Repost: Ottawa to Metro Van: don't kill the golden goose

$250M for Metro Van to delay development-charge increases

Jun 09, 2025

Increasing costs pushes more projects underwater, reducing supply. Dan Bertolet

Metro Vancouver Proposing Extension Of DCC In-Stream Protection Period. Howard Chai, Storeys.

Metro Vancouver Finance Committee meeting, February 13. Agenda, documents, and video. Staff memo regarding the Canada Housing Infrastructure Fund.

TLDR: The federal government is offering $250 million to Metro Van from the Canada Housing Infrastructure Fund, towards the Iona sewage treatment plant. In exchange, they want Metro Van to delay its planned DCC increases: these increases will ratchet up the floor on prices and rents, and push more projects underwater.

Metro Van staff are proposing that “in-stream protection” for projects which are already underway be extended from 12 months to 24 months, foregoing up to $220 million in DCC revenue. The Metro Van finance committee doesn’t sound enthusiastic: they’re not considering the benefits for renters.

[Update: Metro Van accepted the deal. Howard Chai, Storeys, March 2025.]

Development charges are a leaky bucket

There’s two key bottlenecks to new housing:

One is excessive red tape, which is easy to understand: it’s very difficult to get approval.
The other is high development charges, which ratchet up the floor on prices and rents. Projects can’t go ahead until prices and rents rise above that level. Even when something is legal to build, it won’t get built when the costs to build it are too high.

When there’s a shortage of new housing, old housing is also expensive, just like when there’s a shortage of new cars, used cars are also expensive.

What this means is that development charges are a leaky bucket. When a local government raises its development charges on new housing, this raises the floor on prices and rents, so the homebuyers and renters in the new housing end up paying more. But it also results in higher prices and rents on existing housing, and the local government doesn’t get any of that money: it goes to private homeowners and landlords.

Metro Van recently approved significant increases in development charges, over three years, starting in January 2025. At a time when we need to make it easier to build new housing, they’re moving in exactly the opposite direction.

Conditional funding as a carrot and stick

One of the recommendations of the cross-partisan Blueprint for More and Better Housing was that the federal government tie all funding for infrastructure, transit, and housing to provincial and municipal adoption of reforms.

The 2024-2025 federal budget includes a $6B Canada Housing Infrastructure Fund, with $1B for municipalities and $5B for the provinces. One of the stated conditions for a province to receive funding is a three-year freeze on development charges as of April 2024.

Metro Van has been asking the federal government for funding to plan a new sewage treatment plant at Iona. The federal government is offering $250M from the Canada Housing Infrastructure Fund. The staff memo describes the counteroffer that staff came up with, instead of a three-year freeze:

On a case by-case basis, the federal government may take into consideration alternative measures adopted to reduce the cost of construction of new homes and encourage developers to build more homes. Metro Vancouver has proposed lengthening the in-stream protection period for the DCC program from 12 months (currently permitted provincially) to 18 or 24 months, subject to Board approval, to fulfil the requirements of this program and make eligible both Metro Vancouver and its member municipalities for funding.
The federal government has not yet provided a response determining Metro Vancouver’s eligibility.
If implemented, the estimated foregone DCC revenue could range from $70 million to $220 million, which is based on Regional Planning’s dwelling unit projections and Metro Vancouver’s DCC rates as per the 3 year phase-in.

(Another example of in-stream protection for projects that are underway: BC’s delaying implementation of building code changes.)

Watching the video from the finance committee meeting (starting around 1:21:00), they don’t sound very enthusiastic about giving up $220M in revenue in exchange for $250M from the federal government, because they’re only looking at the impact on Metro Van’s revenue.

Basically, they’re asking, where’s the benefit for property owners (including investors) who pay property tax?

They’re not considering the benefit for renters of delaying the planned DCC increases, allowing more projects to go ahead.

I’m also curious whether the staff projections of DCC revenue are assuming that no projects will be halted because of the DCC increases, as shown in the shaded area in the above diagram.

In short:

Development charges are a leaky bucket. They result in higher prices and rents on existing housing, and the local government doesn’t get any of that revenue.
The reason local governments can’t give them up is that they need the money.
In this case, the federal government is offering to replace the money. Metro Van should take the offer.

Metro Vancouver plans DCC increases, October 2023
Metro Vancouver approves DCC increases, October 2023
Two requests to Metro Vancouver Regional District. A presentation I did to the Metro Van board in November 2023.
Municipal finance ideas. If ratcheting up prices and rents is a terrible idea, where else are local governments supposed to get the money?
Metro Vancouver budget workshop. Proposed Metro Van increase on property owners: $90/year. On renters trying to find a place: $600/year.
Video from a special meeting between people from the development industry (led by Beau Jarvis of Wesgroup) and Metro Van mayors, October 2024. They’re already struggling to make projects work, and the planned DCC increases will push more projects underwater. UDI letter.
Taxing land lift is an unreliable source of revenue. A second presentation I did to the Metro Van board, in October 2024.
Mike Moffatt observes in today’s Missing Middle Initiative post that municipal revenue projections typically don’t take price elasticity into account: Most Municipalities Don’t Understand that Coke Doesn’t Make More Profit by Charging $1000 a Can. He quotes Steven Del Duca, mayor of Vaughan, explaining why they’re cutting development charges: “I would much rather that we get half of something than 100 percent of nothing.”
Stephen Gordon on tax and investment, from August 2009. Building new housing is a form of investment, and with Trump’s trade war, we need more investment.