REMOVING UNCERTAINTY FROM COMMUNITY AMENITY CONTRIBUTIONS (2023)

Issue

Community amenity contributions (CACs) are becoming a feature of development in many parts of British Columbia. Municipalities negotiate CACs from those seeking a change in zoning, in order to capture some of the boost in land values that results from a change in use or an increase in density. This practice has grown immensely in recent years and seems poised to continue. Additionally, the amount of CACs taken by the municipal sector can be high. In summary, the CACs system remains fragmented and unstandardized across the province, which puts transparency and predictability at risk.

Background

CACs can cause a number of issues:

• Impacts affordability by significantly increasing costs and reducing the land available for sale;
• Creates barriers to entry for small builders who don’t have the capacity to amortize these costs and manage the process, and in doing so, reduce the diversity of development projects;
• Causes proliferation of red tape, as every municipality takes a unique approach to CACs;
• Many local governments rely on negotiations to obtain CACs which are inherently not transparent, fair or predictable for builders;
• Hinders an industry which provides significant employment and leads to more efficient use of land, thus an increased tax base;
• Not a reliable or consistent revenue source for local governments as it relies on the state of an ever-changing market and,
• At times CACs are even applied to rental properties and commercial projects, further impacting the ability to deliver new job space and affordable housing.

Both affordability and economic development are impacted by CACs. In terms of affordability, the Province notes that when large CACs are extracted, builders are forced to lower their bids for land. Many land vendors will not accept lower prices and will effectively remove their land from the market. This shrinks the supply of available developable land and the number of units that can be built, which is particularly worrisome in a province that already has the most unaffordable housing in Canada.[1]

There is also concern about the economic impacts of affordability as attracting and retaining workers is an important determinant of future growth and prosperity for our region. Housing affordability remains one of Greater Vancouver’s most pressing challenges, with the median household price being 12.6 times higher than gross yearly household income; a ratio above 5 is considered unaffordable.[2] A recent survey of businesses in Greater Vancouver found one-in-three (36 per cent) have considered relocating away from the region due to affordability concerns.[3] CACs can delay the construction of new projects and jobs. MNP Consulting, in 2016, outlined the economic impacts that the development industry has in B.C.[4] Table 1-1 summarizes the economic impacts as a whole.

Table 1-1: B.C. Property Development Industry - Total Economic Impacts (2016)

Because this tax is paid by a very small constituency, it is effectively hidden from the public and has mostly indirect effects, the risk of exploitation is high and the need for careful implementation is clear.

Why CACs

Distinct from Development Costs Charges (DCCs), CACs are attached to re-zoning applications. Local governments negotiate CACs from those seeking a change in zoning to help fund a range of amenities or facilities that are excluded from consideration in DCCs, including new parks, community facilities, public art, affordable housing, daycare, etc. CACs mean these are paid for by development, not by the tax base. They are, in many cases, explicitly a way for the municipality to extract some or all of the value created by up-zoning of property.

DCC by-laws must be approved by the Province and are allowed only to cover specific costs, namely, water, sewer, drainage and roads and park land. There is a detailed provincial Development Cost Charge Best Practices Guide[5] for municipalities and the industry that is over 100 pages.

CACs arise through municipal discretionary powers in re-zonings. Councils have the right to review the impacts of projects when assessing them and what builders offer to mitigate those impacts. This discretionary power has evolved into CACs. There is no specific legislation dictating CAC implementation. The Province has only created a short best practices guide for CACs that is neither detailed nor enforced, resulting in a variety of municipal approaches and policies. They are set on a fixed rate, or negotiated individually.

Calculating CACs

The methodology for establishing CACs varies. The development industry supports needs based assessment:

• The impacts of growth are identified;
• The community infrastructure (beyond DCCs) needed to mitigate those impacts is determined;
• The costs of this community infrastructure is estimated; and
• Costs per unit, or per square foot for builders is established.

More problematic are revenue-based approaches: “land value increase” and “land lift”. The land value increase approach is determined by the per square foot value of land in an area and the project is charged a percentage (e.g. 35%, 50%, 65%, 75%, or 100%) of that value for the additional density allowed. The land lift approach uses the increase in land value from a re-zoning. Again, the municipality takes a percentage of the increase in value. The land lift calculation is particularly difficult to assess and negotiate, as builder pro formas can be several pages long with dozens of line items, each one debatable in terms of its value. In many instances, the builder and/or the land vendor is not allowed any share of the benefits of a re-zoning. Neither approach links development impacts with the fees charged.

Negotiated CACs vs. Target CACs

CACs that have targeted rates are preferred for their transparency and timeliness. Additionally, builders are better informed about the significant costs when purchasing land. Whereas the negotiated approaches can be significantly problematic because of the unpredictability of the process as well as the risk, time, and cost they add to a project. It has been reported that some projects have taken multiple years of negotiations with municipal staff to determine the suitable zoning and on/offsite amenity contributions. Negotiations for small projects have also been difficult due to lengthy negotiations with municipalities on CACs. This is exacerbated because there currently is no dispute resolution process in place for any municipality for addressing protracted and stalled negotiation processes.

The negotiations are often highly subjective and inconsistent on a square footage basis. In some municipalities, a comparison of major projects has resulted in negotiated CAC’s ranging from $6 to $38 per square foot, without reasonable explanation for the differences. Due to the opaque nature of negotiations, public trust in the development review process can be undermined and eroded – fostering NIMBY reactions to projects.

Additionally, due to a lack of standards, there have been municipal council decisions on CACs that are not necessarily in the best interest of the community and its amenity needs.

Province’s Guide on CACs

In March 2014, the Province released a high-level guideline called Community Amenity Contributions: Balancing Community Planning, Public Benefits and Housing Affordability.[6] It addresses the legality of CACs and their impacts on housing affordability. The guide also includes recommended best practices.

The Province is concerned about the legality of some municipal CAC approaches, as there is no clear legislated authority to charge CACs. In addition, section 931 of the Local Government Act “includes a number of restrictions on fees, charges and taxes that can be imposed on development applications. One provision of particular importance to rezoning applications is subsection (6).”[7]

“(6) A local government, the City of Vancouver or an approving officer must not
(a) impose a fee, charge or tax, or
(b) require a work or service be provided unless authorized by this Act, by another Act or by a bylaw made under the authority of this Act or another Act.”[8]

The guide recommends that local governments pre-zone areas with density bonusing. Under Section 904 of the Local Government Act, municipalities are allowed to do this to fund growth related amenities. With density bonusing, zoning bylaws are written to allow “… a developer to build either to the “base” density or to a higher level of density, if they provide certain amenities or affordable housing, or meet other specified conditions.”[9] Some local governments are wary of using this power because it limits the flexibility they enjoy through the rezoning process.

The Province’s Guide directs local governments to ensure that their density bonusing and CAC policies:

• Are a planning tool, not a revenue tool, and that CACs be modest;
• Follow the principles of the Development Cost Charge approach, in which growth impacts, and amenities/capital infrastructure to mitigate those impacts are determined and cost out, so clearer financial targets for projects can be determined; and
• Not base CACs on ‘land lift’.

The development industry and business groups generally support the targeted density bonusing/CAC approach in the Province’s Guide. Nevertheless, there is no assurance that the guide will be followed, or little assurance regarding how the Province will monitor if local governments are following the guide[10].

All of the above point to the need for a complete overhaul of the CAC rules and the need for provincial government intervention to create a province-wide development contribution system with certainty, predictability, and transparency.

THE CHAMBER RECOMMENDS:

That the Provincial Government:

1. Develop with stakeholders a detailed Best Practices Guide for CACs and density bonusing similar to the Provincial Development Cost Charge Best Practices Guide that would support the below legislative framework;
2. Introduce a robust ongoing monitoring program to ensure that the above best practices guide and the Community Amenity Contributions: Balancing Community Planning, Public Benefits and Housing Affordability Guide are being followed; and report its findings every year;
3. To the extent that non-compliance is identified, create – in consultation with stakeholders – legislation on CACs and similar mechanisms that ensure;
   • compliance with the Guide in implementation including transparency and mechanism will be adhered to;
   • minimal effect on affordability/viability for all redevelopment sites;
   • provincial laws are complied with (as with Development Cost Charges); and
4. Work with municipalities and stakeholders to determine an effective third-party escalation mechanism to help ensure timely decisions pertaining to the negotiated CACs process are made.