We shouldn’t tax buildings in a housing crisis

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      Written with Andrew Rose

      In their current form, our property taxes discourage much-needed new housing—while doing little to deter those who are actively hoarding land and homes. We need an overhaul if we’re serious about housing affordability, and luckily, we don’t have to look far for the answer.

      Currently, our property taxes are charged by rates applied at the municipal level, on values assessed by BC Assessment. These include two components: the market value of the land itself, and the market value of any buildings constructed on the land. The sum of both is the total value on which municipal taxes are calculated.

      BC Assessment currently evaluates the value of land based on nine different property classes, which are based on the individual property’s type or use. Though municipal zoning doesn’t directly determine the property class, it is a factor—meaning that the full potential of the land isn’t always reflected fully in the land value assessment.

      As such, the property tax is actually two different taxes stapled together: a land tax and a buildings tax. Currently, property taxes don’t distinguish the difference between the two. But they should. We have limited land, which we cannot control, but we also have a severe housing shortage—and this is something we can actively address.

      When it comes to new housing, property taxes are applied and payable yearly. This includes non-market, or non-profit housing, which often already struggles to create affordable rents. During construction, taxes are applied on the land and any interim progress of the building construction. On rental housing, the housing operator—including non-profits—must pay the yearly property taxes on all of the homes. In all of these scenarios, the taxes become additional costs to the residents. With our current risky and long housing approvals process, property taxes can often add up to millions by the time a project is finished.

      The federal government recently announced an initiative to waive the GST on all rental buildings. This is good news: on some projects, it will result in millions of cost savings that can lead to lower rents, or be used towards escalating construction costs. For other sites, the removal of the GST means that rental housing will now be feasible.

      The GST, like the buildings tax and many others, is a tax on beneficial economic activity. When and where it is removed, wealth production—such as housing construction—accelerates.

      Of course, we need tax money to fund our public services, making the GST and the buildings tax seem like necessary evils. But there is actually a superior alternative: the land value tax.

      The land value tax (LVT) is known by economists as the “perfect tax” because it doesn’t discourage goods production. The amount of land is fixed; it has been the same since before humans existed. This, of course, is the difference separating land from human-created goods and services. So if you increase taxes on, for example, bicycles, the production of bicycles will likely decrease. But if you increase taxes on land, there will be no decrease in land production, because the amount of land cannot change.

      Instead of discouraging production of goods, LVT has positive effects. When holding land becomes a large expense, it becomes less attractive to speculators. Instead, to afford the LVT, many landholders would need to put their land to very good use—for example, by building or maintaining a large amount of housing. And with that, the inequality between those who own land and those who do not would narrow.

      Canada has flirted with this overhaul before, as documented in an American Journal of Economics and Sociology report titled “Land Value Taxation in Vancouver: Rent-Seeking and the Tax Revolt” by historian Christopher England. He wrote: “By 1914, approximately two-thirds of cities in British Columbia, all of Alberta, and one-fourth in Saskatchewan taxed land alone.” Mayor L.D. Taylor, who in 1910 established Vancouver’s now-defunct LVT, “noted that Seattle had a landmass five times larger than Vancouver and had a bigger population. Yet, since the implementation of the single tax, Vancouver had twice the volume in building permits as measured in dollar amounts.”

      According to England, the change was also lauded by Alderman Joseph Clark of Edmonton: “The triumph of our land tax in Edmonton is shown by the fact that in 1906 we had building permits to the value of $1,563,000, while in 1912—the first year all taxes other than land taxes were taken off—they were $15,000,000.”

      In short, a wealth of both economic theory and historical evidence shows us a clear path for how to fix our housing crisis: stop taxing buildings and tax land instead.

      Helen Lui works in development. Andrew Rose is a local housing advocate.