BC reducing borrowing costs for development charges
Helps to improve economic viability
Although homes are still being completed, helping to push down rents, it’s from projects that were started years ago. In Metro Vancouver and the GTA, new projects are running into the cost bottleneck: interest rates are up, construction costs are up, and prices are down. Even when something is legal to build, if costs are too high it doesn’t make sense to build it. The result is that a lot of projects are underwater.
A recent report from the city of Vancouver describes the situation:
Development viability is under increasing strain due to a wide range of factors, such as construction cost escalation, impending tariff implications, an elevated interest rate environment, and recent changes to immigration policy, all of which have created greater uncertainty and dampened consumer and investor confidence.
At the same time, the cost basis for construction – including land, labour, regulatory requirements, and government charges – has dramatically outpaced inflation since 2019, while home prices have approached affordability ceilings.
The investor pool is shrinking, driven by the end of foreign investment, stagnating rent yields, and diminished expectations of future appreciation.
This shift has left both purpose-built rental and strata development financially challenging, particularly at the scale, price points, and speed required to meet the city’s housing needs.
Without intervention, supply will continue to lag behind demand, exacerbating affordability pressures and excluding key market segments – especially families and middle-income earners – from viable housing options.
Last week the BC government announced that it’s updating its regulations, effective January 2026, to reduce project borrowing costs, by giving projects four years to pay development charges instead of two years, and by allowing the use of “surety bonds” instead of letters of credit. More flexibility for development charges.
The changes will apply to qualified developers in communities with a development cost charge, amenity cost charge or a school-site acquisition charge. Homebuilders will have four years, rather than two, to pay the charges. They will be able to pay 25% at permit approval and the remaining 75% at occupancy or within four years, whichever comes first.
Government will amend the Development Cost Charge and Amenity Cost Charge (Instalments) Regulation to expand the use of on-demand surety bonds provincewide. On-demand surety bonds are financial guarantees that homebuilders provide to give assurances that they will fulfil their construction contract. Currently, homebuilders are able to use on-demand surety bonds in 40 municipalities across Canada, including Burnaby, Surrey, Vancouver and Mission.
Other municipalities rely on a different financial tool, known as irrevocable letters of credit from a bank. Homebuilders prefer on-demand surety bonds because they do not restrict a developer’s access to credit, freeing homebuilders to move projects from start to finish and build more housing.
Vancouver city council approved similar changes at their June 17 meeting. They also approved not increasing fees for 2025 - they don’t want to kill the golden goose - but going ahead with a deferred fee increase from 2024 for DCLs specifically.
As DCLs are set to recover the costs of growth-supporting capital programs, the deferred 2024 inflationary adjustment of 5.7% to DCLs will proceed to reflect cost escalation in delivering infrastructure and amenities.
The big picture: the importance of reducing costs
In order to keep pushing rents down over the longer term, we need to keep building, and that means we need to reduce costs as well. In order for a project to happen, the value of the new building (based on the stream of future rents) minus all the costs of building it has to be worth more than what's already there.
If rents go down and costs don't go down, what happens is that building halts until rents go back up. Costs set a floor on how low rents can go.
How do we reduce costs?
Reduce the cost of land by allowing more density, as Auckland did in 2016
Reduce the cost of labour and materials by increasing productivity, e.g. by using more pre-fabricated assemblies
Reduce the cost of approvals by allowing more housing by right, or by speeding up rezoning and permitting
Bring down barriers to entry so that smaller builders with lower cost structures can enter the market - see Mario Polese’s comments on Montreal vs. Toronto
Reduce taxes and fees, including municipal development charges
More
B.C. builders welcome NDP changes to development cost charges as housing starts falter. Alec Lazenby, Vancouver Sun.