Taxing land wealth for the public good: provincial policy options

Property wealth has become a massive source of inequality in BC as home prices and rents have risen dramatically amid a severe housing crisis and shortage. A consequence of high prices has been an explosion of residential real estate wealth now totaling over $2.1 trillion in the province, a stock of wealth that remains only lightly taxed. 

In less than two decades, just the increase in residential property wealth has amounted to a staggering $1.7 trillion.¹ Even the most equally distributed segment of property wealth—owner-occupied principal residences—is highly concentrated. As of 2019, the top two fifths of British Columbians (by net worth) held almost 80% of principal residence asset values. 

While the BC government has taken some worthwhile steps towards taxing the most-expensive properties, these have only scratched the surface of the enormous property wealth gains in BC. 

In this report, I examine provincial property tax policy options with three main aims:

• to tackle extreme inequality in property wealth;
• to raise provincial revenue for investment in public services and infrastructure including housing;
• and, to design tax policies that can also help directly lower housing prices and make real estate a less lucrative target for passive, non-productive investment.

The policy options examined here inevitably involve technical or political tradeoffs, or both. There is no perfect property tax reform, but a range of options are worthy of consideration individually or in combination. Five key policy options examined in this report include:

1. Doubling the existing provincial property tax rates on residential property value above $3 million (to 0.4%) and $4 million (to 0.8%), as well as adding a new bracket above $7 million (1.5%).
2. Using the above brackets and rates, restructuring these progressive taxes to apply to the total property holdings of a given owner, rather than applying on a per-property basis.
3. Applying progressive property tax brackets at a lower threshold ($1.5 million) to cover a greater portion of residential property wealth in BC (in this case including about 11.7% of households).
4. Ending the automatic cuts to base property tax rates that occur as property values rise.
5. Shifting property taxes towards a tax on land value specifically (as opposed to the value of productive investments in the buildings or improvements on a property).

Land wealth is created collectively 

The vast majority of BC’s residential property wealth is in the value of the land ($1.5 trillion) rather than in the buildings on it.² Unlike the value created by constructing or improving a building, increases in land values are not the result of any effort or expense by property owners. Rather, the land value is a social creation in that it reflects what makes the use of a particular location attractive to people.

Land values are generated by everyone participating in the life of a city or community, creating the culture, social connections, goods and services that make a place desirable to live (and shaped by the geographic features of a place). They are also created by direct public investments in infrastructure and services like streets, sewers, water, electricity, public transit, schools, parks, libraries and community centres. Yet, socially and collectively created land value gains flow into concentrated private hands. 

One important way that land value can be shared more broadly is through public or community ownership of land. Given that much of BC is on unceded land stolen from Indigenous peoples, it’s notable that the Squamish Nation is showing the potential of this approach with lands it controls. The Nation’s Sen̓áḵw housing development will add 6,000 new homes to its reserve lands in Vancouver, creating a major revenue stream of rental income for the Nation while providing homes to help ease the wider housing shortage. A similar approach is being taken jointly by three First Nations that own the Jericho lands.³ 

Our focus here, though, is another way to ensure that privatized land value gains are more broadly shared: tax them. Property and land taxes can generate significant revenues to invest in the public good.

Understanding the property tax system (and its automatic rate cuts)

In regions where property value gains have been most concentrated in BC, property tax rates are low and have declined sharply over the past two decades. Unfortunately, the existing annual property tax system is designed in a way that ensures that only an ever-shrinking share of property value will be taxed.

As things stand, property taxes work very differently from other taxes. Rather than locking in a tax rate (or set of rates) as we do with income or sales tax, property tax rates change annually. At the municipal level, a city, town or village determines its budget for the year and then sets property tax rates at a level that will raise this amount of money. When property values rise, the property tax rate (or “mill rate”) decreases to ensure revenues don’t exceed the planned spending. The municipal portion of the property tax rate in Vancouver has fallen by half from 0.30% of assessed value in 2000 to 0.16% in 2023, and the city’s overall property tax rate fell from 0.63% to 0.28% over the same period. 

Property taxes include municipal, provincial and regional portions. For example, in Vancouver the overall property tax rate is now 0.28%, with the 0.16% municipal levy and 0.08% provincial levy (known as the School Tax) being the largest portions and the remainder going to Translink, Metro Vancouver, BC Assessment and the Municipal Finance Authority. The focus of this report is on provincial property tax policy options, but much of the analysis and logic could be applied to improving municipal tax policy.⁴

A long-standing BC policy holds that provincial property tax rates are decreased annually when property values rise to ensure the “average provincial revenue per home only increases by BC’s Consumer Price Index rate of inflation.” Since rising values have far outpaced inflation, provincial property tax rates have fallen (even faster than municipal ones, at least in Vancouver). Furthermore, effective property tax rates are even lower than the posted rates, at least for the 92% of owner-occupier households in BC that receive the provincial government’s Home Owner Grant tax break each year.

Having property tax rates that automatically fall in response to rising property values is standard policy in Canada, but there’s no reason it should be in an era of ballooning property wealth. This tax structure effectively locks in land wealth inequality—ignoring hundreds of billions of dollars in land value gains— and ensures the property tax system does little to alleviate it. Annual property taxes are treated exclusively as a means to raise revenues for a limited set of municipal services and as a modest provincial revenue source. As land wealth grows, an ever shrinking proportion of it is harnessed for the public good even though public infrastructure investments give urban land much of its value. 

Low property taxes also make real estate particularly enticing for passive investment. There are few if any other financial products where as the value increases, the tax rate applied decreases. Combined with the federal exemption of principal residences from capital gains tax, this makes owning housing a highly attractive investment relative to other assets (including for owner-occupiers), which drives up prices.

Towards a more progressive property tax system

The BC government has taken some important but limited steps in recent years when it comes to taxing residential property wealth, which my colleague Marc Lee recently reviewed in detail. 

Most relevant for our purposes, BC added two new brackets and rates to the provincial portion of annual property taxes (School Tax): 0.2% on value above $3 million and 0.4% on value above $4 million. These newer brackets are known as the Additional School Tax. Notably, these tax rates are fixed rather than regularly adjusted downward as with the rates on the main bracket. This was an important step towards establishing a progressive property tax system, for which the CCPA has long made the case. 

The province also introduced the Speculation and Vacancy Tax on empty homes and so-called “satellite families”, a foreign buyers’ tax and a new bracket to the Property Transfer Tax on value above $3 million.

But these recent property tax reforms are very small relative to the huge increases in land wealth. For example, while $223 million was raised last year by the new Additional School Tax brackets, that’s a drop in the bucket compared to residential property value gains of $1.7 trillion since 2005. 

In the following sections, I consider policy options to extend progressive property taxation in BC. 

First, I model a revision and expansion of the existing provincial property tax brackets on value above $3 million. Then I examine the prospects for applying these revised brackets to the total property holdings of a given owner, rather than solely on a per property basis as under the current system. Next, I consider two more policy approaches that would include broader portions of the property tax base. I then discuss why focusing taxes on the land portion of property values would generally be an improvement to the design of the existing property system (and to any of the other policy options presented).

Policy Option 1: Increase top-end progressive property tax rates and add new bracket

In this policy option, I model a doubling of the rates on the two current Additional School Tax (AST) brackets on the value of properties over $3 million and over $4 million that were added to provincial property taxes in 2018, as well adding a third bracket (1.5% on property value above $7 million).

• Proposed progressive property tax rates (annual per property): 
  • 0.4% on portion of value above $3 million
  • 0.8% above $4 million
  • 1.5% above $7 million
• Affected: Top 1.9% highest-value properties
• Annual revenue estimate: $579 million (increase relative to current AST: $356 million)

The revenue estimate of $579 million represents more than double the revenues generated by the existing AST brackets and rates ($223 million in 2022). This estimate is extrapolated from Ministry of Finance revenue figures for the existing brackets.⁵ The actual revenues may be somewhat lower due to decreased property values in this market segment. Whatever combination of lower housing prices and increased revenues results from the tax, these are both good policy outcomes.

This type of tax structure focuses on a small percentage of the most expensive properties in the province. According to Ministry of Finance estimates, only 1.9% of the most expensive properties in BC were affected by the progressive property tax brackets above $3 million in 2022. The new bracket I propose adding above $7 million would only affect approximately 0.2% of properties. 

Policy Option 2: Progressive tax brackets based on total property holdings of wealthy owners

One limitation of the existing progressive property tax brackets in BC is that they are assessed on the value of individual parcels separately. If an owner of residential real estate in BC holds more than $3 million worth of residential property, but this is spread across multiple properties worth less than $3 million, then they are not subject to the existing higher progressive property tax brackets. For example, if a very large owner held 50 properties worth $2 million each, they wouldn’t pay the higher rates.

I therefore model an alternative property tax structure where brackets and rates are applied based on the total BC residential property holdings of any given owner (using the same brackets and tax rates as the previous policy option). With some modifications, the new Land Ownership Transparency Registry created by the BC government could help make the administration of this tax structure possible. 

The proposed tax structure and revenue estimates are as follows: 

• Proposed progressive property tax rates (annual on total holdings of a given owner): 
  • 0.4% on portion of value above $3 million
  • 0.8% above $4 million
  • 1.5% above $7 million
• Affected: 3.7% of BC households⁶
• Annual revenue estimate: $1.17 billion (increase relative to current AST: $938 million)

The revenue estimate and share of households affected are derived from Statistics Canada survey data on household assets. There is necessarily a substantial degree of uncertainty around these estimates and they should be understood in the context of the limitations of the data.⁷ 

At $1.17 billion, this is estimated to approximately double the revenue relative to the per-property tax structure in Option 1, as well as represent a net revenue increase of an estimated $938 million compared to the revenues from the existing provincial progressive property tax rates of $223 million in 2022. 

This design still focuses on a small percentage of holders of significant real estate wealth in the province, including roughly 3.7% of BC households with over $3 million in real estate assets.⁸ Taxing total residential property holdings of a given owner would ensure that large real estate owners can’t avoid progressive property tax rates by splitting their investments among multiple lower value properties. 

Like the existing progressive property tax brackets, the policy suggested here would exempt purpose-built rental buildings, ensuring no disincentive to creating new dedicated rental housing. In fact, it would provide an incentive for new construction on multi-family zoned land to take the form of rental rather than strata condos (since these two forms of housing are often left to compete for the same scarce parcels of land). At the same time, it could conceivably render certain strata developments unviable while still not lowering land prices enough to make rental viable on those sites.⁹ But any negative effect on strata supply could readily be offset by sufficiently ambitious rental upzoning policies, as well as by using revenue raised to increase public investment in dedicated affordable housing. 

This tax structure may also tend to encourage a shift in use of some existing strata units towards owner-occupation rather than being rented out on the secondary market, or towards ownership of secondary rental units by smaller landlords with total holdings under the tax threshold.¹⁰ 

A challenge to this tax design is that it would represent a significant change in the structure and administration of property taxes relative to the existing per-property approach. In essence, we are talking about a surtax applied on an individual basis (more akin to the income tax system) rather than on a per-property basis (like the rest of the property tax system). Changes would be needed to the Land Ownership Transparency Registry to ensure the total property holdings of an individual could be identified, including in more complex cases where properties have multiple beneficial owners.¹¹  Implementation would take more time than the other policy options considered here. 

Policy Option 3: Broader-based progressive property taxes brackets

The two policy options above focus only on the top few percent of properties or owners, helping address wealth concentration at the highest end of the real estate market. This narrow focus may make these policies more politically popular, as evidenced by polling on the existing property tax above $3 million. 

In this section, I suggest a property surtax option that captures a larger share of high-value properties and has higher revenue potential. While this is a provincial proposal, it is adapted from national-level proposals in the CCPA’s Alternative Federal Budget 2023 and from Generation Squeeze. 

Here, a surtax would apply at a lower threshold on the portion of a property’s value over $1.5 million:

• Proposed progressive property tax rates (annual per property): 
  • 0.5% above $1.5 million
  • 1% above $2 million
  • 1.5% above $7 million
• Affected: 11.7% of BC households 
• Annual revenue estimate: $2.01 billion (increase relative to current AST: $1.77 billion)

The revenue estimate for this broader-based surtax is derived from Statistics Canada data.¹² While the tax would affect less than 12% of households, it would cover about one third of BC’s total residential property value. As in the previous options, purpose-built rental housing would be exempted.

Given the broader tax base captured here, one concern is that some property-rich households with relatively low incomes or large mortgages may find it difficult to cover the tax payments. However, BC already has a range of options to defer property tax payments until a property is sold, including for people over 55, surviving spouses, persons with disabilities and families with children. One possible variation on this policy would be to make the deferral options even more broadly available for the surtax portion of the property tax, while also income-testing the deferral at the high end to avoid misuse.¹³

In another variation, this lower tax threshold and rate structure could be combined with Policy Option 2, applying the tax to the total residential property holdings of a given owner rather than on a per-property basis. In this case, the revenue estimate rises to $3.69 billion and 15.3% of households are affected.¹⁴

Policy Option 4: End the automatic cuts to base provincial property tax rates

In addition to adding new brackets and increased tax rates on the highest-valued properties, what about addressing the long-running decreases in base property tax rates? Among the three policy options above, even the broadest of them would still leave over $1 trillion of BC’s residential property wealth untouched. From this perspective, there is a good case for increasing base property tax rates. 

As discussed above, property tax rates have plummeted in cities like Vancouver as property values exploded. BC’s high-priced cities have among the lowest property tax rates in North America. For example, Vancouver currently has a residential property tax rate of 0.28%, Burnaby is 0.27%, Langley is 0.30%, Richmond is 0.29%, Victoria is 0.44%, Saanich is 0.41% and Kelowna is 0.40% (including the municipal, regional and provincial portions). By contrast, Toronto’s property tax rate is more than double many of these at 0.67%, Calgary is 0.66%, Seattle is 0.88% and the US average is over 1% (though cross-jurisdictional comparisons entail some complexity due to different assessment practices).¹⁵ The historical contrast is also striking: Vancouver’s rate was 0.63% as recently as 2000 and was 1.2% in 1988.

Whether in combination with new progressive brackets, or as a standalone policy, addressing ultra-low base property tax rates would help reduce inequality, raise revenue and dampen housing prices. 

A first step would be to stop automatically cutting provincial property tax rates when property values rise faster than inflation. Holding rates steady wouldn’t raise much revenue initially, but if property values continue escalating, it would raise revenue and ensure more land value gains are captured for the public good (while helping to contain price escalation). In turn, if property values don’t escalate—e.g., due to much more ambitious policies to build affordable homes and address the housing shortage—then a rate freeze would have little effect because tax rates wouldn’t have fallen anyway. But this would imply that housing costs are coming under control, which is an even better outcome than raising revenue.

The province could also consider reversing past rate cuts by putting a minimum floor on overall property tax rates, gradually raising rates in high-value cities from the current ultra-low levels. Low property tax rates entrench wealth inequality and make passive investment in housing highly attractive. Introducing a property tax floor could also address the large regional inequalities in School Tax rates, wherein communities with less property wealth pay substantially higher rates than the places where property wealth has exploded.¹⁶ 

For example, suppose the province established 0.5% as the minimum for municipal, regional and provincial property tax rates combined (for Vancouver, 0.5% is where rates stood in 2007). The province could gradually raise the School Tax to ensure overall property tax rates reach this floor over a number of years. Notably, a 0.5% floor would still leave rates lower than the vast majority of North American cities, including high-priced comparator cities like Toronto, Seattle, New York, Los Angeles and San Francisco.

The biggest changes would occur where property values are highest and tax rates are lowest. At present, a property tax floor of 0.5% would be binding on municipalities in Metro Vancouver, Victoria and Kelowna, but not Prince George, Nanaimo and Kamloops where rates are already higher than 0.5%. This would represent a shift towards raising a greater share of revenue from the largest pools of property wealth.

A policy of this kind would have a number of implications. By applying the floor to the combined property tax rate, affected municipalities would be given the opportunity (and incentive) to step in and use this tax space themselves by raising their own rates, rather than leaving the province to collect the revenue. This would shore up municipal finances and help fund local investments in services, infrastructure and housing. If not, the province could direct the funds into these priorities itself.

Increasing base property tax rates would result in a combination of higher tax revenues and lower property values. The price buyers are willing to pay for a house—and the size of the monthly mortgage payments they can support—depends in part on the ongoing costs of holding the property including the property taxes. All else equal, when property tax increases, buyers’ bids (and therefore prices) will be lower. This doesn’t mean homes become more affordable (this requires building non-market housing and increasing overall supply) since lower prices are cancelled out by higher property taxes. But it does mean more property wealth is captured by the public through taxation and less by private owners. 

Estimating the likely revenue that would be raised from implementing a property tax floor requires modelling beyond the scope of this report. To get a sense of the possible scale, though, note that gross residential School Tax revenue at the base rates (before the Home Owner Grant tax break and excluding the additional progressive brackets) is $2.1 billion in the current budget year in BC.¹⁷ 

Of course, the politics of raising base property tax rates would be challenging. Broad-based property taxes are consistently less popular in public opinion polling than other taxes. This is in contrast to BC’s top-end property tax increases, which have had high levels of support in opinion polls. To address objections relating to fixed-income households, options to defer additional tax payments until sale could be included, as discussed above. Enacting a property tax floor could also be packaged as part of a tax shift wherein property tax rates would rise but income tax rates would fall, which may have its own popular appeal. But this latter approach, whatever its merits, doesn’t address our goal of raising more revenue.

Policy Option 5: Shift to a land value tax 

Property tax policies—including both existing policies and those proposed in this report—would be improved by shifting their focus (in part or in full) to the land portion of property value, as opposed to the building or “improvement” value. As discussed above, land value represents the vast majority of residential property values in BC. Because land value is created through no action of the landowner— and because the physical supply of land is fixed—taxing it results in no disincentive to productive investment. Moreover, since land can’t be picked up and moved, taxation is very difficult to evade. For these reasons, economists tend to view taxing land value as an especially efficient form of taxation. 

In single-family zoned areas of high-priced cities like Vancouver, the existing property tax is already close to functioning as a land tax because the large majority of property value is in the land portion. But for apartment housing, the value of the building represents a much larger portion of the overall property value. As a result, land value taxation provides an incentive to build apartments rather than low-density detached houses, encouraging more efficient land use in high-demand cities facing housing shortages. In fact, at the beginning of the twentieth century Vancouver briefly had such a land value tax.

In recognition of the fact that land value is created through the activity and public investments of the broader community, one related approach is sometimes referred to as land value capture, which can be tied directly to large public infrastructure investments. As the BC General Employees Union (BCGEU) has pointed out in its housing policy analysis, when a new public project like a rapid transit line is built, nearby private landowners’ benefit enormously from increased land values resulting from the investment. The portion of land value increases in the area attributable to the transit investment can be calculated by the BC Assessment agency, and the BCGEU suggests taxing that portion of the increase.

Conclusion: Paths forward for taxing land and property wealth 

The scale of BC’s property wealth explosion—an increase of $1.7 trillion in less than two decades—is extraordinary. Skyrocketing property values are a reflection of the broader housing crisis. While rising property values are a boon to existing owners, they are a massive source of inequality as well as a burden to renters, would-be buyers and businesses struggling to recruit workers who can’t find housing. 

The hard truth is that housing can either be affordable, or it can be a source of wealth gains for owners, but it cannot be both. To make housing affordable, we need to massively increase public investment in non-market housing and increase overall housing supply by dismantling municipal roadblocks like exclusionary zoning, which effectively bans apartments on most of the residential land in our cities. 

Property tax reform serves a related but distinct purpose: to address accumulated land wealth inequality and help ensure this wealth can be harnessed for the public good. Property tax rates have plummeted to historic lows, but if that were changed they could serve as a bigger source of much-needed public revenue. After years of neglect, there is a huge backlog of need for public investment in housing and other critical services as we face social and environmental challenges from health care to climate disruption.

This report has examined five such provincial policy options that deserve consideration, focused primarily on annual recurring property tax structures. There are many other policy options that could be considered, of course. For example, as my colleague Marc Lee has suggested, BC could overhaul the $910 million per year Home Owner Grant tax break currently given to property owners. Another option is to increase property transfer taxes, although this approach comes with some significant policy tradeoffs and the revenue potential of a well-designed version may be modest.¹⁸ In addition, while the focus of this report is provincial, the federal capital gains tax exemption for principal residences (worth $9 billion in foregone revenue) is a strong candidate for reform either by phasing it out or enacting a lifetime cap.¹⁹

There is no use pretending that the politics of property tax reform are easy. While property wealth is highly concentrated, it still financially benefits a substantial portion of BC households. In contrast with policy proposals like a federal wealth tax on the richest 0.5%, property taxes are far from being a slam dunk with the public. Property taxes seem to cause an unusual level of animus in part because they are so salient: they don’t automatically come off of paycheques and they’re paid in a lump sum. Indeed, reforming the administration of property taxes to allow for automatic payments by installment—and making this the default—is also worth considering and could shift the perception of this tax.

At least in the short term, the more narrowly targeted policy options presented in this report may be more politically realistic than the broader-based ones. But the narrower approach comes at a cost: leaving hundreds of billions of dollars in privatized land wealth gains untouched. 

To open up further political space for reform and bridge the conflicting interests at play, one promising possibility would be to convene a Citizens’ Assembly on land and property tax reform. Many property-rich British Columbians understand that land wealth gains have been a stroke of luck—like winning the lottery—that has unintentionally come at others’ expense with corrosive effects on the social fabric. Given the unique opportunity that a Citizens’ Assembly affords to gather information, deliberate and reflect with fellow citizens on the nuances of the problem, owners too may be ready to prescribe property tax reform. 

Regardless of the politics, as we seek to address growing inequality and a housing crisis, we will have to face up to these challenges. In the lead up to the next provincial election, BC deserves a serious debate on how to fix a flawed property tax system that has contributed to massive wealth inequality and high housing prices. Property and land tax policies are needed that can reduce wealth inequality, raise revenue for public investment, level the playing field between regions and encourage more efficient land use.

Notes

1.  This compares the 2023 assessment rolls data to the totals shown in the 2005 BC Assessment Annual Report.
2. Per the BC Assessment agency’s 2023 assessment rolls data.
3. Other levels of government should take a lesson here: when they hold land in public ownership and build badly needed housing on it, the community they represent can benefit through a combination of the revenue generated and/or through the provision of below-market housing to meet the pent up need for housing. In the example of Sen̓áḵw, the Squamish Nation benefits most directly from the revenue stream. In the case of federal, provincial or municipally owned lands, the beneficiaries would be the communities that these levels of government represent.
4. However, municipalities would need provincial permission to add progressive brackets to their property taxes. Given the province already uses progressive property tax brackets, denying this option to municipalities is hard to justify.
5. The figures are found in the 2022 Estimates Notes for the BC Ministry of Finance. Since these are based on July 2021 property assessments, I used the Canadian Real Estate Association’s Housing Price Index (HPI) to account for price changes since that time and scaled up the revenue estimates accordingly. Specifically, I scaled up revenues by the percentage increase in the Lower Mainland HPI between July 2021 and March 2023. This is a conservative approach because it doesn’t capture properties that are newly crossing the $3 million threshold as prices increase.
6. For the higher brackets, even smaller shares of households are affected by the tax: an estimated 1.6% of households for the bracket above $4 million and 0.4% above $7 million.
7. Specifically, the data comes from Statistics Canada’s Survey of Financial Security (SFS), conducted in 2019, which includes data on the principal residence and “other” real estate assets held by BC households. I combined these reported asset values and scaled them up to approximate present-day prices by using the percentage increase in the Canadian Real Estate Association’s Housing Price Index (HPI) for British Columbia. However, the SFS does not capture some real estate assets that would be affected by the proposed tax (on the one hand) and does include others that would not be affected by the tax (on the other hand). For example, since the SFS is a survey of households, the data fail to capture residential properties owned by corporations, and they also don’t include BC residential properties (which would be affected by the proposed tax) that are owned by households outside BC or outside of Canada. But the figures used include assets that would not be taxed under the proposed policy: out-of-province and non-residential real estate assets owned by BC households, as well as purpose-built rental housing (in cases where they are owned directly by households). The available SFS data do not distinguish between these more granular categories. To arrive at an approximate tax base for my revenue estimates, I assume that these various categories roughly cancel each other out. That is, I simply use the total real estate assets each BC household is reported as owning in the SFS. As one indication that this tax base is in the right ballpark (or may be conservative), note that the total aggregate real estate wealth owned by BC households captured by the SFS data set that I used is $1.75 trillion (after the HPI scaling described above). This is less than the $2.1 trillion in residential real estate value in British Columbia as reported in the most recent data from BC Assessment.
8. The 3.7% figure is likely an overestimate as some of the revenues would actually come from non-BC residents.
9.  This could arise where potential redevelopment has lower value (as a result of the tax) than the existing site use. 
10. All else equal, a shift to owner-occupation use of existing units may be expected to put small downward pressure on purchase prices and small upward pressure on rents. But the tax exemption for purpose-built rental would provide an offsetting incentive in favour of rental supply, mitigating that upward pressure on rents. It would also remain important to take additional and complementary measures to increase rental supply including robust upzoning policies and increased public investment in affordable housing using the revenues generated.
11. Currently, the registry focuses on tracing beneficial ownership back to individuals, e.g., through narrowly held corporate shells. To ensure all large corporate owners of residential real estate are captured by the tax, the registry would also need to require that property ownership be traced back to broadly held corporations in cases where these are the ultimate owners of a given property (so that this type of corporate owner wouldn’t be able to avoid the higher property tax brackets by, for example, spawning subsidiaries to split up its property holdings).
12. The data here are again from the Survey of Financial Security and its estimates of household real estate assets (as above, scaled to approximate present-day prices using the Canadian Real Estate Association’s Housing Price Index). This data set does not provide asset values separately for each property, except for principal residences. Since the tax is structured on a per-property basis, my estimates primarily rely on these principal residence values, which account for the overwhelming share of the estimated tax revenues (though I am able to include a small subset of secondary real estate assets). The revenue estimates are likely conservative, as they are unable to incorporate the tax that would be collected on BC properties held by out-of-province, out-of-country and by corporate owners (though they will also include some out-of-province properties held by BC households).
13. Allowing deferral of the surtax may make the timing of the revenue intake less predictable. However, existing property tax deferral options in BC are structured as low-interest loans, which may imply that the tax revenues are still counted in the year of assessment for budgetary purposes, with the deferral loan booked as a separate liability. Another variation of a deferral option on the surtax would be to include a rollover provision that allows continued deferral if a property is being sold by the owner-occupier to buy another principal residence.
14. See the footnotes under Policy Option 2 for discussion of the data behind this revenue figure.
15. While BC’s property assessments are meant to reflect current market value, some jurisdictions like Ontario use a four-year average in their property assessments. When prices are rising, assessments will be somewhat below market value, meaning the effective property tax rate on market value will be slightly lower than the posted rate.
16. This regional inequality can be observed in the tax rate examples shown above. This is in contrast with Ontario’s provincial portion of property tax where the same rate is applied to residential properties province-wide.
17. BC Budget 2023 reports $1.43 billion in residential property tax revenue net of the $910 million Home Owner Grant, meaning gross revenue is $2.3 billion. Excluding the Additional School Tax revenue results in $2.1 billion. To raise Vancouver’s overall rates to a 0.5% floor would entail an increase of 0.22% (from the current 0.28%). Vancouver’s provincial School Tax rate is only 0.084%, so this would need to more than triple to enact the 0.22% increase. After accounting for the price effects (and communities already above the floor), suppose for the sake of argument that provincial property tax revenue increased by only 50% as a result of enacting this minimum rate floor. This may be conservative but would still imply a revenue increase of more than $1 billion.
18. Property transfer taxes have the advantage of being applied at the time of sale when buyers and sellers are more liquid with cash at hand to pay the tax. However, transfer taxes that apply to primary residences have the disadvantage of serving as a penalty on moving for households, imposing extra expenses on those that need or want to move more frequently. A higher transfer tax that only applied to secondary investment properties—as exists in Singapore—could raise a modest amount of revenue from a subset of sales without imposing this moving penalty on households. However, this approach may also lead to the sale of some properties used as secondary rental units to owner-occupiers, reducing both rental supply and demand.
19. See this recent report by Jonathan Rhys Kesselman for policy design considerations regarding reform of the federal principal residence capital gains exemption.

Topics: Housing & homelessness, Municipalities, Taxes