VANCOUVER - The explosion of housing prices has become a massive source of inequality in BC, which can be addressed with progressive property tax reform, new research from the Canadian Centre for Policy Alternatives, BC Office shows.
As home prices and rents have risen dramatically amid a severe housing crisis and shortage throughout BC, residential real estate wealth has ballooned to over $2.1 trillion. This vast wealth remains minimally taxed, says senior economist and public finance policy analyst Alex Hemingway.
“The provincial government has policy options to tax land wealth for the public good,” asserts Hemingway who has developed five options for property tax reform. He says the revenue potential of taxing even a sliver of BC’s property wealth is enormous.
For example, increasing tax rates on property values above $3 million (and adding a new bracket for those above $7 million) could increase provincial revenues by an estimated $356 million annually while affecting only 1.9 per cent of BC’s most expensive properties.
A somewhat broader-based option—applying a deferrable surtax on property values above $1.5 million—could increase annual revenues by an estimated $1.8 billion while affecting less than 12 per cent of BC households, Hemingway explains.
“The revenues generated could be put towards public investments in affordable housing, health care, child care, poverty reduction, climate action and the toxic drugs crisis, to name a few,” he says.
The majority of BC’s residential property wealth is in land value ($1.5 trillion) rather than in buildings. Unlike the value created by constructing or improving a building, increases in land values are not the result of any effort or expense by property owners. Land values are collectively created by everyone participating in the life of a city or community and by direct public investments in infrastructure and services like streets, sewers, water, electricity, public transit, schools, parks, libraries and community centres, Hemingway explains.
To ensure that land value gains are more broadly shared and that real estate is a less lucrative target for passive, non-productive investment, he says land value must be taxed to generate revenues to invest in the public good.
“Since land can’t be picked up and moved, land taxation is difficult to evade. Therefore, economists tend to view taxing land value as an especially efficient form of taxation,” Hemingway says.
“The scale of BC’s residential property wealth explosion—an increase of $1.7 trillion in less than two decades—is extraordinary. These skyrocketing property values are a boon to existing owners, but they are a massive source of inequality and a burden to renters, would-be buyers and businesses struggling to recruit workers who can’t find housing.”
He notes the BC government has taken steps—like the Speculation and Vacancy Tax on empty homes, a foreign buyers’ tax and a new bracket to the Property Transfer Tax on value above $3 million—towards taxing some segments of residential property more robustly, but this has only scratched the surface of enormous property wealth gains in BC.
Hemingway’s new report lays out a range of tax policy options that would go further, including raising tax rates on the highest-end properties, taxing the total property holdings of large landowners and shifting the focus of taxation to the land portion of property value rather than to the building or “improvement” value. Taxing total property holdings would mean a large landowner pays the higher tax rate rather than being taxed at lower rates for individual properties.
“In the lead up to the next provincial election, BC deserves a serious debate on how to fix a flawed property tax system that has contributed to massive wealth inequality and high housing prices,” Hemingway says.
For more information and to arrange interviews please contact Jean Kavanagh at 604-802-5729, [email protected].