After increase, Vancouver property tax rate still lowest in North America: economist

Even with an imminent increase to Vancouver property taxes, an economist says the city still has the lowest rate in all of North America — and the out-of-pocket cost to the average homeowner will be significantly less than the average rent increase in 2022.

On Tuesday, city council approved a 6.35 per cent property tax increase instead of the 5 per cent jump council asked staff to budget for. More spending on police and firefighters, and the introduction of a new “climate levy” were key to factors driving up the rate. The $1.747 billion dollar budget passed by a vote of 6 – 5. While the mayor described the increase as modest and necessary, councillors who voted against it decried it as a broken promise and an added burden on already struggling constituents.

RELATED: City of Vancouver budget brings 6.35% property tax hike

Alex Hemingway, a senior economist with the Canadian Centre for Policy Alternatives, says the owner of an average-priced home will be paying about $100 more next year.

“It’s worth putting that in the context of what’s happened to property values in the city. So you might see over the course of the past year a property value increase of say, $100,000 for a typical property,” he explains.

“So, there’s a big wealth gain happening and a very modest property tax increase happening at the same time. When you’re a property owner enjoy the benefit of a $100,000 increase in your property value. Overall financially, you’re doing extremely well even if you may well be feeling squeezed from a cash flow perspective.”

Your periodic reminder Vancouver’s ultra-low property tax rates deepen inequality and encourage housing speculation.

In effect, we’ve designed our property tax system to pretend that hundreds of billions of dollars in ballooning land wealth doesn’t exist. https://t.co/26K1q6wxFA

— Alex Hemingway (@1alexhemingway) November 30, 2021

The province’s pandemic-related rent freeze will expire in 2022, allowing for a 1.5 per cent maximum increase next year. Hemingway says this means the average renter, who pays $2,000 a month, would be paying $360 more for housing next year. Renters make up just over 50 per cent of Vancouver households.

“Of course, there’s another big difference there, which is, not only are they going to be paying more out of pocket than the property tax increase, they’re not benefiting from the large wealth increases that are taking place as a result of rising property values and housing prices,” he says.

Not only does Vancouver have the lowest rate on the continent, but Hemingway also says it’s been dropping for the last 20 years and is now half of what it was in the year 2000.

“There’s a massive potential source of revenue if we even just applied the rates of property tax that existed in our recent past,” he says.

Furthermore, he says the low tax rates make Vancouver more attractive to speculative investment, which is one factor that drives up home prices.

‘We have a broken housing market and a property tax system that isn’t helping’

The low rate is something Hemingway says could be reconsidered as one part of any plan to solve the housing crisis, and address ever-deepening economic inequality. He says while more housing needs to be built, and other policy changes and investments from all levels of government are necessary — it is one piece of the puzzle.

“I would argue that from the perspective of having a more equal city, we should actually be considering raising property taxes further, because when you look at the distribution of property wealth in this province, and in this city, it’s actually highly concentrated. So, when we have these big spikes in property wealth, and we don’t tax them — that’s actually creating an explosion of inequality in the city,” he says.

“I think, at the end of the day, we have to find a way of recognizing this explosion of housing prices and property wealth in the city and finding a way of sharing that wealth to help resolve our housing crisis. There’s really no way out of it at this point. Otherwise, we’re creating an incredibly divided society of haves and have nots. We have a broken housing market and a property tax system that isn’t helping.”

RELATED: Vancouver homeowners pay among lowest property tax rates, economist argues, amid rate hike proposal

While the prospect of raising taxes is a politically unpopular one, Hemingway says there are some ways to make it more palatable. A progressive tax where more expensive properties are taxed at higher rates is one option. Another is taxing the land itself, which increases in value regardless of the actions of the property owner, and is something that “can’t be created or destroyed.” There is already a system in place, he notes, for households to defer property taxes until their home is sold.

“If you’re over 55, you can do that if you’re a family with children, you can do that. From the perspective of those who are gaining from big land value increases, but are having cashflow issues. That’s one of the options available to them. And that’s something that we could expand.”