Mythbusting – How Land Development Really Works

We often see it in the letters to the editor, or the Beefs and Bouquets: “Developers just take our money and leave town,” or “Developers will just take the profits and give nothing back to our community.” These statements assume that developers of residential and commercial properties face little risk, pay little to the communities in which they develop and make significant profits. The real story, however, does not line up with this version.

The first myth I’d like to bust is that developers leave town, or that they are from out of town in the first place. In my experience, this is simply not the case. When I review a list of developers that our company has worked with over the last 20 years, our largest development clients all live and work in the communities where they build. Furthermore, on top of hiring Wedler as their consultant, they hire local contractors and suppliers and buy land from local owners, thus keeping a lot of their money in their chosen communities.

To develop land in most BC communities, a developer faces a myriad of fees and development cost charges. And if subdividing, they will also have to give a portion of their land to the municipality.

Typically, for a residential subdivision, a developer has to gift the municipality five per cent of the land, or cash equivalent to the market value. Development cost charges are intended to offset the impact of new development on a municipality’s existing infrastructure; this is a charge on top of the requirement for the developer to build the infrastructure directly needed to service their development.

The final issue is risk. Land development is probably one of the highest-risk investments imaginable. Consider that to complete a residential subdivision, you first have to buy the land, pay for the design (including civil, electrical and legal survey consulting), pay the fees and development cost charges and then build the infrastructure required. The whole process, from your decision to buy land to the sale of your first lot, takes between two and six years (and you’re paying the mortgage on the land the whole time). During that time, the housing market could change drastically, and the profit predicted at the beginning of the process could disappear.

Just a few things to keep in mind before writing your next beef.