Wednesday and Thursday Numbers, and a tax question.

As predicted, there was a listing rebound after the New Year.

There were 148 new listings today, and 72 sales, for a sell/list of 48.65%. Inventory was 7,448, while over 90s were 2,044 (27.44%)

Yesterday there were  146 new listings and 76 sales, for a sell/list of 52.05%.

 Tax assessments are in the news, and fears of tax hikes are prevelant.  I heard on CKNW today that municipal tax freedom day is January 15.  That’s not too bad, considering we’ll have at least another 6 months after that before we hit general tax freedom day.  But, this thought occurred to me: if renters get a bargain in that their accomodation is subsidized (as many have argued) doesn’t that mean that the landlord is paying taxes that the tenant really should pay?  And if the tenant isn’t paying those taxes, or at least not his fair share, should he have a say in how they’re spent? Should we move back to a property qualification system for voting? No property, no vote? Or should we consider funding our municipal expenses differently? The renter pays the same as the landlord, based, perhaps, on income, and collected, like provincial income tax, on your T1? Is it fair, or wise, for landlords to subsidize a renter’s tax bill? 

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79 Comments

Filed under Daily Numbers

79 responses to “Wednesday and Thursday Numbers, and a tax question.

  1. domus

    Rob,

    being a landlord it’s not a random assignment, it is a choice. When you buy, you get some benefits and you get some costs. It is up to you to decide what is larger. I truly don’t see your point.

    If the costs are higher than the benefits, then less people will buy and prices will go down. When they are low enough, the benefits will become again larger than the costs, and more people will buy.

    In equilibrium there should be no difference between benefits and costs, as prices should adjust. In RE prices are sticky, so we are most often off-equilibrium, but they do adjust in the long-run.

    I simply think that higher taxes are one more negative for Van RE. I reiterate my stand that we will observe a massive (huge) price adjustment over the next 5 years, probably starting by the end of next summer.

    Patience is what is needed, for the bears…..

  2. -A-

    Simply brilliant, Rob, this one rivals the principia matematica.

    Personally I would tax you specuvestors out of existence. Tax breaks should go to legitimate developers who create jobs and increase the rental stock, not to people like you who have turned a basic human need into a poker chip.

    But what about the homeowner grant? The government collects taxes from tenant types like those on Hastings and Victoria, and then it redistributes to those who live on the British Properties.

  3. M-

    I’m with Domus on this one.

    Incidentally, interesting that the over-90s are still very high, given the massive set of expiries at the end of the year.

  4. abc

    Yes Rob, absolutely. And while we are at it I guess owners buying overpriced properties are subsidizing builders, banks and real estate agents. Let’s move to a system such that those parties pay a share of the owners’ taxes too 😉

  5. WoW

    Rob, I hope you were just being the Devil’s Advocate – that’s a joke. If my landlord (and I’ve been a landlord more often than a renter, so I’ve seen both sides – I just choose to be a landlord when cashflows warrant, imho) can’t get market rent high enough to cover his costs, that’s his problem – he’s free to reduce his asking price by 50% and sell it to me, no problemo.

    I do believe you were just trying to shake things up, good on ya!:))

    Thanks for the numbers, you have a lot of addicted bloggers here, we appreciate your taking the time to post them on a timely basis, and like the Pavlovian subjects we are, we react immediately to that bell….

  6. WoW

    Domas – do you really think it will take till Aug/Sept for prices to fall and attract media/mass attention?

    Anyone think it might just happen sooner, and if so, when and what format (how does it play out initially) does it take – guesstimates and wild guesses alike are welcomed!

  7. jesse

    In England, the renter pays the council taxes as they are the ones actually using the services. So it’s not actually that far fetched. The renter pays for the taxes through rents. The problem with the renter paying is that arrears will be more difficult to deal with as many renters have no assets to lien.

    I don’t think only allowing property owners to vote will change things much. In the end the city will pay for itself no matter who is voting.

  8. Anonymous

    ROB! What happened to inventory?!

    We shaved off another 1000 since the last time you posted.

    Could it be THAT many expiries?

  9. -A-

    oops, I forgot to thank Paul for the numbers.

    http://paul-northvancouverhomes.blogspot.com/

  10. blueskies

    we react immediately to that bell….

    ding! rob i’m surprised!
    realtor as sh!t disturber….. 🙂

  11. Dee

    Landlords don’t “subsidize” their renters’ taxes any more than any other business subsidizes their customers’ taxes. If I eat at a restaurant or stay at a hotel, part of my fees go to the business’ overhead, which includes any taxes.

    Landlordscan pass on their costs to their customers pretty much like any other business. Of course, in BC there are measures to limit rent hikes, but smart landlord would be able to calculate that into the cost of doing business.

  12. vanreal

    Landlords should reflect the cost of the taxes in the rent to some extent. No? Also in England the tenant pays the council tax.

  13. Brittany Spears

    2008 Prediction: Sell/List
    Jan: 50%
    Feb: 40%
    Mar: 30%
    April: 20%
    May: 10%
    June: 0%
    July – Dec 3-5%

  14. Skeptic

    Lets not get ahead of ourselves. Cast your browser back to this time last year: http://rireb.blogspot.com/2006_12_31_archive.html

    Total inventory: 8,227
    Over 90’s: 2,456 (29.85%)

  15. coco

    Since a tenant subsidizes the landlords mortgage payment, perhaps the tenant should get a percentage of the profit when the landlord sells the property too?

    Owning a property is a privilege. With this privilege comes financial risk of reward or loss. A landlords personal financial risk tolerance is not a tenants responsibility. The same would hold true if you purchased stock, the stockbroker is not responsible for the stock you buy, the price it trades at and any costs involved.

  16. coco

    Price lift confirms Victoria homeowners’ faith
    But financial experts say most people shouldn’t leverage principal residence

    http://tinyurl.com/3akrkd

  17. coco

    Canadians should brace for gas prices above $1.30 a litre this summer and rising costs for food, transportation and many other services if oil stays at $100 (U.S.) a barrel, industry analysts says

    http://tinyurl.com/29sc46

  18. Mightymouse

    “Since a tenant subsidizes the landlords mortgage payment, perhaps the tenant should get a percentage of the profit when the landlord sells the property too?”

    Exactly. Technically one could argue that a portion of the rent revenue is used to pay the property taxes… A landlord should include all the property costs and reflect those costs in the rent he commands (obviously there will still be some ownership premium).

    We all know the rent vs. own ratios around this town don’t make sense. Saying that the tenant should pay the taxes is kinda like saying rents should be higher. And they should… But they’re not. That should tell us something.

  19. Mightymouse

    Either the cost to buy a house will come down or the cost to rent a house will go up.

  20. Rob, you hurt my feelings on this topic. I was ready with my answer before I finished reading your post. Coco and Mighty Mouse echo my sentiments exactly. Let me explain.

    I rented my last property. It was offered to us for sale by the landlord before the 2-year lease began. We opted out.

    The landlord collected $36k in rent during our 2 years there. That part is none of my darned business. But……

    The minute we moved out, he sold it for $120k MORE THAN the price he’d offered to us at. If the law had been that we were to pay half the property taxes, I imagine that the very same nice law would have forced landlords to split the Capital Gain with us, n’est pas??

    I’m OK with that kinda law, as we would have lived rent-free for 2 years, PLUS pocketed $24k ( $120k-50%=$60k-$36k rent=$24k. Yup, Count me in!

  21. Priced Out

    Rob, thanks for the response on the realtor bonus. I still have ethical concerns (will the buyers agent steer the buyer to the property only for the bonus?), but I’m relieved the buyer has to be informed.

  22. coco

    A lot of rentals were purchased quite some time ago for a lot less than current prices. For every landlord who has overextended themselves financially, there is one who has their property totally paid for or has a very low mortgage amount.

    Subsidizing rent? My realtor knows a few people who under rent their properties so they can take capital losses on their taxes. Imagine that, being so wealthy your looking for capital losses!

    Being a landlord includes competition. The competition can offer cheaper rents depending on their personal financial situation. There is always a landlord around who is in a better financial position than the next landlord, thus there will always be competition for rent rates.

  23. coco

    $100.00 a barrel oil will damage the economy. If the BC government introduces the new carbon tax and the transit tax per litre increases too…yikes.

  24. coco

    U.S. jobs report comes in at 18k way, way, lower than the expected 70k.

    Credit crunch, subprime losses, high oil, slowing job growth and a housing slump. Each on there own is bad enough, together an explosive cocktail.

    And…we have not gotten to round two of the banking sectors subprime losses for Canada and the U.S. which will be much higher than last quarter due to further deterioration of the credit markets.

  25. coco

    In addition to lack luster job growth the U.S. unemployment rate also jumped to 5% from 4.7%. Some analysts/economists now suggesting the U.S. economy may be slowing to the point of recession.

  26. coco

    Greater Vancouver Housing Market Housing remained surprisingly robust in 2007

    http://tinyurl.com/2ykyzp

    Across the Real Estate Board of Greater Vancouver’s territory, the so-called “benchmark” the price for a typical single-family home hit $730,399 by December.

  27. coco

    Fraser Valley December stats

    http://tinyurl.com/ytehoe

    (white rock throws off stats again, this time to the upside instead of the downside like last month)

  28. WoW

    Housing Sector
    Cap-rate, shmap-rate. According to the Wall Street Journal article “Home
    Prices Must Fall Far To Be In Sync With Rents”, a study by one former and
    two current Federal Reserve economists concluded that U.S. house prices
    “likely would have to fall considerably” to return to a normal relationship
    with rents. The study suggests prices would have to fall 15% over five
    years, assuming rents were to grow 4% per year. Prices would fall deeper
    should such an adjustment take place more quickly. The study looks at rents
    and home price data for almost 50 years. Up until 1995, rents have tended
    to range between 5% to 5.25% of home prices but starting in 1996, home
    prices started to grow much more rapidly than rents and by the end of 2006,
    home prices over doubled while average rents rose only 48%, driving the
    annual rent/price ration down to 3.48%. Net out expenses and clearly
    average cap rates have fallen below the risk free rate. While it is
    possible that rents do grow at a faster than normal historic pace, chances
    are the opposite will happen as the overhang of unsold homes revert to
    rental properties. Though there is no guarantee the historic anomaly in the
    ratio will correct any time soon, the authors postulated a five-year
    horizon for the rent/price ratio to return to normal by looking at previous
    downturns. “When a downturn begins, it will last for a while.” Judging by
    the chart included in the article, that correction has begun.

  29. ceejay

    And, of course, municipal tax payments for landlords are deductable. In effect, the other levels of government are subsidizing the provision of municipal services for landlord’s properties. So a portion of any capital gains on sale should be paid to the feds/prov to recoop that cost.

  30. Warren

    Taxes should be built into the rent, just like other expenses. Any reasonable expense is tax deductible, as others have already mentioned.

    However in a similar vein of “he-who-uses-should-pay”, I think Metro Vancouver really needs to go to a metered water system. The fact that we even come close to water shortages in the summer, and our system obviously isn’t equipped to deal with heavy rain (turbidity), is a joke. It needs a cash injection, and the people soaking their lawns 24/7 need to be paying for it.

  31. Just Joe

    I can see the point of not letting renters vote in municipal elections. Some citys are listed as Corporations. Being a property owner makes you in effect a shareholder in that that city thus you have a vote for the board of directors (councillors). If you are a renter you are just a user of the corporations services (non-shareholder) hence no vote. You’d still have a vote in Provincial and Fed elections as you are a taxpayer (in theory). Of course this would never happen as their would be an uproar by the poor. Would be interesting though.

  32. coco

    (Inflation fears in China that people will eventually not be able to afford to eat on their $800.00 to $1200.00 per year average salaries.)

    “Food prices are 18% higher in China from a year ago, and the Communist kingpins in Beijing, fear that runaway inflation could ignite social unrest. The price of pork, which forms the core of most Chinese diets, was up a staggering 56%. “We’re facing a grave situation,” said Ma Kai, the country’s top planner. China has a fifth of the world’s population, with 1.3 billion people using 7% of the world’s farmland.”

    (Adding to the mix is the fear if the Chinese stock market tanks, that a lot of people will go broke because everyone has invested so heavily since saving accounts there are paying dismal interest rates. Of course, high oil prices just continue to add fuel China’s high inflation rates too)

  33. coco

    “I can see the point of not letting renters vote in municipal elections.”

    Looks like some people do not understand that municipalities just don’t get funds from property taxes alone, they get funding from our provincial government also. Renters pay provincial taxes and thus contribute to municipal funding given to each city by the province itself.

  34. coco

    Some recent examples how your provincial tax dollars are being spent for municipal improvements:

    December 20, 2007
    FUNDING TO IMPROVE DRINKING WATER FOR PEMBERTON
    PEMBERTON – The Village of Pemberton will develop a new and improved water supply for residents, thanks to more than $355,500 in federal and provincial* funding, the Honourable Chuck Strahl, Minister of Indian Affairs and Northern Development and Federal Interlocutor for Métis and Non-Status Indians, and Joan McIntyre, MLA for West Vancouver-Garibaldi, announced.

    December 20, 2007
    CHETWYND RESIDENTS TO ENJOY IMPROVED RECREATION CENTRE
    CHETWYND – The federal and provincial* governments are investing $2 million to upgrade and expand the Chetwynd and District Multi-purpose Complex, resulting in a larger, more energy-efficient building.

    December 20, 2007
    IMPROVED DRINKING WATER FOR LILLOOET RESIDENTS
    LILLOOET – The community of Lillooet will upgrade its water system and lift a long-term boil water advisory thanks to a joint investment of $380,000 in federal and provincial* funding.

    December 18, 2007
    NORTH SAANICH RESIDENTS GET UPGRADED RECREATION CENTRE
    NORTH SAANICH – A federal and provincial* contribution of $2 million is supporting North Saanich to expand its Panorama Recreation Centre, providing residents with new and exciting fitness and leisure opportunities.

    December 18, 2007
    $1.6 MILLION FOR NEW WASTEWATER SYSTEM IN SUMMIT LAKE
    SUMMIT LAKE – There will be a new community wastewater system in Summit Lake thanks to more than $1.6 million in combined federal and provincial* funding to the Regional District of Fraser-Fort George.

  35. spectralshift

    If taxes are built into rents, then it doesn’t really matter if taxes are paid by renters, does it? They’ll just end up with lower rents to offset the taxes.

    In any case, I think it makes sense to split out the two taxes into “land tax” (ownership costs) and “residence tax” (user costs). We effectively have that already since most of the usage costs are built into the things we use. There are a few exceptions (water does come to mind), but for the most part, taxes on gas, consumables and so forth are used for infrastructure.

    Splitting it out does have some interesting options, since they have different priorities. Be interesting to see what’d happen if the two groups got to assign priorities – residents might very well vote for their share to be used for parks and so forth, while the owners support transit and so forth. Well, owners probably would just want their money returned to them – but that’s one more reason to have residents pay the taxes and determine where the money should be spent, not owners. I don’t find many owner’s particularily long term minded when it comes to improving their investment.

  36. Mightymouse

    Just Joe, not all renters are poor… I happen to be a renter/business owner who employees a few impoverished home owners though…

  37. coco

    Mightymouse,

    Tell us more about the impoverished home owners you employ. Are they just making it pay cheque to pay cheque with nothing to spare? Why did you choose to rent?

  38. jesse

    “And if the tenant isn’t paying those taxes, or at least not his fair share, should he have a say in how they’re spent?”

    Property taxes are used for communal things, such as roads, traffic lights, streetlights, parks, etc. They are also used for house-specific things like water, sewer, garbage pickup, etc. I think it’s fair that all people have a say on how the money is used, as all will be using the services. Landlords will adjust their rents accordingly and renters should know that property taxes come from their rents. I do agree a renter likely doesn’t care so much about property tax levels so he may not necessarily correlate city services to the rent he pays.

    I can see good arguments for taxing the occupier directly, at least in part. It would probably increase voter turnout (I would hazard a guess owners turn out to vote more than renters). I would not go so far as to suggest council is not accountable to owners. They are the majority voting block.

  39. househunter

    Impoverished? You mean the ones that made $300k over the past 5 years? The ones that can sell now and start renting and probably buy your company or a franshise of their choice?

  40. Just Joe

    I didn’t imply all renters are poor, that is only how some people took it, what I said is it wouldn’t happen because the poor would be outraged, The poor are a very vocal group and alot of them have lots of time on their hand. I’m not even suggesting we should do it, just playing devils adovacote.
    Would any argue that I should get a chance to vote for the board of directors of Mcdonalds because I use their services? The price I pay includes profit for the company/shareholders so shouldn’t I get a say on how the company runs? Of course not, but if I don’t like what they are doing I have the freewill to go elsewhere.

  41. WoW

    Rob – do you think with the pace of food inflation, that homeowners will start taking ‘equity withdrawls’ to pay for their groceries? As well, do you think that some folks will cut back on eating and buy more RE, if they have to make a choice about where their dollars go? Could this be good for the obesity problems we are having in North America? If so, will this lead to smaller houses, if average size of people shrink?

    Things that make you go hmmm…

    Just kidding, enjoy the weekend all.

  42. WoW

    Question: Will cooling in Alberta continue into the spring?

    The past year in the Calgary residential market can be described as “bizarre,” but “still an exceptional performance” over the entire year, said Richard Corriveau, regional economist for Canada Mortgage and Housing Corp.

    “We’re essentially talking about two different markets in the first half versus the second half of the year,” he said. “And in the first half, by all accounts, it appeared we could be out for a repeat performance (of the record-breaking 2006).”

    But a “light switch got flipped” and the market “got flooded with active listings,” he said, adding a number of factors spooked the market — rapid price escalation, diminished demand due to weaker migration and more people taking possession of newly constructed homes.

    “Given that environment, we saw some retrenchment in terms of sales,” said Corriveau.

  43. WoW

    If a buyer in Calgary, at the peak, put down $50,000 as a downpayment on a house (average value), and sold it today, would they make money (after RE commissions/etc. costs), and would would be their absolute an annualized rate of return? see recent news clipping below.

    Although down more than $50,000 from their high in the early summer, the average price of homes in Calgary is still higher, at more than $460,000, than this time last year. Year-end real estate figures for 2007 are expected to be tabulated before the new year.

  44. Anonymous

    Off topic, but very tough day in the stock market today:

    Symbol Price Change
    TSX 13,812.14 Down 166.06 1.19%
    DJI 12,807.41 Down 249.31 1.91%
    Nikkei 225 14,691.41 Down 616.37 4.03%

  45. robchipman

    domus:

    Are you confusing a question for a statement of opinion? Maybe just a little? 🙂

    The logic is simple. Its been argued many times on this blog that landlords subsidize their renters because the costs of ownership are so out of whack with cash flows. The argument exists – there’s nothing controversial there.

    If the argument is valid, it seems fair to include all costs under the heading of costs. If you go along with tht you need to include municipal taxes. The logical conclusion (for those who subscribe to the subsidization argument) is that landlords subsidize the municipal tax bill of tenants.

    We often say that the person who pays the fiddler should call the tune. We don’t do that with taxes, but we do it in many other arenas, and in some voting arenas. If letting the person who pays make the decision is fair in some situations, it’s alright to ask if its fair in others. There’s no harm there.

    Saying that the situation exists and that you enter into it voluntarily doesn’t mean that the situation is fair. We’ve changed many ways of doing things over time precisely because people exercising free will agree that the current situation isn’t fair. That does happen. (Whether it should happen with property taxes or any other particular situation is irrelevant to the the idea that the existing state can be changed because its deemed unjust).

    Now I’m not telling you anything you don’t know. The subsidization argument exists, municipal taxes are an ownership cost, there is some degree of validity to the idea that he who pays should call the tune, and systems change over time.

    You’re right when you look at it from another angle. Few benefits+high costs= less of the particular article. That’s pretty straightforward.

    Some argue that there is a lack of rental housing in the Lower Mainland. Others argue that rental housing is a bad investment. Many argue both. If taxes are a cost, its logical that reducing them will improve the relation between benefits and costs. If higher taxes are negative, as you say (and generally speaking I’d agree, but that whole carbon tax: negative or positive is a huge can of worms), then, again, lower taxes to the landlord result in a better relation betweeen costs and benefits. This argument also exists out on the street. People are increasingly calling for some form of rental property capital gains rollover/deferral as a method to spur rental investment. Municipal property taxes, and who you shift the burden to, and why, is just another facet of that same tax based solution to the problem.

    There are others who argue (to one degree or another) that we don’t have a shortage of rental accomodation, and that in fact we’ll soon have an over-supply. You’ve seen that argument on this blog (“I walked through Yaletown last night and 60% of the lights were off in all the condos….They must be vacant”.) This argument ends with a crash in prices due to over supply. If supply exceeds demand there is no need to deal with a rental housing shortage because its not real, right? It also follows that the subsidization argument is largely invalidated. Landlords who do subsidize rents do so on the basis of having paid more for the property than it was worth, and are balanced out by guys who follow my advice and buy property wisely (and Coco makes this argument when she points out that many owners bought at lower prices, right?).

    You’re also right, in theory and in practice, when you say: “In equilibrium there should be no difference between benefits and costs, as prices should adjust. In RE prices are sticky, so we are most often off-equilibrium”.

    Bottom line, we have a few mutually exclusive arguments floating around the blog. I thought it would be fun to stir the pot. I haven’t taken a position on this, and haven’t really shared an opinion. It is a pretty common sentiment, however, that property tax is an outdted way to fund operations.

    -A-

    Buy you books, send you to school…look what happens!

    If I asked if the States is ready to elect a black president, would you conclude that I’m a racist?

    Now, am I safe to conclude that you think that tenants actually subsidize owners because of the homeowner grant? If that’s right, does it follow that you don’t think landlords subsidize tenants? Is it fair to say tht you think buying rental property makes economic sense based on cashflow?

    I’m on the record advising against speculating, but you still conclude that I am one. That’s ok. Your charm is largely based on you’re dismissal of facts.

    You advocate taxing speculators out of existence while giving tax breaks to legitimate developers who create jobs and rental stock. Is it fair to conclude that you don’t believe in the value of capital? Is it fair to conclude that you feel the government should get more involved in the economy, specifically as the pickers of winners and losers? Do you also think that the government, through taxation, can determine which developers are legitimate, and how much profit is fair, and how much profit is due to windfall profits? The question then becomes, are windfall profits ok if you didn’t plan on making them?

    ABC, Wow, Jesse, Blueskies, et al: How can you see it when others miss it?

    Jesse & vanreal: Thanks for pointing out the UK approach. Apparently the idea that the consumer should pay for what he consumes isn’t complete balderdash!

    coco:

    “Owning a property is a privilege”

    Is owning property, period, a privilege? Cars, stocks, bonds, TVs? Property as a right vs. property as a privilege vs. property as theft. Love it. Personally, I pay for my property, and I don’t think that I’d really call it a privilege. Canadian law apparently doesn’t recognize property rights as a charter right, but the fact is that common law, including Canadian common law, refers to title (whether fee simple, leasehold or whatever) as a right that can be acquired. I guess you and I will ahve to agree to disagree on that.

    Btw, how come you can say “My realtor knows a few people who under rent their properties so they can take capital losses on their taxes”, but if I say that I get roasted? 🙂 (Not capital losses, strictly speaking, correct? Cash flow losses to defer income tax into capital gains tax, if I understand it correctly).

    pretty woman/mighty mouse:

    What can I say? You’re capitalists who believe that the market will sort out pricing.

    Priced out:

    The ethical challenge exists. Disclosure is the response. Whether that’s a satisfactory answer is unclear, especially if the consumer doesn’t know. Check out my link to Disclosure of Remuneration for more mind numbing info on that 🙂

    WoW:

    5%-5.25% cap rate on houses means net rent of $700 (say a not bad one bedroom in Vancouver) should equate to about $170,000 (off the top of my head). That would be a rent mulitplier of 170. The numbers hang together. Either rents have to go up or prices have to fall – that property probably costs in the low to mid $200s now (and that’s if we find a good one).

    ceejay:

    “And, of course, municipal tax payments for landlords are deductable. In effect, the other levels of government are subsidizing the provision of municipal services for landlord’s properties. So a portion of any capital gains on sale should be paid to the feds/prov to recoop that cost.”

    I tend to agree, except that it isn’t governments who are subsidizing. Its taxpayers. Hands up everyone who’s in the top bracket! How about charging the tenant directly, not including it in rent, and not allowing the deduction to landlords? Too simple, right?

    Just Joe:

    You kind of proved your own point, or else you’re as bad as I am when it comes to pot stirring!

  46. robchipman

    Anonymous:

    Is 1.19% down really a tough day? I ask becauswe I recently read one guy in the FP pointing out that, percentage wise, we aren’t seeing as much volatility as some would think. He compared recent ups and downs to history, and seemed to show that we aren’t doing so bad. Curious, eh?

  47. Fozzie

    I don’t understand the subsidy argument or Rob’s point. Property taxes are a cost the landlord factors into the rent charged. If the rent received doesn’t cover the costs (over the long-run), then it would seem to me the landlord made a crappy investment.

  48. jesse

    “It is a pretty common sentiment, however, that property tax is an outdated way to fund operations.”

    I would tend to argue that the adjustment of tax collection channels is no free lunch. If the tax burden shifts from landlord to tenant I would expect a reduction in real rents, though maybe not right away.

    If you look at Vancouver proper, there is a definite relation between property values and the level of local neighborhood services provided. Moving away from a tax based upon the value of the property would have some interesting effects. In essence it sounds like a lot of US cities (read: not many services) but for whatever reason Canada has not gone this route.

  49. coco

    Rob,

    The government allows you to own land, that is a privilege granted by our government not a right.

    In other countries around the world, government can cease property that is privately owned or the government owns the land your house sits on. We are so spoiled in this country, that we believe privilege is a right.

  50. blueskies

    Many Canadians also can take advantage of soaring real estate values in western Canada, which is benefiting from an oil-based economy. By selling or refinancing their houses in Canada, they can raise cash to buy houses in California’s desert resorts, where prices are falling.

    sorry missed!
    http://tinyurl.com/yw58ab

    Canucks from lalaland buying in lala-land
    through leveraging their homes…..

  51. robchipman

    coco:

    We’re going to agree to disagree on that one as well. I may be deluded, but I tend to agree with Jefferson in that I hold certain truths to be self evident, among them that we are all created equal and possessed of certain inalienable rights. I think that ownership of property is a right, not a privilege granted me by the government. Some people disagree.

    Other countries do a lot of things. That doesn’t make it right. Whether its restricting land ownership based on tribe or ethnicity, stoning women for committing adultery or harvesting organs from Falung Gong members, it really doesn’t matter. The fact that governments do something in other countries doesn’t mean that it isn’t an abuse of basic human rights.

    The last serious challenge we saw to property rights was the gun registry. On the books the government can still walk into your home, without a warrant, and inspect your property, and perhaps take it. I think they’re trying to do that in Ontario. Here in BC the provincial government opted out of registry enforcement, so the law still exists but there is no conflict. Take it from guns to land and the parties interested in opposing government increase substantially. If the government decided, through order in council, that it wanted to sieze privately held real estate (i.e., without going through the expropriation process), what do you think would happen?

    That said, we are very fortunate to live in this country. Just one example: when’s the last time a politician got shot while campaigning here?

    Jesse:

    There is no free lunch, but are property taxes based on property values? We’re splitting hairs, but I’d argue that they aren’t. Taxes are based on revenue needs, which are determined through a budget. Fair distribution of the load is based on property value, through the mil rate system. When assesments go up taxes don’t have to rise. The mil rate can drop (o.k., now back to the real world 😉 )

    Still, right now, if you collect it through property, rather than through owners, you might get a fairer spending program. Imagine if we charged DTES residents taxes on the basis of their service usage. The wheels might just fall off.

    Fozzie:

    I’m not staking out a position on whether the tax system is fair or not. I’m just throwing out conversation fodder. When you say that the system is what it is, and if a landlord loses money he made a bad choice, then you are taking a valid position, and I think you do understand the issue.

    What do you make of the argmument that landlords subsidize renters? Its commonly heard here. If its true, and if property taxes are part of the cost, then landlords subsidize a tenant’s property tax burden, and not the other way around.

  52. $fromA$ia

    Most sdfh owner’s rental income is not declared.

    They take renters after tax dollars and put it to their mortgage.

    Owners/landlords pay taxes on their property.

    If renters need to share the taxes then the owners/landlords should declare their rental income. Also Owners/Landlords should pay taxes on the appreciation of their home thats rented out.

    Rob, your picking a scab with this question.

  53. $fromA$ia

    Clarification.

    ~50% of home rented out.
    ~home increases $50K,
    ~Owner pays tax on $25K the year he sold.
    ~Owner pays tax on rental income.

    Suite income is not declared so home owners aren’t further taxed for their home’s appreciation.

  54. coco

    I do find it interesting that the Canadian constitution omitted property rights from the Charter of Rights and Freedoms, but included collective & minority rights though.

  55. Dude

    R/E should not qualify as capital gain if the property hasn’t been rented out with taxable income.

    Flipping property is purely speculation and therefore should be taxed at the normal rate.

  56. Dude

    Rob,

    As a R/E agent you should know this. Many lessor of commercial properties pay the property tax. This is very common in commercial rental. However, the renter will adjust rent to compensate. Goes back to basic supply and demand. Tax being directly paid by the renter or incorporated in the rent really doesn’t matter. It is the renter’s willingness to pay. If the renter is willing to pay $1,500 per month, making them pay $200 in taxes just means they are willing to pay $1,300 in rent. I really don’t get your point.

  57. jesse

    Rob:
    “There is no free lunch, but are property taxes based on property values? ”

    Yes, of course a property that doubles in value does not have its property tax doubled; the relative tax burden is based upon relative property values. In Vancouver someone on the westside pays more property tax than someone on the eastside. City hall has been pragmatic enough to realise that the one paying higher taxes “deserves” more in the way of services and IMO this is obvious when visiting different parts of the city. Of course some of the tax monies are re-distributed to the lower valued neighborhoods (this is Canada after all) but a council will not stay in power long if the re-distribution is flat across the city.

    My point is that well-off neighborhoods will stay well-off in part by keeping their relative service level higher than other areas. They either do this by paying higher taxes with some quid pro quo (a la Canada) or by minimising taxes and providing private facilities (a la US).

    BTW, nice debate. Glad everyone is keeping it clean.

  58. A Looser

    Who says landlords subsidize renters? I know I’m paying market rent. Even though my rent is maybe half of ownership costs for an equivalent dwelling, I do NOT consider my rent subsidized.

  59. coco

    Interesting article….

    The right to own property is one of the hallmarks of a prosperous society and Canadians generally feel secure in the ownership of their businesses and homes. However, they are not as safe as they once were. As the right of ownership in Canada is eroding, much as it has in the United States in recent years.

    Consider a recent Manitoba Court of Appeal decision that ruled that the Rural Municipality (RM) of Ellice has the legal right to expropriate 288 acres of land from Arthur Fouillard, an 86-year-old farmer, so it can develop a tourist attraction. This precedent -setting verdict means a local government can now take anyone’s property for virtually any reason as long as the council thinks it is “necessary or desirable for all or a part of the municipality.”

    Historically, a local government’s power to expropriate was limited to the needs of Public utilities — roads, sewers, ditches and the like. However, changes made to the Municipal Act in 1997 opened the door to the seizure of property for “economic reasons.” Essentially, it is within a local government’s power to, for lack of a better term, -nationalize- an entire municipal economy. And it means the government can seize Mr. Fouillard’s property, property he has owned for more than fifty years.

    His land is located on the east side of the Manitoba-Saskatchewan border near the junction of the Assiniboine and Qu’Appelle rivers. It includes a plateau with a picturesque view of the surrounding valley, which during the 1800s was home to Fort Ellice, a Hudson’s Bay trading post. Other than a few tombstones, not much of the fort remains, but the RM thinks it can turn it into a tourist attraction.

    This is the economic need.

    Ironically, Mr. Fouillard’s promotion of the historical significance of the site, along with his civic mindedness in allowing various heritage days, ball tournaments and charity events on the property through the years, free of charge, made him a tempting target for expropriation.

    Mr. Fouillard fought long and hard to save his land. He spent thousands of hours and tens of thousands of dollars in legal fees over the past six years fighting in the courts. He tried to negotiate with the RM, so they could lease the site. He even offered to sell them 90 acres. However, the government would not budge.

    According to Reeve Huberdeau , the municipality had no choice. “For us it is about the survival of our community,” he told the media, “and for us that was more important than the rights of one individual. Maybe I shouldn’t say it that way, but the survival of the community is really, really important, and I don’t think that 288 acres is going to make a big difference in the lives of the Fouillard family.”

    In other words, the rights of the collective outweigh the rights of the individual.

  60. Fozzie

    I still don’t get it, but I confess I haven’t thoroughly researched the “subsidy argument” on this blog or spent much time thinking about it.

    Intuitively, I just don’t understand how a landlord could be considered to be subsidizing a renter. Are you suggesting that a landlord that needs to charge $2400/month to cover his costs and make a profit, but only charges $2200, is subsidizing the renter by $200/month? I guess it depends on why the landlord only charges $2200. If it’s out of the goodness of his heart because he doesn’t think the 80 year old widow can afford the increase, then I guess it could be thought of as a subsidy.

    If it’s because the rental market won’t justify the increase in rent, then like I said before, it sounds like a crappy investment.

    As far as my landlord getting my vote for mayor or school trustees, that’s ridiculous. I assure you that I pay my fair share of taxes both directly and indirectly. If my landlord doesn’t want to “subsidize” my portion of the property taxes, fine. Give me a copy of the assessment and I’ll pay it directly on his behalf to the city and set it off against my rent.

    I must really be missing something because I don’t see where this argument gets any traction at all.

  61. jesse

    Rob, you can also argue that we should be taxed through income instead of through property, however taxing by income alone cannot re-distribute on a neighborhood-by-neighborhood basis. In the end the provincial government or local councils need to figure out how to re-distribute the monies collected in a way that balances equity with the reality of neighborhood classes. The government has decided that property values are a good proxy for understanding the stratification in the city. Incomes could in theory do the same thing but they would need to be coupled with geographic location and I’m guessing property values accomplish the same thing with the benefit of being less invasive to one’s privacy.

    Whether the landlord or the tenant gets the bill I don’t care. Personally I think it’s a wash.

  62. jesse

    Fozzie:
    “Intuitively, I just don’t understand how a landlord could be considered to be subsidizing a renter”

    Yeah, I think it’s semantics. The landlord charges market rate. This is really a buy-vs-own and rental yield calculation.

    I think the real debate is whether taxes should be more closely linked with voters. Right now, for tenants, it can be argued there is a disconnect since they vote for the councils that control property tax levies but don’t directly see the bill.

    Note business owners cannot vote, unless they live in the city, but the city still collects taxes from them. Certainly a disconnect there but cities have tried to find a balance nonetheless.

    If property taxes go up this eventually tranlates to higher rents or lower property values. Landlords of course wish for the former but it is not the only possible outcome.

  63. blueskies

    then like I said before, it sounds like a crappy investment.

    ding!

  64. jesse

    “In other words, the rights of the collective outweigh the rights of the individual.”

    Interesting story. Property rights was left out of the Charter for a reason. Ultimately there needs to be a way of using land for the Greater Good. And if it’s happening in the US you can be darn sure it will happen in Canada too. The trick is to keep a close eye out for blatantly abusive expropriations.

  65. blueskies

    questio posted on HBB:

    Comment by jetson_boy
    2008-01-04 17:02:30
    Anyone care to explain why Canada is two years behind the U.S. in their boom/bust cycle?The stories coming out of there sounds just like California 2006-2006. It makes zero sense to me being that they’re next door neighbors easily capable of seeing the results of our boom/market meltdown.

    answer:

    Comment by rob
    2008-01-04 17:37:38

    The reason is an incredible sense of “it’s different here”. There is no shortage of “economists”, Realtors, and newspapers trotting out articles assuring people that we in Canada are not in the same situation as the US.

    It’s a joke. House prices doubled in Alberta in the last 3 years, and now we officially have negative migration to other provinces due to extremely high housing costs. Our largest net export, natural gas, is in a major recession in Canada due to the declining US dollar, low natural gas prices, and increased costs of production.

    Avg single family home prices are down 11% since July already, and inventories are at record levels for this time of year.

    No, it’s not different here… but most residents have yet to figure that out.

    hello newsflash! you still around?

  66. Annon

    Anyone sees TSX drops to below 12k this year?

  67. WoW

    Perhaps Vancouver specuvestors don’t watch cnn, or read anything other than the vcr Province and watch movies and hockey? They may be unaware of the whole sub prime issue and fully believe that our RE only goes up? Could it be that the bulk of buyers are simply uninformed about what is going on around the world?

    Perhaps they are unaware that the US has invaded Iraq, that Clinton is no longer president, that cigarettes are bad for you, etc?

    Could it be?

  68. WoW

    Did Alberta buyers just get CNN and become aware of the world around them? Why have the prices there fall so much? Is OIL out of favour?

  69. Strataman

    Wow; “Could it be that the bulk of buyers are simply uninformed about what is going on around the world?” You know I find it amazing but I talked to a friend today who just bought another Condo and he can afford it as I’m sure he paid cash, but I asked if he didn’t think we’d follow California, Florida. He said why? I said everything is on fire sale there. He said “really”? I got the blankest look I ever saw! This guy is really bright and successfull but has not even an inkling of other markets! But then he’s way more successfull then me…so maybe I should stop reading anything other then the local paper, because frankly I’d rather be stupid and successfull then smart and workin my butt off! 🙂

  70. $fromA$ia

    Striaght from the Richmond Review.

    Oval rink for 2010 needs $16 million to finsh.

    1 month later on the Reviews front left hand page, Richmond residents around the Olympic Oval to recieve a 24% assessment hike on their homes.

    Obviously its to pay for that stupid rink…. Its a waste and not ecologically friendly.

    My relative just got the assessment increase…

    Yup home value has gone up.

  71. A Looser

    “This guy is really bright and successfull but has not even an inkling of other markets!”

    Is he a dentist? Perhaps a doctor or an engineer.

  72. vancondo

    Excellent trolling question Rob, I think Patriotz was the one that summed this up nicely on http://vancouvercondo.info

    The term ‘subsidizing’ is up for a bit of semantic debate, but the reality is that market rent is market rent. Anyone who chooses to buy at a price where market rent does not give them any returns is not ‘subsidizing’ a renter, they’re speculating on future gains, or they desperately need to lose some money for some reason.

  73. Strataman

    “Excellent trolling question Rob” so true real sh**disturber aren’t you Rob? 🙂 but I agree with you and also I think that the owner should pay the renter sublet fees each time they show a suite that is rented. That would be a minimum $200 for a visit by a real estate agent? After all no one lets you drive their car for an hour when its the dealership that selling the car? Right? 🙂

  74. $fromA$ia

    May Day, May Day!!!!

    ATTN: ALL including JEFF & Rob.

    There was this home I enquired on about a year + ago it was a small home on a 20ft lot in Killarney asking $419k.

    To make over and now it’s asking high $600’s!!!!!

    Actually this is GREED to the furthest extent!!!

    V673075

    What was the last sale date and for how much was it last sold for.

  75. $fromA$ia

    Greed or outrageous deal?

  76. ted

    If the renter had to pay the taxes the only result would be lower achievable rents!

  77. Rob –

    sorry, but the landlord collects dough from the renter, which he then uses to pay the taxes. If this reduces the yield on the property because taxes go up, is that the fault of the renter? The funds to pay the taxes are ALL still coming from the renter. There is no subsidization whatsoever, in that if the property was empty, the landlord has nothing to pay his property taxes with, and if it is full, it is full at a price that was agreeable to both parties.

    This idea that somehow a renter doesn’t pay and therefore shouldn’t have a say in policy is nonsense. The same argument could be made based on who pays more or less income tax. Would you like Jimmy Pattison to cast a vote in provincial and federal elections based on how many propertioes and corporations he owns, since he pays or doesn’t pay more or less taxes?

    You are confusing the democratic process with the business process. They are not the same and they shouldn’t be the same. For better or worse that’s democracy, and that’s the price a few landlords will have to pay.

  78. Patience

    Yahoo Greg. You nailed it. There certainely was lotsa babble and bull manure before hand. Guess they always leave the best for the last. Thanks for your input. I certainly agree with you.

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