How an Empty Home Fee Could Help Finance Municipal Infrastructure for All Residents
Given the inability of the City to fund affordable housing, and Vancouver’s creaking public transport infrastructure - Translink does not seem to be able to keep up to the reality of a growing metropolitan region - BEH decided it was time for a review of how governments can raise money for public infrastructure through land value capture.
While BEH’s goal is to see an Empty Home Fee introduced based on the city’s property tax powers in the Vancouver Charter (see Part XX), it is worth noting the full extent of a city’s revenue raising tools related to land.
The general list below is provided as a reference for policy makers (and mayoral candidates who tend to address substantive issues without any meaningful detail!)
a. Property tax - based on the value of the property; For 2014, for example, Vancouver’s residential property tax is set at $3.68 per $1000 of assessed value, by far the lowest rate of any major Canadian city. See the 2013 national property tax rate analysis here.
Why not raise the tax assessment on empty homes? If homes or properties are left empty for 6 months, the City could charge a fee calculated at 5-times the standard property tax assessment, that would encourage landlords to keep properties lived in while they profit from increasing land values.
What would this look like?
At present, the average sale price for a westside home is $2.4 million, at the current assessment, the owner would pay $8,832 in property taxes; a negligible amount, when compared to an average annual increase in value of between 5-7% (on a $2.4 million valuation, that is between $120,000 and $168,000 per year). With property taxes of $8,832 on a gain of $120,000, who wouldn’t buy a property in Vancouver and leave it sitting empty while it makes money?
With investors making significant cash returns simply by holding empty homes, surely they can afford to contribute more to the public goods which make the city wonderful: parks, good transit, roads, healthy and educated children, affordable housing for Vancouver’s brilliant workers?
Prices of detached homes on the westside show now sign of slowing down, with realtor reports of annual sale price increases of 15% to a 2014 median of $2.3-million and an average of $2.8-million. SO more money is being made holding more empty homes.
If the City were to increase the property tax assessment on empty homes by 5 times (resulting in an assessment of $44,160 on the $2.4m valuation, or a 1.8% property tax rate), owners would still make money on the land value increase, but might be motivated to look for tenants. If they continued to hold the property empty, and pay the increased assessment, at least the city would have more funds to invest in shared infrastructure which benefits all residents.
Other ways to raise revenue for housing, schools, parks, and transit. Many of these are already applied in some form or another, but are always useful to consider when speaking with politicians who prefer to describe all options in the vaguest of terms.
b. Special assessments – an additional tax on property assessed according to the benefits accruing to the property over time from infrastructure on-site or nearby. In the Vancouver context, all private property owners benefit from Vancouver facilitating speculative investment in homes by companies and non-residents, leading to empty homes across the city. In exchange for letting financial speculators empty the city of its social and economic vitality, the city should be extracting more value from speculators through assessments on empty or vacant property.
c. Betterment levies - Capturing part of the land-value gain attributable to infrastructure investment through the imposition of a one-time tax or charge on the land-value gain. The process is explained in detail in Municipal Finances: A Handbook for Local Governments (Catherine Farvacque-Vitkovic, 2014).
d. Impact fees – A one-time, up-front charge designed to pay for the expansion in infrastructure capacity (outside of a new development) necessitated by the growth from new development; in Vancouver, when new towers go up, and when heritage homes are destroyed and replaced by castles for speculative investors, public infrastructure must be replaced and expanded; these costs are not currently covered by developers, and are rather borne by all taxpayers (the Olympic Village and BC Place new roof come to mind)
e. Tax increment finance – revenue bond finance for public infrastructure improvements on the basis of future incremental gains in property taxes within the boundaries of the district receiving infrastructure improvements.
f. Land/asset sales – the sale of land whose value has been enhanced by infrastructure investment or zoning changes. In Vancouver, the city has re-zoned many land parcels to high-density residential, which is effectively making developers many millions of dollars, while, in theory, adding to the affordable housing stock. By simply rezoning a piece of land, the City facilitates vast profit making by developers, and should be capturing more of this value generation for all residents, rather than making a few small fortunes.
Source: Unlocking Land Values to Finance Urban Infrastructure (George Peterson, PPIAF).