Why are Vancouver's property taxes so low?
"Growth pays for growth" vs. "there's no such thing as a free lunch"
I always hear a lot of complaining around property taxes going up, but it seems we have a very low rate compared to other major cities. Can someone explain why?
Vancouver extracts a lot of revenue through charges on new housing, allowing it to keep property taxes low.
As the MacPhail Report points out, that means that Vancouver's incentives are backwards. Vancouver maximizes its revenue by following the OPEC strategy of selling permission to build housing in limited quantities, at high prices.
People call this "growth pays for growth." But there's no such thing as a free lunch. Someone always pays. "Growth" is a concept, not a person: who is the "growth" that "pays for growth"?
There's two answers:
(1) Development charges reduce the windfall for landowners who sell for redevelopment ("land lift"). But once that's gone (too many bites out of the apple):
(2) New housing doesn't get built until prices and rents rise further. In other words, renters and first-time homebuyers end up paying. This is true whether you're talking about new housing or existing housing, because they compete with each other: when new housing is expensive, existing housing will also be expensive.
Of course (1) is easiest to go after, so municipalities like Vancouver have already taken everything that's on the table. Renters and first-time homebuyers end up paying, via (2).
In short, younger people pay high housing costs so that older homeowners and investors pay low property taxes. This also increases the attractiveness of Vancouver real estate as an investment, since it keeps carrying costs low.
Something people say is that "if a project gets an exemption from high development charges, that doesn't result in lower prices or rents, it just means that the project gets a windfall profit. Therefore high development charges don't matter." This is an example of the “fallacy of composition”: raising charges for one project has an entirely different impact from raising charges for all projects. A project which has unusually high costs compared to its competitors can't pass them on, but a project which has similar costs to its competitors can and will pass them on.
There's two bottlenecks to building more housing in Vancouver, so that it's not so maddeningly scarce and expensive. The more obvious one is the approval bottleneck: it's illegal to build multifamily housing almost everywhere. The less obvious one is the cost bottleneck: it doesn't make sense to build something unless the value of the new building, minus all the costs of building it (including development charges), is significantly greater than the value of the existing building.
A specific fight: the Metro Vancouver Regional board voted to raise development charges on new housing, starting in January 2025.
A big step in last fall's provincial legislation: instead of Community Amenity Contributions (CACs), which have to be negotiated through a slow and non-transparent process (with the city aiming to maximize its revenue), municipalities will be required to have fixed up-front fees (called Amenity Contribution Charges or ACCs). So that'll be faster and more transparent. If municipalities then fail to meet their housing targets, the province can push them to lower their fees.
This is a real political 'tar baby'. Like the old story of the guy who looked for his lost car keys under the light instead of where he'd actually lost them, so too people get fixated on property taxes because the municipal govt tends to itemize them in ways that all other costs aren't. I don't know how many arguments I've seen on line where someone complained bitterly about how taxes are sending him to the poor house only to find out that they were paying enormous amounts in mortgage interest, or heating, or driving, or something else. It's like a cost coming from the private sector is a force of nature like rain or snow, whereas taxes are the only part of the economy that humanity has any control over.
What’s missed entirely is the fact that home values in Vancouver are 2x - 5x of homes elsewhere in the country so on that basis of course the rate is going to be much lower but gross $ on each property is still close to the same. I wonder when the rates are from too because we pay more than the rate in the table.