Property surtax takes aim at ‘free-riding’ homeowners
Proponents say proposal would bring more fairness to Vancouver?s real estate market
Dan Fumano
The Vancouver Sun
The idea of a property surtax linked to income taxes was proposed almost two years ago by several local academics as a way to bring more fairness to the famously unaffordable world of Vancouver real estate.
Proponents say the surtax would be good for those who live and work here. The people forced to pay more under the change, they say, would mostly be wealthy foreign owners who purchase Vancouver real estate to stash their money or those who avoid paying Canadian taxes in various ways.
The surtax idea is, as Simon Fraser University assistant professor Josh Gordon wrote in a Vancouver Sun column last month, “so obviously fair,” that since its introduction in January 2016, “not a single serious attempt has been made to criticize it. To do so would be to defend tax avoidance.”
And now, the City of Vancouver also wants to explore the idea.
Vancouver’s 10-year housing strategy, which council approved last week, includes “high-priority” measures the city wants to explore with senior governments “to limit commodification of housing and land for speculation and/or investment purposes.” Possible measures include a flipping tax, and restricting property ownership by non-permanent residents.
The “action plan” also raises the idea supported by dozens of economists over the last two years: the city wants to look at “linking property tax to income taxes paid in B.C.,” the plan says, citing the work of academics from the University of B.C. and SFU.
Vancouver homeowners might balk at the idea of increasing property taxes in an already expensive city.
However, the proposed surtax wouldn’t affect the vast majority of local homeowners or landlords. That’s because the proposal, as first outlined in a January 2016 Sun column by SFU Prof. Rhys Kesselman, would allow taxpayers to credit against the property surtax their B.C. income tax paid in recent years. So almost everyone paying income tax in the province would be exempt.
Property owners most affected by the surtax would include “non-resident foreign owners, astronaut families, tax-evaders and criminals using their proceeds to buy homes,” Kesselman wrote.
Within days of Kesselman’s Sun column, a similar idea was proposed by a group of academics led by economists with UBC’s Sauder School of Business and the Vancouver School of Economics. The two proposals featured different policy details, including how best to protect “house-rich, but cash-poor” retirees, but shared the central idea of a property surtax that can be offset by income tax paid in B.C. (or Canada).
Gordon said this week: “There are several policy variations on this proposal, but the underlying insight is the same: our current tax system incentivizes free-riding. We need to make sure that wealthy people pay their fair share, otherwise we become a subsidized resort town for the world’s rich.”
The fact Vancouver now wants to explore such an approach represents a significant, positive step, Gordon said.
Last week, Vancouver’s chief planner, Gil Kelley, told The Sun that the city can’t fix the unaffordability crisis without taming global demand for local real estate. It would have been hard to imagine such a statement coming from city hall a couple of years ago, Gordon said, at a time when “leadership had somewhat downplayed the role of global capital.”
“But it shouldn’t have been a surprise. This should have been the conclusion all along, this was staring us in the face for years,” Gordon said. “It’s a relief that we’re finally at this conclusion, but in the meantime, a fair bit of damage has been done.”
Gordon referred to a 2014 Canadian government report showing wealthy investor immigrants paid an average annual income tax of $1,400, far lower than other kinds of immigrants or the national average.
That’s a key point when considering the question of fairness, said Tom Davidoff, a Sauder School of Business professor and co-author of the 2016 UBC proposal, pointing out recent research on the phenomenon of low incomes reported in expensive Vancouver neighbourhoods with multimillion-dollar homes.
“If you’re declaring poverty income and you live in a gazillion-dollar house, I think as a matter of basic fairness and efficiency, you ought to be footing a lot of the tax bill,” Davidoff said.
Davidoff stresses that even for homes hit with the 1.5-per-cent, annual surcharge he’s suggested, the total property-tax rate wouldn’t be especially high by global standards.
But Vancouver’s current combination of low property-tax rates and high income taxes, Davidoff said, is “just rolling out the red carpet for unaffordability.”
“We have this big tax giveaway to people who want to invest here and not make a living here,” he said. “It’s a real problem.”
The UBC proposal forecasts revenue of $90 million per year in Vancouver alone, which they described as a “conservative estimate.”
Kesselman said the idea he proposed last January was “probably too left-of-centre for a B.C. Liberal government.” But the current alignment of governments suggest there’s a chance it could see the light of day.
B.C. Finance Minister Carole James didn’t answer a question this week about the viability of a property surtax, but in an emailed statement said she and Housing Minister Selina Robinson are working, ahead of the 2018 budget, on a housing strategy “that can improve affordability for British Columbians, reduce speculation and ensure fairness.”
And the B.C. NDP publicly supported the surtax approach last year while in opposition.
Kesselman’s proposed approach doesn’t differentiate based on nationality or immigration status — only where income taxes have been paid.
Asked this week whether anyone criticized the proposal as xenophobic, Kesselman answered with a question: “Is it xenophobic to want to protect housing for people who live somewhere, make their living there, contribute there?
“I would hope we’re beyond the point where that’s going to freeze us in our ability to deal with some of these issues,” he said. “I guess it’s in the eye of the beholder whether or not that’s xenophobic, but I don’t think it is.”
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