How high is too high? Vancouver's property tax dilemma

If the City of Vancouver's proposed 2020 budget is approved, homeowners can expect an 8.2 per cent property tax hike — 9.3 per cent when factoring next year's increase in utility fees.

It is a hefty increase considering the average Vancouver property tax increase over the past five years was only 3.46 per cent.

However, it is being justified by the City of Vancouver as a necessity in order to fund initiatives to address the housing crisis, protect our environment and deliver quality core services. 

Also, several economists have defended the increase as Vancouver's "mill rate" or the tax owing per $1,000 in property value, is lower than most other municipalities in B.C.   

My take on the 9.3 per cent increase is a little different. Comparing Vancouver's "mill" rate to other municipalities across B.C. or Canada, while interesting, doesn't make me feel any better about paying the 9.3 per cent tax hike.

I consider the many variables which affect a city's budget.

In Vancouver's case, factors such as density, property values, and snow-removal will be very different from a city's like Terrace, or even Surrey or West Vancouver. Therefore, comparing mill rates is like comparing apples to oranges.

The effect on renters

It will be interesting to see how the tax hike will affect renters. Those currently renting won't be affected too much as B.C. limits rent increases to the cost of inflation.

Also, the city is planning on using some of the revenue generated by the tax increase to fund new affordable housing, tenant relocation and tenant protective policies.

The news isn't as good for landlords or new renters. Landlords add up all their costs such as financing, property taxes, strata, utilities and maintenance. Then, if the market allows it, set their rents hoping to cover their expenses. Therefore, a large increase in property tax ultimately be will be passed down to the renter in the form of higher rent.

Currently, many landlords are factoring in a bigger buffer into their cost analysis. The provincial government restricts rent increases to the rate of inflation, which for 2020 is 2.6 per cent.

This limitation is problematic for landlords as many of their expenses are increasing by five to 10 per cent. I'd anticipate that some are planning to increase their rents to new renters or economize elsewhere by spending less on maintenance.

As this is a draft budget, there is time for the City of Vancouver to make changes and lower the property tax hike, perhaps somewhere in the seven per cent range.

Psychologically, seeing a tax drop from 9.3 per cent down to seven per cent is a lot more palatable than experiencing an increase from 4.5 per cent (the 2019 rate increase) to seven per cent.

This is a common tactic used in sales and negotiations which, in the field of behaviour finance is referred to as "anchoring bias."

'Worrying' inflationary trend

Just five years ago, Vancouver's property tax increases were roughly in line with the rate of inflation, around two per cent. But in 2017, they jumped to four per cent, and are now proposed to be 8.2 per cent for 2020. 

This is a worrying inflationary trend as it far exceeds most homeowners' salaries or landlords' profit margins. 

When I reviewed the 600-plus-page draft Vancouver budget, it read like a highlight reel of the city's dreams and initiatives. However, critically, it lacked a cost/benefit breakdown for each initiative.

I understand that it is expensive to run a city and that Vancouver is "only" asking for an additional $354 from the owner of median single-family home.

However, between this and all the other increases in fees, such as Hydro and ICBC increases, homeowners are tapped out.  

Rather than relying on homeowners as a captive and endless source of revenues, the city should instead focus on cutting costs, adjusting its goals and finding new sources of revenue.

I'm not against property tax increases. I know they are necessary.

But let's makes it easier for homeowners with smaller, more gradual increases as they too have a budget that needs to be balanced.