Should we expect higher property taxes on condos?

Todays Sun has an article about the municipal tax system in vancouver and the disproportionate load it puts on business owners. From that article:

Over on Burrard, not far from the bridge, Henry von Tiesenhausen of Commercial Electronics notes that, in a five-year period when the tax on his home increased 16 per cent (and when his company’s sales were flat) his business taxes rose 102 per cent.

“I have to ask the question,” von Tiesenhausen said in a letter to Mayor Sam Sullivan, “is it worthwhile even operating a business in the City of Vancouver?”

A growing number seem to be asking the same thing — and answering in a way no one wants to hear. While commercial growth in the city has long trailed residential, the last two years have seen a disturbing new trend. For the first time, more businesses closed than opened.

In general a condo tower consumes more in services than they pay for, while businesses pay more than the services they consume. With the huge number of condo projects downtown, and businesses shutting down should we expect property taxes to increase greatly to take up the slack, or should we expect the city to adapt its budget to spend less on services?

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scoop
scoop
13 years ago

domus, The taxes that make the best economic sense are often the least popular.GST is a case in point. There's a pretty sound argument that an increase in GST to reduce income taxes would result in increased productivity and investment, but consumers don't like GST because they're reminded of it every day. (By the way, in response to your earlier objection to Warren, basic groceries, prescriptions and bus passes have always been exempt from GST).LVT may also have good economic arguments in its favour, but you can't escape that it amounts to a government confiscation of part of the value of your land (by reducing the benefit of future rents). The landowning majority wouldn't stand for it.

domus aurea
domus aurea
13 years ago

About house and land taxation, there is an interesting refernce in today's London Guardian (UK). Here is an exercpt:"Residential property in Britain jumped by £410bn in value last year. Only about 2% of that gain was taxed by stamp duty or inheritance tax. Would prices have risen so far so fast if land values were taxed more? No.The discussion of land value tax, which has been around since the days of Adam Smith and David Ricardo, is gaining ground again as people reflect on the absurdities of the housing boom.Next week sees the launch of an edited and abridged version of the classic 1879 work by the American economist Henry George, Progress and Poverty*. George is widely seen as the father of land value taxation and his ideas are as relevant today as they were in the aftermath of the… Read more »

domus aurea
domus aurea
13 years ago

Freako:probably right, nobody wants to feel like overpaying for something.The funny thing is that you would not be overpaying in most cases…..As for house taxes: I guess part of the story is about presenting clearly the pros and cons of things to people.If you increase house taxes you should decrease something else: this is very feasible in periods of surplus at the federal level, like now!Any how, it seems that some bear bloggers (maybe VHB himself…??) will end up paying property taxes soon. The world is achanging……but I am still betting on a large downside in prices and I just have a nagging feeling that I am right on this one….

Freako
Freako
13 years ago

On a similar note, want to save the medical system some money. Implement a token fee to use medical services (say $10). Give every household a tax credit for say $100 to cover this token fee. Waive the fee after ten visits.The above really doesn't mean much if people use medical services as much as before, as it will be totally revenue neutral. But I guarantee that visits will be down a fair chunk. If the average household only uses the services 7 times, the government is out of pocket $30. BUT they save $180 for the $60 (or whatever) a pop they would have been charged by the doctors. This is clearly a win-win (unless you happen to be a doctor). But it would never fly despite the fact that nobody is worse off. The $100 credit is soon… Read more »

Freako
Freako
13 years ago

"Why then so much hostility to higher property taxes whenever mentioned in a public forum?"Because, as mentioned, we have no problem kicking people, as long as it is not us. Do an informal survey, and you will find that most believe that "the rich" and corporations should bear the entire tax burden. Since most people are homeowners (or plan to be), they look at it as an inverse Robin Hood. That will never change.

domus aurea
domus aurea
13 years ago

"I am not quite sure I get your previous argument about the rich guy living in a shack: if he gets utility from holding money and not consuming it, it is his own right "Freako said:"And I am not sure if you are agreeing or disagreeing with me."I agree with you. Also I completely agree that consumption taxes would in principle allow more work and savings. Why then so much hostility to higher property taxes whenever mentioned in a public forum?

markx
markx
13 years ago

I agree with freako. Taxes eventually get passed to end users, which is customers and renters. Actually, some of this gets passed to employees, as the pool of jobs in urban centre shrinks, while pool of workers expands due to increased density. This will and have created reverse community, which I can't say if it's a good thing or bad thing.From an efficiency point of view, residential taxes should be increased, and two-tier system eliminated. That little old lady living in a SFH by herself is occupying a resource that can be better used by several working age people. Driving young people to the suburbs simply puts more strain on the infrastructure.To be fair, condos likely consume a lot less resource than SFHs, as the occupants are likely younger, the need for street maintaince per household is less, and they… Read more »

Freako
Freako
13 years ago

I should mention that several European countries have VAT (GST equivalent) of well over 20%. And monstrous income taxes to boot.

Freako
Freako
13 years ago

"Freako: If we went with pure consumption tax wouldn't we just get a situation where people earn here, but most of their consumption happens elsewhere? "Well, yes and no. People would have incentive to travel and shop elsewhere. But even though there is no iron curtain, you are fairly locked into our economy. How many days a year do you want to be away from home. You can't drive down to Blaine every time you need an oil change. As per wikipedia, the GST alone accounted for 17% of Federal Tax revenue and income taxes (presumably including capital gains) 40%. Thus all else the same, a 15-17% GST could replace the lost income tax revenue. That may encourage people to spend a little extra on their vacation, or cross the border for trinkets more often, but it would not drastically… Read more »

Freako
Freako
13 years ago

"I am not quite sure I get your previous argument about the rich guy living in a shack: if he gets utility from holding money and not consuming it, it is his own right "And I am not sure if you are agreeing or disagreeing with me.Just as the public have hang-ups with regards to cost-plus pricing, they also have hang-ups about corporate profits. Every time the big banks have record profits, people holler. That is obviously silly, as a bank is not a person. Bank stock is owner by everything from poor old widows to middleaged autoworkers (mutual funds etc) to billionaire tycoons. The individual obviously gets taxed when he receives dividends and sells shares for a profit. The ONLY reason for taxing corporations is the prevent deferal (and hence benefitting from tax free compounding). Corporate profits have NOTHING… Read more »

Warren
Warren
13 years ago

patriotz:Before I see property taxes jumping though, I'd rather see a GVRD-wide tax systemYou must be joking. Assessments are much higher in Vancouver proper than in the burbs for the same sized property. A GVRD-wide tax rate would hose city property owners.Of course, we do already have GVRD-wide taxes for GVRD services, for which Van proper taxpayers are disproportionately taxed for the reason given above.Let me clarify a little bit. As discussed on this blog in another thread, taxes aren't set by a specific rate, they are set based on the City's budget. They look at the assessments and set a rate that way. This means that the city isn't rolling in money since the massive property increases, and won't be shutting down services if/when there is a market crash.With that in mind, I think a GVRD-wide budget and payment… Read more »

domus aurea
domus aurea
13 years ago

Pope:I very much disagree.Housing taxation is century old and has been adopted in the most liberal countries, where proportional labor income taxes are lower….Just as an example, take Holland: ever wondered why in Amsterdam there are so many houses with really 'tight' fronts? Traditionally they would have to pay taxes according to the 'widt' of the fron of their houses, which led them to build narrow and elongated (to the back) houses. One good thing was that urban development was very efficient space-wise. So, two lessons to learn:1) taxes on housing are effective in altering people's behavior;2) They are a good substitute for income taxes and are popular in countries which are generally far from socialist regimes.

the pope
the pope
13 years ago

What on earth are you talking about?Patriotz: I should have been more clear, I was referring to higher taxation solely on vacant speculative units, though even that I'm thinking doesn't really make sense. It wouldn't be difficult to claim that a unit isn't vacant when it really is, and these people are already very exposed to the market downside. That risk starts to become very clear when we see tv coverage like the CTV news story about prices dropping.I was also forgetting about the homeowner grant, though that hardly makes up for the difference in price between owning and renting in the current market.Freako: If we went with pure consumption tax wouldn't we just get a situation where people earn here, but most of their consumption happens elsewhere?

domus aurea
domus aurea
13 years ago

Freako:assuming that part of the additional housing taxes were carried by the renter, isn't it true that there would be also a change in the cost of ownership? The same argument of the lemonade stand also applies to buy-to-let: now, it is true that in the long-run this would simply mean an adjustment in the supply of housing. But we really seem to live ina succession of short-rruns, rather than a long-run, when it comes to the housing market.Off-equilibrium episodes can last years and can have very serious real consequences….So, I reckon that limiting the viability of using housing as pure investment would be a great achievement of taxation……..I am not quite sure I get your previous argument about the rich guy living in a shack: if he gets utility from holding money and not consuming it, it is his… Read more »

Freako
Freako
13 years ago

"That reduces supply, which increases the supply."I meant increases PRICE of course.

Freako
Freako
13 years ago

"Can a landlord really pass along tax increases to renters? Maybe in a tight rental market like we have right now, but it looks like we'll soon have a lot more vacancies once all these buildings finish. "Consumers have a paranoia about cost plus pricing. For example, when the NHL salary cap went into place, there was a call for lower ticket prices.Obviously rental prices are set by the market, a landlord does not have pricing power. If the market can bear a price increase because of increased landlord expenses, it could bear it without it as well. But it is ultimately passed on because of the impact on supply.Assume that I run a lemonade stand on a hot day. I am not the only one, so I need to price to market which I determine to be $1.50 per… Read more »

Freako
Freako
13 years ago

"in which sense is better to have a system of rebates compared to taxing 2nd and 3rd residences in a heavier way?"Well its not mutually exclusive, but administering a system which determins what is a 1st, 2nd or 3rd residence is no walk in the park.Also, it would have to be done on GVRD and FV wide basis, else you would cause displacement and all kinds of other unintended consequences.Taxes can be collected in many ways, some simple some complex. What would happen, for example, if we dropped income and corporate taxes altogether and put the entire tax base on consumption tax, property tax, sin taxes and user fees. Obviously the ultimate purpose of money is to consume it, so there would be no hiding from the tax man. Yes a person with high income who lives in a shack… Read more »

patiently waiting
patiently waiting
13 years ago

Can a landlord really pass along tax increases to renters? Maybe in a tight rental market like we have right now, but it looks like we'll soon have a lot more vacancies once all these buildings finish.

satv
satv
13 years ago

STEPHEN HARPER————–Is better than some user here.I am not agree with that argument by some user,that investment property should be tax hard.big to small companies or big to small bussiness are standing on the shoulders of Investor's.Investor means to put your money at risk that money you can enjoy easy life,To cut short on our tommy,cut short on child's need for education.and put that for Investment for better future which nobody know's just a dream.Investor put their life on risk always worried about bills then payments paying to bank loans.Working extending hours makes us weak,health on risk lots of people lost their life in investment.If we loose in Investment no body is to cover up we get frozen accounts then courts and police kind of stuff.If we make some profit there is government to share half and half.Stephen Harper's government… Read more »

patriotz
patriotz
13 years ago

Taxing investment property higher than primary residence makes a whole lot of senseWhat on earth are you talking about?This is increasing taxes on renters (who ultimately wind up paying them) to subsidize homeowners. IOW, a reverse Robin Hood.We already have the modest homeowner grant which is in itself unfair to renters. I suppose you want to move up to the level of grand scams like owner-occupier mortgage deductibility and Prop 13 south of the border, which further fleece renters and subsidize owners?The reason Vancouver is losing businesses is simple: commercial RE prices are driven by fundamentals, residential RE prices are not. When sanity returns to the residential RE market the exodus will taper off.If you want to want to stop speculation in residential RE, impose a punitive short-term capital gains tax at either the provincial or federal level. Over to… Read more »

domus aurea
domus aurea
13 years ago

Freako:in which sense is better to have a system of rebates compared to taxing 2nd and 3rd residences in a heavier way?I know I am comparing apples with pears, but I find that taxation systems with little claims and rebates tend to work better…..I might be wrong, but I feel that houses are simple to tax: and they serve a very clear purpose, before being investments. If you want to make money using them you should be free to do so. However you would have to compensate a posrtion of the population for bringing a rather unpleasant side-effect (externality) in many conjunctures of the business cycles.No rebates or consumption taxes needed.If you really need to have 3 houses, you might as well afford to have higher taxes on them……Trust me there is no punitive intention in what i am saying,… Read more »

Freako
Freako
13 years ago

If you increase GST on all goods, it means that a pensioner will have to pay more taxes for fairly necessary goods, like bread, milk, medicines, bus tickets. Regressive is a strong word. IMHO, even a flat tax is progressive in the sense that you pay more tax as your income rises. And in that context, so are consumption taxes. The more you make, the more you spend, the more tax you pay.Anyhow, the regressive (in the traditional sense) are easily rememdied. A tax credit levels the playing field (which is exactly what the GST credit intends to do). If the GST goes to 10%, the typical pensioner who spends $10,000 on GST taxable consumption pays an extra $400. So simply cut them a cheque for that amount and they are no worse off. Taper the credit with rising income,… Read more »

domus aurea
domus aurea
13 years ago

Warren:you make some really good pints, thanks.I think your reasoning is sound, although the consumption taxes can have a general disdvantage: they are extremely regressive.If you increase GST on all goods, it means that a pensioner will have to pay more taxes for fairly necessary goods, like bread, milk, medicines, bus tickets. You cannot do without them. Now, for a poor person these consumption items account for a large share of total expenditure. For a richer guy, they are almost negligible.It is not SUV that we are toalking about, but everyday cost of life.In any case, i see your point about income taxes being distortionary: not much argument about that.However, when it comes to property taxes, I don't see much of a distrsion: you cannot rent more or less. You either do it or don't.I understand that from a landlord… Read more »

Warren
Warren
13 years ago

It seems that housing and consumption taxes are the lesser evil…..I would really enjoy a good debate to hear other people's opinions on thiese issues….I have a few points. As a landlord/property owner of a downtown condo, I pay the "full" property tax value, which is something like 0.6% of the assessed value per year. I don't think an increase is uncalled for, but not too much. The owner occupier reduction as-is is pretty fair.My mortgage is down to almost zero, so the marginal income tax hit is my biggest issue right now, and the capital gains is what makes me want to hold it really long term rather than consider selling.Before I see property taxes jumping though, I'd rather see a GVRD-wide tax system. As a resident and owner in the City of Vancouver, I think we pay for… Read more »

domus aurea
domus aurea
13 years ago

Scoop:cheers! That was really good info, thanks for taking the time to share it.So, it seems that at the local level there is not much progressivity, but this is compensated for at the national level.So, the carrying cost of an investment property in terms of taxes is quite large, if you are right. One more reason to believe that when price rises stop, people can feel the pain. Let's wait and see…..Freako:point well taken about the long-run. I agree with the equilibrium reasoning with adjusting supply. However, the housing market is stop-and-go. Large surges in supply are followed by 'dry'-supply periods. This makes the argument for repeated and prolonged periods in which the externality issue may be relevant. After all, we are not always in long-term equilibrium: we have seen that for the last 4 years things have been quite… Read more »