Embattled Middle Class

How Taxes and Regulations are Worsening Vancouver’s Housing Crisis
Part Two of a Special Series

Doug Firby
March 22, 2022
Fretting and finger-pointing won’t fix a housing market suffering from spiraling prices and insufficient supply. At some point reality must be acknowledged. Nowhere is this problem more acute than in Vancouver, one of the world’s most overpriced real estate markets. Politicians say they want to improve affordability – and then pile on tax after tax. Bureaucrats say they want to help get things built – and then suffocate the approvals process with layers of unnecessary regulations. Residents tell pollsters they want more housing – and then fight tooth and nail against projects in their own neighbourhood. Through the eyes of embattled homeowners, market experts, politicians and industry players, Doug Firby surveys the hypocrisy of Vancouver’s broken housing landscape and finds practical ways to overcome it. Part Two of a special series on Canada’s housing crisis (Part One can be read here).
Embattled Middle Class

How Taxes and Regulations are Worsening Vancouver’s Housing Crisis
Part Two of a Special Series

Doug Firby
March 22, 2022
Fretting and finger-pointing won’t fix a housing market suffering from spiraling prices and insufficient supply. At some point reality must be acknowledged. Nowhere is this problem more acute than in Vancouver, one of the world’s most overpriced real estate markets. Politicians say they want to improve affordability – and then pile on tax after tax. Bureaucrats say they want to help get things built – and then suffocate the approvals process with layers of unnecessary regulations. Residents tell pollsters they want more housing – and then fight tooth and nail against projects in their own neighbourhood. Through the eyes of embattled homeowners, market experts, politicians and industry players, Doug Firby surveys the hypocrisy of Vancouver’s broken housing landscape and finds practical ways to overcome it. Part Two of a special series on Canada’s housing crisis (Part One can be read here).
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Bernie Burnett is not sure how much longer she can afford to stay in her modest two-storey house near Jericho Beach, in a once-middleclass neighbourhood in Vancouver’s West Point Grey not far from UBC. As house prices in the city climbed relentlessly, her annual property taxes have soared eightfold – from less than $3,000 when she bought the house in 2001 to more than $24,000 last year. Although Burnett rents out part of the house, she has had to defer a portion of her property taxes for seven years. She now owes the city more than $150,000.

“This debt is going to be passed down to my children,” says Burnett, a 62-year-old widow who’s retired from her job as an engineering assistant for the city. “If it wasn’t for deferment and for the fact that I have a roommate, I would not be in that house.” Adding to the tax burden, the house, which she bought for $850,000, is now valued at around $6 million, triggering a one percent city surtax that applies to properties valued over $5 million. Burnett invests minimally in upkeep because she considers the house, with its 170-foot-deep lot, to be a “tear-down” that one day will fall into the hands of a wealthy investor. Yet she feels compelled to stay in the area to care for her ailing father, 96, and mother, 92. “I have nowhere to go,” Burnett says. “I’m trapped.”

Caught in the frenzy: As Vancouver house prices have soared, so has the annual property tax bill on Bernie Burnett’s quaint two-storey home; last year it hit $24,000 and because she has deferred her taxes for the past seven years, she now owes the city $150,000.

Burnett’s situation is perhaps on the extreme end of a nonetheless common experience facing long-term Vancouver residents caught in the vortex of Canada’s housing frenzy. The ratcheting up of property taxes on houses becoming ever-more valuable is yet another way in which housing has become unaffordable in Vancouver. A recent B.C. Freedom of Information request by Ryan LLC, a division of global tax services and software provider Ryan ULC, revealed that British Columbians – mostly in Vancouver — are having to defer their property taxes more than ever.

According to the report, “As of May 2021, nearly 73,000 residents, mostly seniors who were eligible, deferred their taxes, up from 41,488 residents in 2015/16.” Despite those concerns, in December Vancouver City Council approved a 6.35 percent property tax increase, even bigger than the five percent it had initially asked city staff to budget for.

That soaring real estate markets have pushed the dream of home ownership out of reach of many, perhaps even most, Canadians is no longer news. The crisis is typically blamed on rock-bottom interest rates and high levels of immigration that stoke demand, and more recently on a buying frenzy sparked by the pandemic’s push to have millions work from home. Other factors that drive up prices are believed to include offshore investors parking funds in jurisdictions perceived as safe and stable – like Canada – as well as domestic investors (including large funds) purchasing real property as a hedge against inflation and worsening global uncertainty. At the same time, average personal income in Canada has largely stalled, while general inflation is making virtually everything else less affordable as well.

But misguided government policies have played their part in worsening the housing price problem. For a shining example, look no further than Vancouver. Academics, developers and some city councillors there say efforts by provincial and municipal government to “manage” the market and tamp down prices have had disastrous unintended consequences. Onerous new taxes on homeowners have pushed prices higher, they say, while simultaneously discouraging the construction of new housing units that is so badly needed. Meanwhile, permitting delays and the ever-growing tangles of red-tape ensnaring developers add to the cost, and contribute to the supply crunch driving prices up.

Vancouver’s Middle-Class-Crushing Metamorphosis

An international survey by Demographia of 92 major housing markets in eight countries shows Vancouver (bottom) to be the third most unaffordable, behind only Hong Kong and Sydney, Australia; politicians have long blamed foreign buyers for much of the problem.

Through the years that brought such wrong-headed moves, Vancouver morphed from a virtually idyllic, middle-class-friendly West Coast urban oasis into one of the world’s most expensive cities. Data from the British Columbia Real Estate Association (BCREA) show a benchmark price on a single-family house in the Greater Vancouver area (which includes the City of Vancouver, North Vancouver, West Vancouver, Burnaby, Richmond, Surrey and White Rock) of $917,564 in 2011. Today, it is $1,775,652. Over the same period, the average apartment price went from $380,318 to $727,797. An international survey in 2022 cited Vancouver as the third most unaffordable of more than 90 major real estate markets in eight nations, behind only Hong Kong and Sydney, Australia.

For years it was fashionable for governments and politicians (even some of the NDP variety) to blame foreign investors and immigration for driving up prices. The province noted that offshore investors, mainly Chinese, purchased $1 billion worth of real estate in British Columbia in just a five-week period in 2016. More recently the alleged culprit became money laundering, a government-appointed expert panel claiming that as much as $5.3 billion may have been laundered through the real estate market in 2018 alone, raising housing prices by an estimated five percent.

Many such buyers were thought to be speculators who purchased houses and apartments in hopes of soon flipping them for a quick profit, often leaving them empty in the meantime. A city report estimated in 2016 that there were 10,800 vacant homes and condos in Vancouver. Officials convinced themselves that if speculators could be discouraged and those empty properties rented, affordability would improve.

So in came punitive new taxes. B.C.’s Bill 28, commonly known as the Housing Priority Initiatives Act, became law in August 2016. It imposed an additional property transfer tax of 15 percent on residential properties purchased in certain parts of B.C. by foreign buyers, later increased to 20 percent. The act also amended the Vancouver Charter so that the city could impose a municipal tax on vacant residential property, and Vancouver quickly imposed an annual levy equal to 1.25 percent of a property’s assessed taxable value.

No vacancy: To discourage speculators, Vancouver homes are now subject to vacancy taxes; a $1.3 million house would take a tax hit of $65,000 a year, more than 16 times the amount of the regular property tax. (Source of photo: Giovanni Capriotti)

Two years later, the province introduced its own Speculation and Vacancy Tax, which is in addition to Vancouver’s own “empty home” tax. The two total five percent of a property’s assessed value for foreign owners and so-called “satellite families” (and 3.5 percent for Canadian citizens or permanent residents who don’t list the housing unit as their primary residence). A calculator on the WOWA real estate information website shows that a foreign-owned home assessed at $1.3 million in Vancouver would face a combined empty-home tax hit of $65,000 per year – which is over 16 times the amount of regular city property tax.

The new taxes, particularly the foreign buyer’s tax, were popular at the time and, data suggest, succeeded in driving a lot of foreign investment out of the market. According to data from the B.C. Ministry of Housing, foreign buyers accounted for just one percent of property purchases last year, down from three percent in 2018. A Vancouver city staff report last month concluded that the number of private dwellings unoccupied or occupied by temporary or foreign residents has fallen to its lowest level since 2001.

Yet despite a temporary drop in prices in 2016, the taxes and the reduction in foreign ownership have wholly failed to attain the government’s stated key objective – to drive down the price of housing. In fact, housing prices in Greater Vancouver have grown faster than ever.

In a recent interview, David Eby, Minister Responsible for Housing in B.C.’s NDP government, told C2C Journal that the taxes had the desired effect of curbing foreign investment, “But [what] we didn’t see at the time was the significant increase in population. There was a big spike in migration that we were not prepared for.” According to Statistics Canada, B.C.’s population grew by 7.6 percent from 2016 to 2021, to just over 5.2 million. There was enough housing growth to handle normal times, Eby asserts, but “we had no slack.”

What’s driving the price up? Population growth is part of what’s causing Vancouver’s housing shortage, although critics say high taxes and onerous regulations are discouraging or delaying much-needed supply. (Source of graph: Census of Population, 2016 and 2021 (3901))

Others argue the taxes worsened the supply crunch and drove prices ever higher. Andrey Pavlov, a professor of real estate finance at Simon Fraser University in Burnaby, B.C., told C2C Journal that the taxes discouraged real estate development by raising the risk of investment. In 2019 alone the number of permit applications to build rental units dropped by half from the year before, Pavlov says.

“The speculation and vacancy tax is wildly popular,” Pavlov admitted in an interview. “It was marketed as a way to ensure every unit was used. But it is counterproductive.” It also hit B.C. residents hardest – not foreigners. According to a provincial “technical briefing” prepared for B.C.’s mayors in November 2021, the tax applied to 2,423 British Columbians but only 1,594 foreign owners.

There is no question that both Vancouver and the B.C. market as a whole are suffering from too little housing stock. The BCREA reports that total provincewide listings in January 2022 had fallen by 14.7 percent year-over-year. That month there were about 13,000 listings across the province, barely one-third what the organization would consider a “healthy” level of about 40,000. In Greater Vancouver, there were about 12,000 listings last month, the BCREA reported, while the city would need 24,000 to be in what it considers market balance.

Eighteen Inspections and Three Years’ Delay – For a House

“This is insane”: Andrey Pavlov, a real estate finance professor at Simon Fraser University, says that more than just prices are out of control in Vancouver’s housing market; an explosion in taxes, fees and regulations is a major factor behind the dearth of new housing supply.

Market experts and real estate developers say B.C.’s municipal and provincial governments have created so many disincentives to investment that developers are highly reluctant to put shovels in the ground to start new housing projects. And it’s not just taxes, says Pavlov, but the onerous burden of red tape and high fees. For example, the City of Vancouver lists 18 separate inspections required merely for a single-family home, plus an additional five inspections for a detached garage. Vancouver’s building permit fees are twice the average rate in major U.S. cities, according to figures compiled by the Altus Group, a real estate and data company. “This is insane,” Pavlov said. “The fees are so big they cannot be justified.”

Aside from the sheer number of inspections, Pavlov says permit applications contain complex requirements that often have little bearing on a building’s impact on residents’ health or safety, or on its neighbours. For example, a tree protection clause requires that a barrier be erected around any tree on a construction site, and that the barrier be inspected before work can proceed. The rule applies even to young trees. “A barrier is required around a tree that can be replaced for $50,” said Pavlov, meaning the cost of compliance is many times the value of the thing being protected. “It’s the type of intrusion the city allows itself.”

Trees before people: Vancouver requires 18 separate inspections for a single-family home – plus an additional five for a detached garage – including a tree barrier inspection. (Source of photo: westvancouver.ca)

Further, Vancouver’s building code requires enhanced insulation on both the interior and exterior of every building, unlike codes in much colder cities, such as Winnipeg and Edmonton. “Vancouver has the mildest climate in Canada,” says Pavlov. “To require insulation in Vancouver that isn’t required in Calgary makes zero sense.”

Nonsensical requirements increase costs and further delay projects in a market where the approval process is already notoriously slow. Pavlov cites Altus Group data showing that one-third of the Vancouver building applications submitted in 2016 were still under review in 2019 – three years later. A memo written in December by Andrea Law, the general manager of the city’s development, buildings and licensing department, stated that there is a backlog of more than 500 applications from people seeking permits to build single-family homes, duplexes and laneway houses.

Developer Jon Stovell, CEO of Reliance Properties Ltd., says application processing times have tripled from what they were 10 to 20 years ago. “It takes two years to get a permit that used to take six months,” Stovell says. “It takes five years to get a rezoning. It’s become quite a broken system.” He estimates the delays and complex requirements add 10-15 percent – hundreds of thousands of dollars – to the price of a home. The city, Stovell says, simply doesn’t pause to consider the cumulative effect of all this regulation: “It’s built up like a coral reef until they rip the bottom out of any ship that tries to sail through. The government is just making it too hard, too time-consuming and too expensive.”

Bryn Davidson, CEO of Lanefab, which builds laneway homes, says the “layers and layers” of regulation aren’t even prioritized. “We treat window trim rules the same way as life-safety rules,” he notes. “That’s the absurdity of having all this stuff bloating our system at a time when we have a housing crisis.”

Barriers to investment: Jon Stovell, CEO of Reliance Properties Ltd., (right) says endless regulation is a disincentive to building: “The government is just making it too hard, too time-consuming and too expensive.”

NIMBYism, Bureaucratic Foot-Dragging and Ideology Combine

The short supply of land zoned for housing in Greater Vancouver is yet another problem, developers say, one for which residents themselves share the blame because so many oppose high-density developments in their neighbourhoods. To take one high-profile example, after years of discussion the city began planning in 2019 to authorize the construction of 25,000 new units to house 50,000 residents within a 10-minute walk of a subway line being built on Broadway Avenue between Clark Drive and Vine Street.

Stovell says the city has invested “billions” in creating the new subway yet has encountered strong public resistance to the envisioned housing through local community councils, whose objections include everything from high-rise shadowing to traffic issues. City councillors, Stovell acknowledges, are “caught between a rock and hard place” – aiming to increase housing density while facing organized opposition from local residents who fear that allowing more apartment complexes will drive down their property values.

This is particularly frustrating, says City Councillor Lisa Dominato, because local opposition to high-density housing does not represent the majority view in the city. A recent survey, she said in an interview, found that 75 percent of Vancouver residents want more housing and more housing choices.

Pushing back: Lisa Dominato (left) was part of a non-profit group that tried to build a new housing development on Vancouver’s Commercial Drive (shown on right) but gave up after endless roadblocks and financial requirements from the city; recently elected as a city councillor, now she’s fighting to change the system. (Source of right image: Kettle Boffo)

Dominato, a first-time councillor, says she decided to run for council three-and-a-half years ago in part because she personally experienced the endless roadblocks her not-for-profit group faced when seeking approval for a housing development. The Kettle Society had proposed to redevelop its site to accommodate 30 non-market units for people with mental illness, to be subsidized by the income from 200 proposed market housing units plus commercial space. Faced with endless red tape, the group eventually dropped the entire proposal. In announcing the end of the project, Kettle stated: “Given the recent financial requirements placed on it by the City of Vancouver, the project is no longer economically feasible.” “It was a very frustrating process,” says Dominato. “It was 10 to 12 years of conversations [with the city].”

Waiting games: B.C. Housing Minister David Eby says the province is looking at ways to pressure Vancouver to speed things up, including reducing the number of public hearings on a permit application, and making transit funding contingent on meeting housing targets. (Source of photo: Don Craig/ Province of British Columbia)

Dominato went on a campaign to shred Vancouver’s red tape, last March bringing a motion before City Council to require bureaucrats to clear the permit backlog. Its several proposed measures included requiring staff to report to council within 30 days “with an action plan to clear the City’s permit and license backlog by or before the end of Q3 2022.” It also proposed streamlining regulations, using credentialed professionals to supplement staff, seconding staff from other departments and adopting new technology to speed approvals. The motion passed, Dominato notes ruefully, only after Vancouver’s mayor amended it to remove the deadlines.

Pavlov says the mayor and senior City Hall bureaucrats agree on the need to build more housing units and cut red tape. Yet, like the characters Vladimir and Estragon in the play Waiting for Godot, no one seems to be moving. “I don’t understand politics,” Pavlov sighs. “Some councillors say we shouldn’t build any market housing at all – only subsidized housing.”

B.C. Housing Minister Eby told C2C Journal that Vancouver’s interminable permit times have been a “systemic problem” for at least a decade, and he is frustrated by the lack of results. “It seems to be very complicated for reasons that have eluded me,” Eby said. “There’s a marked division between what [city] politicians say they want and what actually gets done.”

The province is loathe to intervene directly, but Eby said his government is considering several options to pressure the city to step up reform efforts. In 2019, the Ministry of Municipal Affairs launched a Development Approvals Process Review aimed at improving municipal government development and construction approval processes and timelines. One of its provisions would reduce the number of required public hearings on a permit application. The province is also considering setting targets for new housing, Eby said. Any city failing to meet its targets might get less funding for new infrastructure, such as transit.

Pavlov has a unique idea to help break Vancouver’s high-density housing NIMBYism: auctioning off densification rights to the highest bidder. That way, the housing would go where it is most needed and the money raised could be used to compensate local property owners who actually suffer a decline in their property values. “That would go a long way toward overcoming opposition,” Pavlov predicts.

Reform in the Nick of Time – Or the Worst Still to Come?

There does seem to be a creeping realization that piling on taxes and regulation is no solution to Vancouver’s worsening housing crisis. Everyone agrees it needs a fix. Dominato sees a direct link between adequate housing supply and keeping Vancouver within financial reach for Canadians. “I don’t want Vancouver to become a resort town,” she says. “It’s a desirable place to live. We need to continue to add more supply.”

Out of reach: Short supply and high prices threaten to drive most middle-class Canadians out of major markets, including the very workers we need to build.

Paul Sullivan, principal and regional leader of Ryan LLC, worries that the ever-worsening unaffordability of housing is forcing workers to move out of the city and could make matters even worse. “The real crisis is still to come,” Sullivan warns. “We’re running out of labour. We won’t have enough workers to build houses here.”

And what about Bernie Burnett, the homeowner trapped in her overvalued, under-maintained and tax-burdened West Point Grey house? Burnett may not be sure of exactly what would ease Vancouver’s housing crisis – but she is certain that ever-higher taxes won’t be it. “[It’s] not the solution,” she says. “All they’re doing is digging us in deeper, and they’re getting no results. When my parents pass, I’m just going to sell the house and get the hell out of Dodge.”

Doug Firby is an award-winning veteran journalist and newspaper manager based in Calgary, Alberta, who has worked in print and electronic media for more than 40 years.

Source of main image: Shutterstock.

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