Vancouver's housing market is experiencing significant shifts as rising home prices continue to influence the local economy. Recently, property taxes increased by 7.5 percent, and city officials suggest another seven percent hike is necessary for 2025.
This situation is not unique to Vancouver; many cities across British Columbia are struggling with rising costs and unsatisfactory revenues from development fees and construction charges. For years, increasing real estate prices allowed municipalities to reduce property tax increases by boosting development fees, but as the market cools, those days seem to be ending.
Developers previously profited under boom conditions, enabling cities to charge high fees and landowners to command hefty prices when selling. Nowadays, the flat or falling prices coupled with skyrocketing costs make many development projects financially unviable.
It’s no surprise, then, when several notable projects recently stalled due to challenging market dynamics. These projects were poised to contribute over $89 million to city coffers.
The Metro Vancouver area has raised its development cost charges significantly to $34,133 for average residential lots, and to $20,906 for each apartment unit, escalating from $10,027 and $6,249, respectively. Many are calling this steep increase unmanageable, especially as broader economic conditions have turned less favorable.
To tackle the challenges, some local leaders are proposing to slow down population growth, primarily driven by immigration, to give existing infrastructure the chance to catch up. Yet, this perspective overlooks the urgent need to maintain and replace aging infrastructure, something necessary regardless of population changes.
A detailed assessment shows over 150 kilometers of sewage systems are over 100 years old and deteriorated beyond their expected lifespan. Meanwhile, even areas with slower growth, such as North Shore, grapple with the pressing need for costly wastewater treatment facilities.
The reality is much infrastructure built decades ago is reaching the end of its lifespan, needing replacement irrespective of regional growth. That recognition forces communities to reconsider the regulatory environment surrounding new developments.
Municipal leaders have long maintained strict regulations aiming to discourage growth and penalize private developers, which now appear counterproductive. Port Coquitlam's Mayor Brad West shared his dissatisfaction over the slow recovery of infrastructure projects, highlighting nine months of delays for the rebuilding of a burned-down school.
Lytton, which suffered severe wildfires three years ago, is still since waiting for reconstruction, even after spending $239 million on recovery efforts. Both instances exemplify how bureaucratic hurdles hinder development and infrastructure projects more than growth itself.
Looking to the future, municipalities will need to shift their mindset about funding infrastructure. Solely relying on taxing new development cannot address all existing issues; rising tax burdens on current residents could lead to economic decline as elevated rates suppress activity.
This feedback loop could spiral Metro Vancouver’s tax rates higher over the coming years, creating challenges for residents and local businesses alike. Fortunately, alternatives exist.
Despite these hurdles, Vancouver remains appealing to live, drawing talent from various regions. A significant strategy could be reducing both the tax and regulatory pressure on new development, leading to job creation and economic growth.
When developers thrive, home prices could stabilize and become more affordable, appealing to more residents. Increased population density may help share the infrastructure costs across broader tax bases, relieving some of the financial pressure on the current residents.
Embracing the real estate sector as allies rather than opponents is critical to long-term stability. If development and construction industries receive the proper support from policymakers, the potential for growth remains bright.
Dan Scarrow, president of Lyndan Properties, emphasizes the urgent need for municipalities to reconsider their approach to fostering growth. With appropriate support, Metro Vancouver could see its housing market rejuvenate, benefiting all stakeholders.
