City of Vancouver Property Tax Increase – Just The Tip of the Iceberg for Purpose-Built Rental
So the word is out. The City of Vancouver is proposing an 8.3% property tax increase for 2020. The reaction from some councilors is that it’s time to play “catch-up”. They’re saying that had larger property tax increases been extended in past years, we wouldn’t have to take such drastic action now to run the city and fund all the projects Council has advanced. Well perhaps that premise might be tenable if it were based upon facts.
Fact #1: The City percentage increases in the chart below are City budget increases and bear no relation to what purpose-built rental buildings experienced in actual increases in 2019. In 2019 we were seeing property tax increases in the order of 15% – 20%+, whereas the City’s 2019 property tax budget increase was 4.5%. For 2020 they are talking about effectively doubling the property tax budget increase versus last year. This is not sustainable if you’re trying to operate a purpose-built rental building.
Fact #2: When it comes to purpose-built rental buildings this isn’t just a one-year increase and, furthermore, you can’t simply look at property taxes in isolation. Property taxes are just one cost-driver in the operation of a rental building. When you operate in a legislative environment that caps your annual rent increase to CPI only, your opportunity to generate revenue to cover those costs while maintaining your building, paying your staff and, in a perfect world, investing in the enhancement of your building to make it safer and healthier and more energy efficient for your tenants, the numbers simply don’t work. Something’s got to give.
Fact #3: This is all about the absence of broad-based fiscal responsibility. At a time when rental housing providers are being legislated to a 2.6% allowable increase based on the CPI basket of good, which by the way bears absolutely no relationship to the operation of a purpose-built rental building (a PBR’s “basket of goods”), the City of Vancouver is not holding its own increases to CPI … they are increasing taxes to fund their own “basket of goods”.
Fact #4: This isn’t just a one year catch up of increases, rather they have slammed purpose-built rental property owners two years in a row with increases as follows:
Fact #5: Vancouver purpose-built rental owners are getting hammered again across the board with endless non-controllable expenses. Beyond what the City is doing, all indications are that insurance costs will be up 30% this year, and that non-COV utility expenses and labor costs will rise well above CPI. The purpose-built rental operating model is very badly broken and operating purpose-built rental buildings in Vancouver does not make sense, and that means building new purpose-built rental housing makes less sense too. If the City truly wants to take a leadership role on housing affordability, and existing purpose-built rental survival, and new purpose-built rental development, they should start first with their own budgets and limit their own increases to CPI. They would have to make some tough decisions to do that but that is what we need from our leaders now.
Like we said, just the tip of the iceberg.