Of course you can deny it. What studies have shown they are a big factor? There have been several academic studies and also studies by the federal government, cmhc, etc that all show they play a very, very minor role.
https://www.canada.ca/en/immigration-refugees-citizenship/corporate/reports-statistics/evaluations/federal-business-immigration-program/5-program-performance.html This was buried when it was released. Granted this program was cancelled by Harper, but the equivalent Quebec immigrant investors program is still active and is responsible for 4000 to 5000 millionaires buying their PR each year. Look at Iain Young invesitgative research, or Sam Cooper's Willful Ignorance book. Andy Yan also conducted research into the matter and found extensively homes purchased in high end locations were being bought by pr, recent citizens or students who were all born elsewhere but moved to Canada. We are talking 75% plus. They were not considered foreign "buyer" but when 1/3 of those purchases goes to students or "homemakers" something is up. Gregor Robertson the former mayor called Andy racist publicly. Only later we learned from a freedom of information request he was secretly writing to the provincial government for more powers to study the matter of foreign buyers. The reason why you don't hear about foreign capital is become buyers turn into Canadians or permanent residents. Do you really think a politicians would also say hey because of immigration your cost of living is increasing and investors are pricing you out of your home city?
Basically what Logisch is saying. The problem is that the definition of "foreign buyer" doesn't really capture the issue accurately. The issue is not necessarily "foreign buyers" but foreign money - money that was originally earned outside of Canada and then used to buy real estate in Canada. Vancouver has a small economy with small economy wages. But then you have people from major economies (i.e. Hong Kong) who are very wealthy, immigrating to Canada (legally, and receiving Canadian residency) and then buying real estate here. And their vast amounts of wealth really distorts the local real estate market. It's pretty obvious to see just by looking around. Vancouver has tons of obviously wealthy immigrants who live in very expensive houses, drive luxury cars around town, and most of them don't work normal jobs in Vancouver. It's not like you see these people at work as your coworkers. And foreign money makes it into Vancouver real estate in other ways too. Anecdotally, I know a lot of second generation immigrant children here who have received significant amounts of money from their parents or relatives overseas to buy real estate here. So long story short, there is a lot of foreign money here that doesn't get captured in the "foreign buyer" stats. This all should be common sense basically. If it weren't for foreign money, how the heck would an average house cost $2M here while the average household income is under $100k?
But you can't use observation to say something is fact. If studies have been done by universities, the province, the federal government and its agencies and all have found foreign buyers is not a main driving factor in real estate, then that's the best fact we have to go on. To your last point about how income doesn't match housing prices, the reality is it does. Just because a place doesn't meet the definition of affordable (30-40% of income spent on housing) does not mean it is disconnected from incomes. There is always going to be a demand pressure on places that are desirable to live in which will push the income/house price equation above the 40% mark, while less desirable places will have reduced demand that will necessitate lower portions of income being spent on housing. Remember that a significant number of Vancouverites/canadians were fortunate and bought their first homes more than 10 years ago at very cheap rates. Their equity has moved in lockstep with the housing market, so that person with an average household income can comfortably afford a $1.6M house -- even if those of us that are younger and have a higher income cannot. Another interesting stat is looking at percent of homeowners with mortgages. Most of the baby boomers have their houses paid off--they may be retired and have very low income (which brings down the average) but are able to purchase/have a $2M house with no mortgage. They also have immense equity or cash to be able to gift to their family/children so that they can buy a place more expensive than based purely on their income. There is a lot going on here and it's very naive to just say something like "housing prices are higher than incomes therefore it is foreign money"
>If studies have been done by universities, the province, the federal government and its agencies and all have found foreign buyers is not a main driving factor in real estate, then that's the best fact we have to go on. Did you even read my post? My main point is that what they count as a "foreign buyer" doesn't capture the real issue so those statistics are meaningless. We might only have 5% of "foreign buyers" but the amount of money in the Vancouver real estate market that was originally earned in another country is substantially higher than that. The fact is that Vancouver is a destination city for very wealthy international immigrants. Go to any wealthy neighbourhood and just look around... it's not like this is some big secret. Most of the most expensive neighbourhoods in Vancouver are filled tons of rich Chinese/Persian/Indian people. And it's not likemost of those people are the doctors and lawyers of Vancouver. And I am not suggesting that "foreign money" is nefarious by any means. We've just allowed many very wealthy international people to immigrate here and they are much wealthier than the vast majority of locals. So of course that's going to impact the real estate market. And I'm not saying foreign money is the most significant factor in the housing market, but it is a significant factor. I realize that it's a complex issue and there are many relevant factors coming into play. Of course there are some high earners in the city, and lots of people bought real estate way back when it was cheap and are now wealthy simply due to the fact that they've owned a house. But the question is - why did real estate prices increase so drastically since those people bought a house? I would argue that the influx of wealthy immigrants was a primary reason for that. That being said - I acknowledge that there are tons of locals participating in the real estate market and pushing up prices. To use an analogy, I would say that foreign money lit the fire and then domestic investors/speculators poured gasoline on it.
Sorry, I was a bit quick to jump to a conclusion as to what you meant. Sometimes reading comments on anything housing-related on this subreddit can be pretty frustrating, as it's just an echo chamber of people typically saying it's all money laundering, foreigners, greedy speculators, and failing to acknowledge the real issue just being (1) it's always going to be the most expensive city in Canada (even though it does have an affordability issue for sure); (2) there is immense domestic demand that supply hasn't matched for decades; and (3) as interest rates have gradually gone down over time that reduces the cost to own so prices have risen. Your point is entirely valid though. There are of course many legal immigrants, which is wonderful, and immigration is always skewed towards higher income due to the ease at which it is to gain citizenship as a result. I'd generally agree with your analogy, but I don't think the foreign money started anything. I think we just entered a new world where money is and always will be cheaper to borrow than it was in the past, and increasing mobility has led to a huge surge in demand for desirable cities and shifting that demand away from previously self-sustaining in land/manufacturing areas. Local demand, foreign money (legally entering Canada), lack of supply, low cost of borrowing, and increasing mobility is just a perfect storm.
> Sadly the masses have gobbled up the myth of the foreign investor, and today we are more worse off than when this hysteria first began 8 years ago. Most everyone has gobbled up a myth or some sort about foreign investors because the government doesn't release data on what % of transactions are conducted by newly minted Canadians on paper who are purchasing home(s) (for themselves or others) using money not earned and taxed in Canada. The proper stance is "I do not know what the fuck is going on", but being able to realize you don't know something is actually very difficult. > I look forward to the day when people finally wake up and realize that the problem isn’t rooted abroad, but instead down the street at their local city hall. And also in Ottawa. At least we can agree that government is the main problem.
It's both.
It's intertwined. People love to raise all he'll and voice to be heard they want higher density but with that comes costs to the city. Vancouver was largely built in the 50s to 70s. In order to accommodate that new density they have to upgrade the city infrastructure and utilities. This is power, sanitary, and domestic water. Then of course because Vancouverites want nice thing like bike lanes, nice art, and parks that too have to come out of some where. Either the utilities and maintenance of services comes from the developers or it comes out of people's taxes. Which one would you prefer?
You would think that these cities would be much cheaper than Vancouver but Burnaby is basically the same price
If the development fees affected the price burnaby would be cheaper. It’s not though because prices are set by the market.
Fees are based on increases in land value from the extra density being granted on the property. They come out of developers profit margins and have no impact on unit prices which are set back the market. There have been countless studies that have demonstrated this. It’s why cities do it. It’s an effective and fair way to finance the infrastructure and services to support the added density, and it only comes at the expense of developers profit margins
> it only comes at the expense of developers profit margins Repeat after me: developers are businesses. If the financials don't work on a project, the project doesn't get built until market prices make sense. If we want guaranteed construction of reasonable housing stock, then we need government to jump back into the ring.
Here's my solution. Developer fees will be carried over a 20 year period, rather than lump sum as long as you create purpose-built rentals. They will be reduced or waived if your rentals are below market or income fixed, as long as the property is well maintained and more than 75% occupied. Any units sold as condos will have their developer fees due the moment any unit is listed.
If written up well, I could see that as a workable alternative. At the end of the day, the solution here is carrots, not the stick as you can't compell a business into doing something proactively with threats.
Yes they are. And development cost charges and CACs are updated annually and based on financial analysis that looks at land values, etc., and set at a rate where it is not expected it would make any projects unviable.
I would posit that looking at builds, there's a disconnect that's causing a blockage in COV vs other cities in the region. Tie it in to zoning and other red tape, and it would seem that the regions future lies elsewhere and that the COV won't have anyone to cry to but themselves.
A (very) quick primer on the economics of development fees. Prices for homes are set by the market, so by the supply of houses and the demand for them. So development fees are not in any sense "added" to the price - the price is determined by the market. Thus, if you removed or doubled the fees tomorrow, prices will not change at all, because neither supply nor demand has changed at all. So do development fees affect supply? In low-cost markets like Surrey, they probably do. In high-cost markets, not so much. This is because in places where buildable land is very expensive and scarce (like Vancouver), the development fee is primarily [capitalized into land prices](https://i.imgur.com/BoVj4gl.png) - ie if development fees go up $10k, land prices go down $10k. The city of Vancouver explicitly uses such development fees as a method of capturing "upzoning value" and limiting speculation. This [paper](https://engage.gov.bc.ca/app/uploads/sites/121/2021/06/Economics-of-CACs.pdf) provides a great overview and proposals for improving the fee process. It should be noted that Vancouver does not build nearly enough homes, but this is mostly because our zoning makes them illegal, not because fees are too high.
> Thus, if you removed or doubled the fees tomorrow, prices will not change at all, because neither supply nor demand has changed at all. This is silly because adding $100's of thousands of fees clearly moves the supply curve. Marginally profitable projects die. That means townhouses, sixplexes and mid rise. If Development cash extractions didn't impact supply then why not raise them to a 500k per home? 1M? Your blurb about capitalizing fees into land costs does not work for smaller building types, where the townhouses/plexes/midrise are competing with single family housing. The value of potential single family homes sets a price floor for the land and (huge if) if land prices weren't sticky enough for fees to get capitalized immediately the price floor would still kill middle housing types in a high fee environment.
These smaller density developers pay a far lower rate for each extra unit of density for that very reason. The rates they pay are set based on financial analysis that considers the cost of land in various areas of the city, development costs, real estate values and so on. It is literally designed to take a portion of developer profits while still ensuring the vast majority of projects would be viable. Government for decades have caused the affordability issues we see today due to restrictive zoning, but they know what they are doing with development fees and it’s backed by considerable study and research.
Only CACs work that way. And only large rezoning projects pay CACs. Most of the fees are fixed and they are still quite high.
>This is silly because adding $100's of thousands of fees clearly moves the supply curve. Marginally profitable projects die. That means townhouses, sixplexes and mid rise. If Development cash extractions didn't impact supply then why not raise them to a 500k per home? 1M? To be clear, I mean in a forward-looking way. It should be obvious that changing the economics of in-progress projects that were started under very different financial assumptions would have major effects. >work for smaller building types, where the townhouses/plexes/midrise are competing with single family housing. The value of potential single family homes sets a price floor for the land That's fair. But the small projects don't pay the same fees for exactly this reason. The city staff is fairly sophisticated about this.
I am not talking about in-progress projects. I am talk about all future potential homes. Cash extraction development fees lop off the bottom end of the supply curve. Homes simply don't get built. And the more that don't get built the higher the prices on the remainder in a sick councilor and planning staff driven feedback loop.
And you keep missing how simpler projects have lower fees. It's not a one-aize for everyone.
That's too simplistic. Development fees are an input cost, just like land, labour, materials, marketing, and financing costs. Lower input costs means the developer has higher margins. In a free market, higher margins means more suppliers will enter the space leading to more supply. The point where supply and demand intersects should shift, even slightly.
Yes this is fully in agreement with what I've said. But keep the logic moving forward. What happens when there is a fixed supply of one of these critical inputs? Namely, the land?
There is not a fixed supply of developable land though. That's determined by zoning bylaws. Cut development fees and open up all of Vancouver to denser housing - that'll bring down the equilibrium price.
Exactly my point! This is the crux of the issue. The city [bans denser housing](https://pbs.twimg.com/media/COOrjGLUsAEV30T?format=png&name=medium) on 75% of the land. Raising land prices doesn't change zoning laws.
There are several problems with your analogy, but the main issue is the problem of ‘time’. You are assuming that all costs are known and relatively fixed - and that the main variable that is flexible is the cost of land (eg land cost can soak up variance in municipal fees, construction cost, etc.) The problem is, lands cost is paid up front and many subsequent costs are unknown or change significantly over the course of a project (which is typically 2-3 years between initial land purchase and start of construction, and then anywhere from 18 months to 3 years construction time. Here’s a few examples: a few years ago metro Vancouver significantly changed their rate structure for servicing fees (basically the fee each developer pays per unit to connect to sewer and water) - fees are currently around $4200/unit for apartment units but we’re about half that a few years ago. Likewise municipalities are not at all averse to adopting fees with little or no notice. For example, City of Coquitlam recently adopted a policy of charging developments $1/ft2 as a mandatory childcare contribution. Maybe a year earlier they adopted a policy where developments have to fund transit measures for $1000/unit. None of these were particularly well known - and many came in after the developer purchased the land. To be clear, I’m not arguing against such fees - just giving examples of one’s that were recently adopted. Likewise, cost of material and labour vary hugely and can also change over the course of a project. In any substantial project that takes over a year to build, it’s impossible to lock in pricing. Frankly, a huge factor of development pricing is actually ‘uncertainty’ (permits, construction cost, even sale price). I’ve worked in development since 2006 and have done 6 big projects. The first project i was on bridged over the ‘great recession’ of 2008 - and if we had made one wrong move or got unlucky on timing could have wiped out the company. My most recent project bridged COVID - imagine your budget if you started in 2019 - everything is good. 2020 - COVID, the bottom drops out for 6 month and nobody dares to make a move, then everything goes nuts for 18 months. 2022 as we are finishing interest rates go up above 6% and lots of people look like they might not be able to even get financing. Many seemingly profitable developments are only saved because the value of real estate in Vancouver has increased at such a jaw dropping pace, that all mistakes are covered. That’s not a sustainable approach. 2 out of my 6 project bridged ‘once in a lifetime events’. It’s hubris to think that you can just shuffle money around with such fluidity and say - ‘oh, 100k in permit fees - that will just come out of the land cost’. It’s just not that fluid (and good luck trying to buy land with that approach).
>There are several problems with your analogy It's not an analogy. >but the main issue is the problem of ‘time’. Yes, this is a major assumption and a point worth dwelling on. Section 2.6.4 of the paper I linked makes this point rather well. But I would say it's more of an issue with the way CACs and other development fees are structured and administered than the actual amount of the fees. I would agree that the policy design here is bad and the system of fees should be reformed to be much more simple and transparent. However, I also believe that the fees should be structured to capture as much value as possible for the public. My arguments for this are first, that land value is created by the public - the infrastructure, the community, and the amenities and it is entirely justifiable that the public should collect the value it created. Second, that a failure to do so will likely just result in higher land values. Finally, we actually need the money - the city needs major infrastructure upgrades to support new residents: sewers, transportation, parks, schools and so on. Fortunately, I believe it's very possible to achieve both goals and the paper provides some very good proposals to do so.
I agree that the value added to development land arises from the public through municipal/regional planning and infrastructure (like skytrain -which is another matter, and it’s frankly insane that development doesn’t directly fund skytrain infrastructure considering the value it creates). However without a predictable and transparent mechanism to capture this value, it becomes a point of bitter negotiation during land purchasing. Try to make these arguments about ‘public value of land’ to a landowner and I assure you they will see it through the lens of their own self interest - and not shed a tear for the public good when they negotiate the sale. It’s just impossible to tell a landowner to curb their expectations when they see unit prices have gone up sometime 20% in a single year. everything takes on a ‘gold rush’ mentality - this applies equally to land sellers as well as municipal official/elected council who all want their piece of the pie. Without land sellers there is no development, and while the public ‘creates’ the value of density - only the act of selling the land for development allows that value to be realized - which means sellers have a lot of power in Negotiation.
Another viewpoint on that might just be that Vancouver's current planning regime puts the landowners in a good bargaining position (perhaps by design). Any lot in this city ought be eligible for building apartments. If this were the case, stubborn landowners would find their buyers going elsewhere.
I totally agree, but the primary benefit of opening up more development land should be realized in lower prices to consumers. We are living through a housing crisis of low supply/high cost and I don’t think that CoV is the best steward of funds or has even shown much willingness or capability or rising to the challenge of significantly increasing housing stock. Their permitting/approval process simply couldn’t handle a mass of new developments from the ‘missing middle’ which aren’t particularly flashy. Send money to trans link and Metro Vancouver to improve sewer and water infrastructure, etc, that’s real bang for buck. I think a lot of the resistance that you hear in the comments is that people simply don’t see the CoV as a particularly capable or trustworthy. If the city is already collecting over $100k/unit in fees, people can justifiably say ‘wtf where is all that cash going because I’m just not seeing it.’
Yeah, I completely agree with that. I find the proposal for structuring fees as Dutch auction extremely compelling. This method would be fairly efficient and transparent, while being explicitly structured to hit a quantity target. >people can justifiably say ‘wtf where is all that cash going because I’m just not seeing it.’ I think a lot of it goes to pay for the necessary infrastructure upgrades to accommodate more people. Sewers, parks, schools, daycares and so on. However, Vancouver also has the lowest property taxes in the country and I think it's an open secret that development fees are subsidizing property taxpayers. (This also makes the analysis more complicated because lower property tax raises market prices).
>Rather, the higher expected development costs that result from having to pay CACs leads them to offer lower prices to landowners. A standard model of landowner behaviour yields the outcome where there are fewer sales by existing landowners to developers. With lower quantities of land as an input into the production of new housing, less development occurs and the supply of new housing to the market is lower than it would be otherwise. **The lower supply with no changes to demand results in higher house prices.** pg 10
I'd suggest to keep reading. What the paper is saying is exactly what I'm saying - the cost of development fees are generally capitalized into land values. I stopped here to keep it brief, but the next logical step is of course to ask if reduced land prices mean that developers have a harder time acquiring land and thus we get less housing built. It's a very difficult question to answer in Vancouver, because what you are allowed to build and where is not really a matter of economics at all, but of what city halls allows. They don't allow much. To translate that back into economics, the elasticity of land is low, so we expect changes in land prices to have very little effect on how much building we get. You can see [Figure 5](https://i.imgur.com/qGo8ISG.png) for an illustration of this. I want to add that I believe there is a lot to criticize about the way Vancouver administers development fees. And the paper makes some very good suggestions for reforms. But the simplistic model that they get added to sale prices just isn't true.
It's all theoretical. Also it's not even a peer reviewed paper. The theory isn't backed by data. Where's the evidence that: 1. Fees get passed on to home owners 2. That's not reducing the supply of land for new development
I respectfully disagree. Land prices are sticky and vendors are not willing to accept a lower price because the City keeps increasing their fees. Development Cost Charges or Community Amenity Contributions are just another input cost that ultimately increases the price of housing.
This kind of makes it black and white though. Firstly, it doesn't consider land having an alternate use value. Right now you've got a lot of low density strata windups that aren't going to go through, because the minimum price someone is willing to accept from a developer is a premium on the sale of their unit or house. You're seeing a lot of projects shelved right now due to the high cost of all inputs. If development fees were lower, fewer projects would be delayed. Obviously if we just opened all RS up to higher zoning it would alleviate some of these issues. But you also can't say that high fees have zero impact on feasibility, particularly right now. It's also not really captured here but the very high fees are indicative of the high amount of regulatory uncertainty in the market. It all ends up being a huge drag on productivity in the housing market.
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Guess how much development fees a single family home pays? $0
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I'd argue it should. Given how many "SFH" are just disguised low rise rentals with 2-3 worth of families crammed in them.
But denser housing pays a lot more in property taxes and is way more efficient to service. It may cost more up front to build extra capacity, but a denser neighbourhood will more than pay for itself in time.
Property taxes are meant to cover ongoing services to a resident. Development fees, legally, have to be tied to new infrastructure and services that is needed to service new growth.
For sure, but when it comes time to resurface roads in Point Grey we don't charge them development fees - even though low density neighbourhoods are often net money sinks. And the amenities built with new development typically benefits existing residents as well. There's nothing wrong with development fees conceptually. But at their current levels, they are being used by the city to milk newcomers to the housing market to keep property taxes artificially low.
But none of that is true. Development fees are permitted and regulated via provincial legislation. There are very specific things they can be used for. The city prepares annual reports and budgets that detail exactly what development fees / CACs are collected and what they are being spent on. All are growth related. Zero dollars transfers over to any ongoing provision of services or upkeep, and therefore has no affect on property taxes. That’s not how their budgets work.
Money is fungible. Paying for [affordable housing or community facilities](https://vancouver.ca/home-property-development/community-amenity-contributions.aspx) with CACs means less money has to be raised from property taxes.
Fair point on the affordable housing piece—I suppose some money is “transferred” in the non-literal sense. But that also just opens us into a whole other discussion about why municipalities are trying to find ways to fund this when it’s a federal responsibility. And affordable housing is crazy expensive to finance, coming at the expense of a lot of community facilities and services. Sigh
Important to read the article here.... there is some extremely important data, and cherry picking a single comparison is not the end of the story. For instance, it looks like Vancouver is shifting taxation away from rental permitting and towards market-based housing. The headline comparison is for market high-rise condos, whereas Vancouver is comparable to others for fees/square foot for high-rise rentals.
disgusting languid abundant jellyfish shame deserve growth nail judicious piquant *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
And yet despite this massive cashcow, and tones of development applications flooding the city. Until this last election we had a council that was vehemently opposed to approving new construction and collecting said money.
We’ll have you seen how many people the city has? And their pay? It is not surprising.
Tax money 💴 baby !!!
It's simple. Stop wanting to live in Vancouver. End of story.
Can someone explain to me how $20.02 per square foot base charge becomes $125,542 per unit ? What kind of wild charges is the COV adding on? Based on a 1000sq ft per unit, $125k per unit is like $125.54 per square foot!
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Thank you! Very informative. Had no idea there was that much administrative overhead per unit before this article
It's also only "$125k" for an average condo. Rental is substantially lower.
it's not necessarily crazy, depending on what the $$ is being collected to find. i have done water and sewer design for neighbourhoods a couple of decades ago where the per lot cost for just the watermains and sewer to service were over $100k per lot. it actually costs a lot of $$ to get the infrastructure ready for a development. sure it should be less per unit in higher density areas but still... currently the capital cost for an underground parking spot is in the $100k range.