Updated on November 13, 2016
Municipal fees driving up housing costs? Let’s look at the facts: there’s no evidence of impact
One overdue deliverable from Victoria’s 2016 Throne Speech is a pledge to bring transparency to the impact of municipal feels on housing prices.
Such a move would be good news if it finally put an end to the hollow claim, largely propagated by some developers, that development cost levies and community amenity charges, which are used to provide key utilities and infrastructure such as sidewalks, affordable housing and daycare, actually drive up the cost of housing.
Victoria will “work with municipalities to reduce the hidden costs in home purchases,” said the speech “and to make those hidden costs clear and transparent to the home buyer.”
The Urban Development Institute has been complaining for some time that it would be able to reduce housing costs if municipalities would just cut fees. Really?
The City of Vancouver commissioned an in-depth study of the matter in 2014 and the full report is available here.
Think about it. If the city reduces its fees to manage the development of new housing, will the developer pass this saving along to the home buyer or just pocket the saving as profit? Sorry, I think the developer will charge what the market will bear. Alternatively, the developer will discount the price he is prepared to pay for the land. (Don’t ask how liveable a community would be without these investments.)
The main conclusion of the city’s Coriolis report was that developers would make off with the saving:
“Faced with a CAC, developers cannot just add the cost to their asking prices. Housing prices are set by overall supply and demand in the marketplace, so developers cannot unilaterally increase price on individual projects. Increased costs, including CACs, reduce the amount developers can pay for redevelopment sites.
“Rather than settle for reduced profit or transfer the cost forward to home buyers, developers try to transfer it back to land owners selling their land into the development market. It is the response of land owners to this downward pressure on land price that determines the impact of CACs. If fewer land owners put land into the market (because they don’t see enough incentive to sell), the pace of new development can fall. Slower development in the face of strong demand puts upward pressure on the price of all housing.
The city regularly publishes its development levies, which are used to fund basic services like roads, sidewalks, parks and other infrastructure. Without those expenditures, the developments could not happen.
Community amenity charges are only levied on rezonings. Again, the goal is to capture public benefits that arise from a council decision to increase density. (More on these matters here.)
Even you don’t accept the Coriolis findings, consider this: these charges are imposed only on new housing and play no part in resales. And the probable average cost of fees for a new condominium unit selling for over $300,000 would be about $10,000 — maybe three percent of the total cost, similar to the realtor’s commission.
Transparency? Bring it on.