A new approach to addressing Vancouver’s housing affordability crisis has been proposed by an academic at UBC – but landlords may not like the ‘headline’ change.
Professor Thomas Davidoff says that Vancouver is a great place to buy property but not a great place to make a living in terms of tax policy.
"Generally, economists believe that taxes should be higher on goods that are supplied or demanded inelastically," he said. "Because Vancouver has notoriously inelastic housing supply, one might expect property tax rates to be higher here than elsewhere in Canada; however, property taxes are actually very low in Vancouver. We have a high tax base because properties are expensive, but by any measure the property tax burden is low here."
The professor’s model calls for changing the basis for taxation of rental homes from their value to their potential rent. This is based on his calculation that Vancouver’s property taxes should be four times higher than a typical Canadian city rather than lower.
Higher property tax for landlords, but cuts to other taxes
"What I am proposing is a transfer from owners to renters, meaning property owners would pay more taxes and renters less, but everybody would pay less income and sales tax," said Davidoff.
The plan would mean that those who are earning good incomes, on which they pay tax, along with high rents, would benefit. Property owners would pay more in property tax but would offset some of that with lower income and sales taxes.
However, Davidoff acknowledges that the proposal is politically tricky. Especially when considering views of older voters near or past retirement age.
"For them, raising property taxes means less money in their pocket, it means the value of their property falls, and given where they are in life, they've already paid most of their income and sales taxes, so they would perceive this as very unfair to them. Politicians that hope to implement something like a budget-neutral transfer of property to income and sales taxes have to be very careful how they do it."
The full study is published in the Canadian Tax Journal.