In a 6-5 vote on April 29, City of Vancouver council decided to ignore city staff’s well-researched recommendations and come up with a bad decision to approve a tax shift of 2% from commercial to residential properties.
The decision is especially harmful given the other moves in progress and the cost of the shift compared with the benefits it provides.
As rental housing providers, landlords are sensitive to the challenges of small businesses because we too are small businesses. Purpose-built rental (PBR) buildings are small businesses, and what many people may not know is that they are classified as residential for property tax purposes and thus directly and negatively impacted by this decision.
What is especially concerning is that this tax shift is completely at cross-purposes with the city’s affordable-housing agenda. It places undue cost pressure on the operation of existing rental stock, thereby further contributing to the affordability and supply challenges across the city.
The unintended consequences of this tax shift are that residential renters will suffer.
In the city of Vancouver, PBR buildings in 2019 on average will face:
•property tax increases of 25%;
•water system cost increases of 9.7%;
•sewer system cost increases of 11%;
•an insurance cost increase of 10%; and
•repair and maintenance expense increases of 15%.
All of this at a time when provincially legislated price controls, something commercial landlords do not have to endure, have become far more restrictive with the maximum annual allowable increase reduced by 2% to consumer price index only. How can anyone, or why would anyone, want to continue to operate a purpose-built rental building in the face of all of this?
The fundamental property tax issues for purpose-built rental buildings are:
1. Taxation for highest and best use when the property has not received the necessary regulatory approvals to be built to highest and best use. The city must address the impact of the taxation of undeveloped and unpermitted density in purpose-built rental buildings just as it is trying to address it for the small commercial businesses via the split-class solution; and
2. Assessments based on market rents when historical and more recently approved legislated price controls prevent market rents from being achieved, especially for longer-standing tenants.
So, this decision has been taken and clearly there’s no turning back. What is critical now is for the city and this council to take a leadership role to have the province move quickly to amend the assessment system for purpose-built rental buildings, if they wish to retain the existing rental stock. As with the small retail businesses, PBR buildings are small businesses that are being buried by taxes and levies. •
David Hutniak is the CEO of LandlordBC, the provincewide voice of the rental housing industry in B.C. LandlordBC’s primary mission is to facilitate the professional and responsible provision of safe, secure, sustainable long-term rental housing for British Columbians.