Vancouver BC is in a housing affordability crisis. It’s time for transformative solutions that get to the heart of the problem. Two candidates running for city council believe a land value tax is one of those solutions. Read more…

A Land Value Capture Tax Allows Us to Dream Big

Land value taxes work by “capturing”, or taxing, part of the windfall acquired through zoning changes, infrastructure improvements, and other local areas enhancements.

CHRISTINE BOYLE & BRANDON YAN

Updated: August 2, 2018

Amid out-of-control speculation and rent increases more than twice the rate of inflation, Vancouver is in a housing affordability crisis. It’s time for transformative solutions that get to the heart of the problem. We believe a land value capture tax is one of those solutions.

As Vancouver grows — and as governments and communities continue to create public and private improvements to infrastructure (e.g. improved transit service, increases to density, new businesses and cultural events) — the value of land is likely to increase further, keeping housing affordability elusive.

So far it is largely individual landowners and developers who have benefited from these immense gains in land wealth. We believe these land gains — often created by the public — should benefit everyone. A land value capture policy will discourage speculation while raising funds to build social and affordable housing and make significant improvements to our public transit system.

Land value taxes work by “capturing”, or taxing, part of the windfall acquired through zoning changes, infrastructure improvements, and other local areas enhancements. OneCity proposes a two-fold approach to Windfall Power, our made-in-Vancouver land value tax.

First, the City of Vancouver, in collaboration with TransLink, has the power to apply a land value tax to areas impacted by transit improvements.

Once elected, the new city council should immediately work to create a land value taxation plan for areas around the Broadway Subway. Revenue could be earmarked to improve transit services and fund future transit projects.

Second, the City of Vancouver should work with the provincial government to create a made-in-Vancouver land value capture tax. This new system could replace much of the city’s reliance on Community Amenity Contribution contracts, providing greater clarity and transparency, and helping rebuild residents’ trust in how City Hall negotiates with developers.

There are a number of details that will need to be figured out with input from experts, including when and how the increase gets collected so that costs do not get downloaded onto renters. These details matter.

However, B.C. Assessment, our world-class provincial property assessment agency, already holds the data needed to effectively implement and administer this type of land value tax. The money raised should be directed toward providing social and affordable housing to support those struggling most under the housing crisis.

OneCity imagines a Vancouver where every neighbourhood is for everyone — where all parts of the city have apartments, social and supportive housing, multiplexes, and co-ops.

However, given who has profited most from development in Vancouver over the years, concerns exist about up-zoning functioning as a windfall for large developers and those fortunate enough to own property. A land value capture policy will ensure a significant part of these windfalls from transformative zoning changes are redirected towards the public good.

Done well, land value capture will decrease speculation, slowing the astronomical rise in land costs that drive our affordability crisis. While achieving that goal, it will also raise necessary funds to build truly affordable housing for low and moderate income residents and provide an improved public transit system. Both are important outcomes in getting where we need to be.

It’s time for progressive, pragmatic solutions to Vancouver’s housing crisis. A Windfall Power land value tax can be a powerful tool to redistribute wealth in our city. This election, let us dream big.

• Christine Boyle and Brandon Yan are running for city council with OneCity Vancouver. Boyle is a United Church Minister; Yan is the Education Director for Out On Screen.

_______________________________________________________

Comment posted by Edward J. Dodson / 2 August, 2018

The economics in support of moving to land value as a (or even “the”) source of public revenue for a city or town is without dispute. The arguments in favor of this approach go back to Adam Smith and even earlier in the writings of the great political economists. The over-taxation of buildings and the under-taxation of land values is the driving force of speculation-driven property cycles. Make credit to buyers cheap and easy to obtain and fuel is added to the speculative fires.

As population in a community increases so does the demand for housing, for a location somewhere reasonably close to work, to schools, to hospitals, etc. etc. Land prices climb as developers compete with one another to acquire building lots. When the effective rate of taxation on land is low, this attracts speculators who have no interest in building housing units; they want to grab land, hold it for a period of time and then flip it for a huge gain. Some owners of land, who acquired it years or decades earlier, are able to hold it out of use for long periods because land that is vacant is rarely reassessed to reflect current market values.

The force at work is market capitalization. Every parcel or tract of land has some potential annual rental value. Based on what investors seek as a rate of return, this “rent” is capitalized into a MINIMUM selling price. Say, for example, a parcel of land can be leased for $10,000 annually, and the expected rate of return is 10%. The $10,000 is capitalized into a minimum selling price of $100,000. The idea behind a land value tax for a land value capture charge is to impose an annual tax that lowers the net imputed or actual rate of return just for holding land.

As many of the comments indicate, people who have paid a high price for the land beneath their house or other building see this change in taxation as a taking of some of their net worth (whether earned or not).

The impact on many property owners will be minimal if buildings are gradually exempted from property taxation altogether. Owners of vacant or underutilized locations will end up paying much higher taxes than is now the case. However, if the change is introduced over a 10-year period, even owners of vacant land will have sufficient time to come up with a plan to develop the land they own to generate income that offsets any increase in the property tax on land.

For property owners who live on a small pension or social security benefits or simply a low income, the fairest solution is for the city of adopt what is called a “circuit breaker.” Owners of a primary residence can apply to have the amount of their property tax PAYMENT capped based on affordability. The difference between what is owed and what is paid would accrue as a lien on the property to be paid at time the property is sold or transferred via inheritance.

Vancouver residents will benefit in many ways under a system of land value taxation. For example, as land prices eventually stabilize and even come down gradually, the adult children of residents will be able to find affordable housing options in the neighborhoods where they grew up (if they desire to). Businesses will be able to acquire locations that allow them to enjoy good profit margins, creating new employment opportunities for residents.