Vancouver city council has cancelled a planned inflationary hike to the rate of various fees on new residential developments in response to the housing market’s recent downturn.

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In a meeting last month, council eliminated 2019’s planned 5.2% inflationary rate increase for development cost levies (DCLs), community amenity contributions (CACs), and density bonuses (DBs) for new residential projects.

“The weakening market in the residential sector highlights the need to reconsider the timing and implications of applying the 2019 calculated inflationary rate adjustment on new residential development,” reads a staff report.

“A core principle behind the annual inflationary rate adjustment system is that it should be able to adapt to market changes,” the report said. “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 municipal government’s data indicates year-to-date building permits issued as of March 2019 fell by 24.1% compared to the same period in 2018.

Urban Development Institute (UDI) also showed that sales across new concrete condominiums, woodframe condominiums, and townhouses declined in the first quarter of 2019 to the lowest levels seen since early 2013.

The upward trend of unsold inventories is expected to continue for the foreseeable future, with a recent UDI report asserting that “new tax measures and stricter mortgage lending policies have contributed to uncertainty and pessimism in the Metro Vancouver market from real estate investors.”

That being said, the planned annual inflationary rate increase will still go ahead as planned on September 30, for new commercial and industrial developments, given that both property development types continue to experience exceedingly strong demand fundamentals.

City staff cite the low vacancy rates for office space and industrial space – hovering at 2% for each type – as a result of strong absorption by companies looking for space. The construction of new supply has been unable to keep up with demand, and average asking rents have soared.

“Given recent development activity, there is some evidence that an increase on residential rates could deter development while an inflationary increase on non-residential density bonus contributions would still be in line with market conditions,” continues the report.

“Continued strong fundamentals in the non-residential market, including healthy demand for commercial, mixed employment and industrial space along with robust levels of construction activity, support staff’s recommendation to apply the 2019 inflationary rate adjustment across the non-residential market.”

According to a December 2018 budget forecast, the municipal government was projected to see $258 million in revenues in 2019 from DCLs, CACs, and DBs — down from $421 million in 2017 and $885 million in 2018, which was a record year for CACs secured as a result of the approved rezoning of Canadian Metropolitan Properties’ redevelopment of the Plaza of Nations at Northeast False Creek.

2018 also saw a number of high-value downtown rezonings securing CACs over $10 million each, including Bosa Properties’ ‘Jenga tower’ at 1500 West Georgia Street and Landa Global Properties’ New York-inspired condo towers at 1444 Alberni Street.

“The inflationary rate adjustment to density bonus contributions are an annual process that allows the City to keep pace with annual changes in property values and construction costs and helps ensure the continued delivery of necessary growth-related amenities and infrastructure,” adds the report.

Last year, council approved a new citywide utilities DCL that will raise $547 million in revenue by 2026 to fund sewer, water, and drainage infrastructure upgrades to accommodate new developments, especially along the Cambie Corridor.

In 2020, a new regional development cost charge on all types of new development will go into effect as one of the mechanisms to help TransLink raise the needed funding to cover its public transit expansion projects. It was originally expected to raise $29 million annually.

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