HomeMy WebLinkAboutAppendix F Provincial CAC Guide March 2014
March 2014
The Short Guide - Community Amenity
Contributions: Balancing Community
Planning, Public Benefits and Housing
Affordability
Ministry of Community, Sport and Cultural Development
The Short Guide - Community Amenity i Ministry of Community, Sport
Contributions: Balancing Community Planning, and Cultural Development
Public Benefits and Housing Affordability
Acknowledgements
This guide was drafted in consultation with numerous local governments, the development and building
sectors, and the legal and academic communities. The Ministry would like to thank everyone who
contributed to the development of this guide.
Ministry of Community, Sport and Cultural Development
Contact the Ministry of Community, Sport and Cultural Development for answers to questions about the
material contained in this guide or other aspects of community amenity contributions.
Ministry of Community, Sport and Cultural Development
Local Government Division
Intergovernmental Relations and Planning
PO Box 9841 Stn. Prov. Govt.
Victoria, B.C. V8W 9T2
Phone: 250 387-4037
Website: www.cscd.gov.bc.ca/lgd/contacts/department.htm
Disclaimer
The information contained in this guide is provided as general reference and, while all attempts have
been made to ensure the accuracy of the material, the guide is not a substitute for provincial legislation
and it does not constitute legal advice.
The Short Guide - Community Amenity ii Ministry of Community, Sport
Contributions: Balancing Community Planning, and Cultural Development
Public Benefits and Housing Affordability
Community Amenity Contributions: Balancing Community Planning,
Public Benefits and Housing Affordability
Table of Contents
Purpose of the Short Guide to Community Amenity Contributions 1
CACs Are Both an Opportunity and a Risk 1
CACs Can Impact Housing Affordability 1
Exhibit 1: Impact of CACs on the price developers can pay for the land 2
Exhibit 2: A simplified comparison - impact of CACs on housing prices 2
Summary of Recommended Practices for CACs 3
The Short Guide – Community Amenity 1 Ministry of Community, Sport
Contributions: Balancing Community Planning, and Cultural Development
Public Benefits and Housing Affordability
Purpose of the Short Guide to Community Amenity Contributions
When a local government rezones land, it usually increases the land’s value which provides a
financial benefit to the applicant, usually the owner or a developer. Increasingly, local
governments are seeking to capture part of that financial benefit in order to help fund new
infrastructure or provide other public benefits. While rezoning land presents an opportunity to
obtain these “community amenity contributions” (CACs), there are also some important legal and
public policy risks that need to be considered.
To help local governments appreciate the opportunities and risks of obtaining CACs, the Ministry of
Community, Sport and Cultural Development has produced a guide, “Community Amenity
Contributions: Balancing Community Planning, Public Benefits and Housing Affordability”. The
purpose of this Short Guide is to provide the highlights of the full length guide. Those interested in
more detailed information should view the full length document available on the Ministry’s
website: http://www.cscd.gov.bc.ca/lgd/intergov_relations/library/CAC_Guide_Full.pdf
CACs Are Both an Opportunity and a Risk
Growth creates demands for new or expanded infrastructure and amenities. The cost of meeting
these demands can be substantial. While provincial legislation allows local governments to require
developers to provide infrastructure, such as roads, parks, water, drainage and sewer facilities, not
all impacts of development are fully covered by the legislation. Local governments wanting to
recover the full costs of providing infrastructure and community amenities associated with growth,
such as recreation facilities or fire halls, are increasingly looking for alternative means of funding,
including CACs secured during the rezoning process.
Before deciding if and how to pursue CACs, however, local governments need to ensure that these
CACs are obtained legally, fairly and in a way that maintains public confidence in the local
government and its community plan.
Local governments do not have legal authority to require applicants for rezoning to pay CACs. They
must ensure that any CACs are obtained as part of a negotiation process. Local governments must
also not commit to pass a rezoning bylaw on the condition that CACs are provided. Council and
regional board members are legally required to remain open-minded on a proposed rezoning, until
they have heard the public’s perspectives at the public hearing.
It is important to keep in mind that zoning is intended to implement the community plan and
should not be seen as a revenue source. Being perceived to be “selling zoning” can undermine
public confidence in the community plan and the council/regional board’s commitment to the plan.
CACs Can Impact Housing Affordability
Another important consideration is the relationship between CACs and housing affordability. If not
managed carefully, CACs have the potential to decrease the supply of new housing and increase
housing prices. In a nutshell, a housing developer faced with significant CACs cannot simply
increase the selling price of the units, as the selling price is set by the market.
The Short Guide - Community Amenity 2 Ministry of Community, Sport
Contributions: Balancing Community Planning, and Cultural Development
Public Benefits and Housing Affordability
Labour, materials and other construction costs are also fixed. Choosing to reduce their return on
investment to absorb these additional costs is also not usually an option. To secure financing, a
developer needs to ensure that their pro forma shows a normal financial return. As illustrated in
Exhibit 1, the only practical option for the developer is to try and offset the cost of CACs by
reducing the amount they offer to land owners to buy the site.
Market price = construction costs + return on investment + costs of land + CACs
Exhibit 1: Impact of CACs on the price developers can pay for the land
In land markets where supply is limited, as in many of B.C.’s growing communities, large CACs leave
fewer dollars for developers to purchase land. If land owners are reluctant to sell for a reduced
price, developers do not proceed to develop, resulting in a reduction in the supply of new housing,
which in turn contributes to higher housing prices (as illustrated below in Exhibit 2).
Exhibit 2: A simplified comparison - impact of CACs on housing prices
Without CACs:
With
substantial
CACs: +
The above diagrams show that while CACs cannot directly increase the price of housing for a
particular development, if they are widely used, CACs can push up prices in the overall market.
To ensure that housing affordability is not being compromised, local governments need to ensure
that CACs are kept at a modest level. A policy of trying to maximize the amount of CACs risks
driving up housing prices.
Selling price
is fixed by
the market
Costs of
materials, labour
etc. are fixed
Return on investment
to secure financing
Without CACs, the
remaining $ goes to
buying the land
Added cost of CACs
reduces price
developers bid for land
Initial market
price for land
Developer buys
and builds
Developer
bids for land
Housing supply
meets demand
Market prices
remain stable
CACs
Developer
LOWERS bid
for land
Initial market
price for land
Reduces land
owner incentive/
willingness to sell
Housing supply
does NOT meet
demand
Market prices
INCREASE
Fewer units built
The Short Guide - Community Amenity 3 Ministry of Community, Sport
Contributions: Balancing Community Planning, and Cultural Development
Public Benefits and Housing Affordability
Summary of Recommended Practices for CACs
The following outlines recommended practices for local governments currently, or considering,
using, CACs:
1. Avoid Legal Risk and Maintain Public Confidence
Negotiate, do not impose CACs. A common misperception is that local governments have
authority to impose CACs as a condition of rezoning. In fact, the Local Government Act [s.
931(6)] prohibits this. CACs must be negotiated.
Avoid the perception that zoning is for sale. Elected officials must remain “open-minded”
during the rezoning process, and must not commit to approving a rezoning subject to
CACs. Zoning should not be considered a revenue stream. The perception of “selling
zoning” undermines public confidence in the local government and the community plan.
2. Plan Ahead
Identify potential amenities that could be partly funded through CACs when preparing or
updating the community plan, ideally identifying the priorities at the neighbourhood level.
3. Seek Modest Contributions and Follow an Approach that Balances Community
Amenities and Housing Affordability
The potential impact of CACs on housing affordability is higher where CACs are a significant
portion of the cost of the development.
Since CACs increase the cost of a project, it is important to consider who ultimately pays
for these additional costs, and how they may affect housing supply and housing prices.
This issue is of particular concern in areas where land is in short supply.
Strategies that facilitate an increase in the supply of housing have a positive effect on
affordability.
The impact of CACs will be different in different areas or circumstances, so a flexible
approach is best.
4. Apply Development Cost Charge (DCC) Principles to CACs
Ensure a direct, demonstrable link (‘nexus’) between CACs and the impacts of new
development.
Ensure CACs are proportional to the impact of the development and consistent with the
CACs made by other applicants/developers.
Be transparent about the amount of CACs and how they will be used.
Borrow the principles and practices that apply to DCCs to develop (tables of/schedules of)
estimated CAC amounts.
CACs should only be used for capital costs. Local governments should be sure that they
have the budget capacity to deal with operational and repair costs over time.
5. Engage the Development Community
Be aware of how CACs could impact projects and their viability, to avoid contributing to
higher housing prices.
The Short Guide - Community Amenity 4 Ministry of Community, Sport
Contributions: Balancing Community Planning, and Cultural Development
Public Benefits and Housing Affordability
6. Choosing an Approach to Obtaining Amenities - It is recommended that local
governments consider the following strategies (in order):
Adopt an “affordability by design” approach to writing zoning bylaws – i.e. zones that
allow for design features that reduce the costs of producing housing units and/or
encourage additional units. Examples include reducing or eliminating setbacks and parking
requirements.
Use density bonus zoning – modest levels of density bonus tied to modest contributions,
encourage new development while minimizing the impact on housing affordability.
Set targets for CACs – and be open to negotiation at time of rezoning. These targets should
be modest to minimize impact on housing affordability.
Negotiating CACs based on a “lift” approach is inconsistent with the principles set out in
this Guide, and is the approach most likely to reduce the supply of developable land and
housing, thereby contributing to higher housing costs. The CAC principles set out in this
Guide, including ‘planning ahead’, nexus and proportionality, support an approach that
clearly identifies community needs and the impacts associated with new development, and
links the CAC not to the “lift” in land value, but rather to the cost of providing a package of
amenities that makes sense given the development being proposed.
This Short Guide has outlined for B.C. local governments some of the risks, challenges and
recommended practices related to obtaining CACs. Most of the recommended principles and
practices apply equally to CAC and density bonus approaches. The guide has also described the
relationship between CACs and housing affordability, and encourages practices that do not risk
inadvertently causing housing prices to increase. Since the impact of CACs will vary, it is suggested
that BC local governments be flexible in their approach to obtaining CACs.
The Short Guide - Community Amenity 5 Ministry of Community, Sport
Contributions: Balancing Community Planning, and Cultural Development
Public Benefits and Housing Affordability
Ministry of Community, Sport and Cultural Development