A City of Vancouver report going to Council next week seeks approval for the annual inflationary rate adjustment to DCL’s and CAC’s.

The target DCL and CAC rates are adjusted annually to keep pace with changes in property values and construction costs.

The proposed adjustment for 2021 is a decrease of 0.8%; the first decrease since the annual inflationary index was developed by the City in 2011.

Here are the new proposed rates:

The new target rates will become effective September 2020.

The report also recommends proceeding with the final phase-in of the Vancouver Utilities DCL rate for high-density residential development on
the east side that was approved by Council in July 2018, and the adjustments of the Little Mountain and Southeast False Creek CAC Targets that were approved by Council with the updated CAC Policy in January 2020.

The new target rates for these areas are as follows:

Little Mountain Adjacent: The Little Mountain Adjacent CAC Target will be increased from its current level of $29.88 per sq.ft. to $47.00 per sq.ft.
Southeast False Creek: The CAC Target in Southeast False Creek (SEFC) will be increased from its current level of $16.78 per sq.ft. to $67.00 per sq.ft.

The City of Vancouver is seeking approval for their annual inflationary adjustment to DCL (Development Cost Levy) rates and CAC targets.

The inflationary rate adjustment to DCLs and CAC targets are an annual process that allows the City to keep pace with annual changes in property values and construction costs.  

The proposed 2019 inflationary rate adjustment represents an increase of 5.2%, reflecting increases in the cost of land and non-residential construction costs. A core principle behind the annual inflationary rate adjustment system is that it should be able to adapt to market changes. As a result of a weakening residential market, it is recommended that this year’s inflationary rate adjustment be applied only to non-residential rate categories, maintaining existing rates for residential uses. The one exception is the phase-in of the Vancouver Utilities DCL rate for high-density residential development on the east side.

The annual inflation index since 2010 is outlined in the table below:

The 2019 rate adjustments are outlined in the following tables from the City Staff report:

The staff report outlines the following economic rationale for the inflationary rates for both residential and commercial:

Residential Market

• According to City of Vancouver data, the value of year-to-date building permits
  issued (as of March 2019) has declined by 24.1% from last year’s value;
• According to CMHC, year-to-date new housing starts in the City (as of May 2019)
  have increased by 3.8% compared to 2018;
• According to CMHC, year-to-date new housing absorptions in the City (as of May 2019) have declined 20% compared to 2018;
• UDI’s State of the Market report for Q1 2019 also showed that sales across new
  concrete condominiums, wood frame condominiums, and townhouses have
  declined to some of the lowest levels observed in Vancouver since Q1 2013 and that inventories of unsold units are trending upward;
• UDI’s State of the Market report for Q4 2018 indicated that new tax measures and stricter mortgage lending policies have contributed to uncertainty and pessimism in the Metro Vancouver market from real estate investors;
• According to data from the Real Estate Board of Greater Vancouver (April 2019),
  resale home prices have declined year-over-year for all housing types in all locations of the region. In Vancouver, year-over-year resale prices are down between 9% and 14% depending on the location and type of housing.
  .
  Non-Residential Market
  • Colliers, Cushman & Wakefield, and CBRE indicate strong demand for office space with vacancy rates reported as low as 2.0% in Downtown Vancouver along with high amounts of office floor area absorption and increased average asking rents. There is also a large amount of supply anticipated for completion in the early 2020s with large multinational tech firms opening new offices in Vancouver.
  • Colliers, Cushman & Wakefield, and CBRE also report increased demand for industrial floor space with vacancy rates reported as low as 1.9% in Vancouver. New supply is being constructed featuring a mix of ground floor production space and office on upper levels.

Target allocations of DCL revenues are estimated as follows:

• Replacement housing – 36%
• Transportation – 25%
• Parks – 18%
• Childcare – 13%
• Utilities (Upgrades for Affordable Housing) – 8%

A full copy of the 2019 Annual Inflationary Rate Adjustment to Development Contributions and Associated DCL Amendments can be viewed here: http://council.vancouver.ca/20170725/documents/p8.pdf

Next week, City of Vancouver Council will consider a report from the Engineering and Planning Departments seeking to approve a new City-wide utilities development cost levy (DCL) and a long term capital projects program for upgrades. The report also confirms the Utilities Servicing Plan for the Cambie Corridor Phase 3 area and the CAC target rates for the Cambie Corridor and Marpole areas.

Here is a summary of these new recommendations.

New Utilities DCL

The need for infrastructure upgrades was highlighted during the latter stages of the Cambie Phase 3 planning in which significant new density was introduced in the Oakridge Transit Centre area in plans laid out in 2017. A reassessment of the future demand on sewer, drainage and water service capacity has led to this city-wide strategy. The City is now looking at increasing DCL rates to help finance the servicing requirements across multiple developments rather than piggybacking off of the initial developments in certain areas.

The recommended new DCL framework for financing water, sewer and drainage utilities
upgrades includes a long-term capital program of approximately $1 Billion and the introduction of a dedicated City-wide Utilities DCL to cover approximately $547 Million of that cost (benefit to new development) through DCL’s by 2026.

Currently, utilities are embedded in the overall City-wide DCL rates, but the utilities component will now be separated in order to “improve transparency and certainty for developers.” 

The report highlights the utilities portion of current DCL and the proposed Utilities DCL to demonstrate the increased rates:

Interestingly, a background study by Coriolis Consulting noted the following (from report):

• New residential development downtown and on the west side of the city could
  accommodate the proposed rate increases.
• New residential development on the east side of the city has less ability to absorb
  the new DCL costs without impacting economic feasibility.
• For new non-residential development, Coriolis found in last year’s DCL report to the City that an increased DCL rate would have a negative impact on sites that are currently viable for redevelopment. For new industrial development, it would be challenging for most projects to support any increase in DCL rates given the
  inherent challenging economics. Similarly, it would also be challenging for most new office development to support an increased DCL rate.
• In all cases where there is a DCL rate increase, it is preferable to phase-in the rate increase so new development can adjust to the increased costs.

The report also recommends that the Utilities DCL be waived for market rental housing (Most rental rezonings are eligible for DCL waiver) on an interim basis until 2020 with a review by staff coming next year.

The new DCL rates will come into effect on September 30, 2018 (rates are protected for in-stream applications for one year from the effective date).

Utilities Servicing Plan for Cambie Corridor & CAC Rates

The City approved the Cambie Corridor Phase 3 Plan at council in May, though the land use plan has remained subject to a pending Utilities Servicing Plan, which intends to lay out the development sequence of sites based upon utilities upgrades.

Highlights of the plan include:

• City-initiated rezoning (“prezoning”) of townhouse areas in Stage 1 in the
  short-term (anticipated for referral and public hearing in summer/fall of 2018)
• Requirement for basic onsite rainwater and groundwater management

Here is a guideline for development in the Cambie Phase 3 area:

Lastly, here are the proposed new CAC target rates for the Cambie Corridor and Marpole Areas:

Cambie Corridor

Marpole

The full report can be viewed here: https://council.vancouver.ca/20180711/documents/cfsc1.pdf