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Plenty of House Price Policy Fixes Available to Clark’s Government

Here, 10 top shelf options that economists of differing stripes agree on.

By David Beers 14 Sep 2016 | TheTyee.ca

David Beers is founding editor of The Tyee.

Eight weeks after B.C. Premier Christy Clark rolled out a foreign buyers’ tax to quell the steep rise in housing costs, sales are down but prices, by and large, are not.

The provincial government is said to be mulling what, if anything, to do next. Here is a range of options proposed by two experts who say they would make a far bigger dent in B.C.’s affordability problem than tried so far.

1. Raise property taxes. It’s one way to discourage flippers and absentee owners, but the question here is who to tax most, then what to do with the proceeds. B.C. offers a broadly available property tax rebate through its homeowners grant, but could be much smarter about it, agree two economists of differing ideological leanings. UBC Sauder Business School economist Tom Davidoff, who specializes in real estate and leans libertarian, urges property taxes be increased “for those who neither pay meaningful income taxes or act as landlords.”

“Proposals like this shift the tax burden onto real estate investors and away from the workforce,” particularly if the revenues raised were used to provide income or sales tax relief or affordable housing, Davidoff told The Tyee. He emphasized such a shift is a “great idea to make Vancouver more affordable for people who live and work here.”

That would be more effective than taxing foreign buyers, or even banning them, Davidoff says, because his reading of the B.C. government’s own data tells him that “foreign money can come in through ‘Canadian’ buyers.” The real issue, notes Davidoff, is not where your money came from, but “do you work for a living here.”

Making property taxes “fair” is a top priority, too, for progressive-leaning economist Marc Lee of the B.C. branch of the Canadian Centre for Policy Studies. It’s one of five recommendations in a report he authored in May of this year. By fair, Lee means: “A shift to a progressive property tax system” that would “add brackets starting at $1 million of assessed value (this would exclude 76 per cent of homes), and could raise up to $1.7 billion per year. A progressive rate structure would also encourage increases in density, creating an incentive for expensive properties to sub-divide their lots into multi-family properties.”

Lee finds unfair B.C.’s homeowners grant, given to all qualifying homeowners regardless of income. That, combined with income tax benefits for homeowners, is a rip-off for renters who “receive nothing from the grant but contribute property tax through their rent payments.”

“These homeowner grants should be eliminated,” says Lee, “and replaced with a refundable income tax credit or tax benefit that would go to all B.C. residents based on income.”

2. Tax vacant properties. That’s a good way to target investors not working or living here, agree Davidoff and Lee. But don’t expect big results, Davidoff says. “Pure vacancy is going to be small potatoes.” Vancouver’s government already is moving to implement such a tax. Davidoff suggests municipal governments create three classes: “owner occupier, landlord, everything else, and tax ‘everything else’ more heavily.”

Lee agrees with Davidoff that the litmus test for who gets whacked with big taxes, or banned from the market outright, should be whether or not you live or work in the city most of the year. “Domestic and international immigration is certainly welcome,” writes Lee, “but should not be confused with non-resident investment.” He urges B.C. politicians to lift their eyes beyond our borders. “A number of other jurisdictions have wrestled with this challenge and implemented regulatory and tax changes, including Switzerland, Australia, the United Kingdom, Singapore and Hong Kong.”

3. Audit households who pay low income tax but have luxury homes. How many fall into this category? We don’t know, Davidoff has argued, so the first step would be to nail down the numbers — far more telling, in his view, than tallying foreign buyers.

4. Force or encourage municipalities to increase density. This is a job for the provincial government through municipal charter reform, Davidoff says, since the issue is so dangerous for local politicians to champion. Despite the fact that condo sales and prices keep rising as fast as they are built, Davidoff believes a big bump in supply would flatten prices.

Lee argues for “gentler” forms of densification than thickets of towers, in order to lessen neighbourhood revolts and to make life more green and livable for residents. “Urban planners have emphasized the development of ‘complete communities’ — low-carbon neighbourhoods where people live in much closer proximity to where they work, shop, play and access public services. Gentler forms of density (duplexes and triplexes, laneway houses and row housing) up to mid-rise buildings may be less profitable but better integrated with and accepted by existing neighbourhoods.”

5. Zone to mix in affordable housing. “Inclusionary zoning, which designates a percentage (typically 20 to 30 per cent) of newly constructed units as affordable, should be incorporated as a design principle for all new developments, thereby locking in affordability as new market housing is built,” proposes Lee. Two Colorado resort communities have been doing something similar for nearly a decade.

6. Have government build or subsidize affordable rental units. Lee calls for “an ambitious construction program funded by the provincial and federal governments, with a focus on social and co-op housing.” How ambitious? Up to 10,000 new government-funded units per year. “A new housing unit costs about $250,000 on average to build, so the total costs would be $1.25 to $2.5 billion per year, less if governments contributed land and waived development fees. This up-front cost would largely be repaid in rents over the lifetime of the building,” writes Lee.

Davidoff is cautiously on board, “if not done at huge cost in very expensive locations. Lotteries for a small number of housing units built at great taxpayer expense will barely dent the affordability problem.”

7. Take from the well-off, give to the poorer. For the reasons Davidoff cited above, rather than see a lot more government-funded social housing, he would rather see higher taxes and builder fee revenues used to provide cash for “those struggling, and particularly those renovicted.”

8. Promote shared equity ownership models. With land prices so high in the Lower Mainland, this is prime territory to create ownership that shares land costs with other parties. One example cited by Lee is a community land trust, in which the government, a financial institution or some combination shares ownership of housing and the land it’s built on with buyers. Vancouver has recently launched a partnership to create 358 units on city-owned land, and Vancity Credit Union has been a leader in this area as well.

9. Shore up threatened social housing stock. The federal government subsidizes cost and upkeep of non-market housing in B.C. now to the tune of $200 million but such operating agreements are expiring. “Re-investment in the form of upgrades and maintenance is also needed; this includes energy efficiency and low-carbon retrofits,” says Lee, noting the “BC Non-Profit Housing Association estimates it would cost about $190 million to get existing non-profit units into a safe and comfortable condition for tenants, and $380 million to get them up to new condition.”

10. Selectively sell off rights to build in the Agricultural Land Reserve. Davidoff suggests this might be a way to get more housing built, but warns: “Don’t sell cheap, do protect the environment.” A requirement could be that any land pulled out of ALR must be along its edges and used for multi-family housing.

Despite their different political leanings, what economists Davidoff and Lee definitely agree on is that tax policy and zoning are, as Davidoff says, “low-hanging fruit.” And that the B.C. provincial government has just scraped the surface of what can be done to limit absentee ownership, speculation and other forces driving the Lower Mainland’s overheated market.

The policies discussed here are nothing new. The Tyee has reported on most of them now and again over nearly a decade. The question, as Marc Lee points out in his report, is whether the political will exists in not only city halls, but Victoria and Ottawa to favour renters and new homebuyers over the powerful class of home owners, and flippers, getting rich off business as usual.  [Tyee]

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