The intricacies of B.C.’s property assessments are meeting the realities of Metro Vancouver’s property market in a way that discourages the operation of long-term affordable rental housing in favour of the development of new condos, landlords say.In other words, the system seems to incentivize the opposite of the outcome our leaders say they want.Development industry professionals will tell you that today, no one except the government can build new rental housing in Vancouver that’s truly affordable for many locals. But if the private sector can’t build affordable rental homes, they can maintain them.Older rental homes are, as expected, more affordable. CMHC data show Vancouver apartments built between 1975 and 1989 are, on average, 40 per cent cheaper than those built since 2005. But David Hutniak is the CEO of Landlord BC, an advocacy group for the housing industry. He is pictured in Port Moody,longtime landlords say the current system threatens their ability to operate the older rental apartments that form a crucial part of the city’s housing stock.Consider the Broughton Apartments in Vancouver’s West End. In 2015, the property taxes for this 40-year-old, 47-unit rental building on Davie Street were assessed at $854 per unit, said a representative of the owner, Cressey Development Group. For this year, the assessment is expected to be around $2,620 per unit.That represents a property tax hike of more than 200 per cent over four years.
The Broughton Apartments, a 40-year-old, 47-unit rental building in the West End, which saw a property tax increase of more than 200 per cent over four years.
NICK PROCAYLO /
As property values in the West End have soared faster than the city-wide average in recent years — particularly since the approval of the West End Community Plan in 2013 and the subsequent flurry of development activity — the corresponding skyrocketing property taxes have been blamed for the deaths of several mom-and-pop businesses, everything from beloved neighbourhood pubs the Dover Arms which pulled its last pint in 2017, to retail fixture Chocolate Mousse Kitchenware, which closed its doors last week after facing a 400 per cent property tax hike over a three-year period.Many small Vancouver businesses have been hammered by the B.C. Assessment Authority’s practice of assessing based on “highest and best use.” That means a property’s value, upon which its taxes are based, isn’t assessed based on its actual use — whether a single-storey neighbourhood pub or a three-storey rental apartment building — but on the use “that would return the highest value.”Those businesses have been taxed to death because their commercial landlords pass those escalating property tax bills to their tenants.But unlike commercial property owners, residential landlords can’t pass on soaring property tax bills or other increases directly to their tenants — they’re restricted by rent control measures.And long-term tenants in buildings like the Broughton often pay well below market rents, said Tom Johnston, vice-president of asset management for Cressey, the Vancouver real estate company which operates the Broughton and several other local rental buildings.“In older buildings, we have tenants paying maybe a third of the market value,” Johnston said. “And you know what? They’re entitled to. We need to respect the fact they have long-term tenancy agreements and they’ve been good tenants over the years. But all of this other cost pressure put on us makes it impossible.”Those cost pressures, Johnston said, also include the city-wide 4.5 per cent property tax increase for 2019, and increases of 9.7 and 11 per cent for water and sewer rates. But the property tax is the big one, and that’s based on the assessment. And those assessed values are based on a number of factors, including highest and best use, but also whatever rents the market can bear — regardless of what rents are actually being charged.Tina Ireland, a regional assessor for B.C. Assessment, said: “A multi-family building is assessed using the income approach, and the first step in that is determining what the market rents would be. So yes, it could be different than what the owner is receiving in actual rents.”“That’s always been the practice,” Ireland said. “We came into existence in 1974, and it’s been market value assessments since that time. I think what’s happening is that what multi-family property owners are receiving in rents, there seems to be a greater discrepancy between what market value rents are now, and what some multi-family property owners are receiving.”In many Metro Vancouver apartment buildings, that “discrepancy” can be substantial. When a 50-year-old, three-storey apartment building on Carnarvon Street in New Westminster was listed for sale last year, an advertisement listed the “current rent” for each unit alongside the “potential rent.” The average current rent for the occupied units worked out to $817, while the potential rent advertised for those same suites was $1,700 — more than double the current rents.“Pressures in the marketplace are bringing these things to the surface,” Ireland said.The pressures at the Broughton are far from unique in B.C., said David Hutniak, CEO of LandlordBC, which represents the rental housing industry.“Yes, this is what we’re hearing,” Hutniak said. “Anybody with a three-storey walk-up or a smaller building is facing this exact same dilemma.”“In all the meetings I have with municipal and provincial government officials who care about housing, they all say they want to retain the existing rental housing,” Hutniak said. “So now we need policies to align with that.”If you’re getting taxed based on highest and best use, Hutniak said, “then you may as well go with the highest and best use. And the reality is, in Vancouver, that would be tearing that down and building condos.”“How do you keep any business alive when your cash flow out is higher than your cash flow in? It’s not sustainable,” Hutniak said. “I definitely do not want to see Cressey and others who are in this situation doing something with these buildings like selling them off, or turning them into condos, God forbid.”Smaller landlords, like a family operating one apartment building for generations, tend to have fewer options, Hutniak said. As their margins tighten, they might decide the best option is to sell the property.And when those longtime landlords cash out, it can mean bad news for long-term tenants paying below-market rents: Vancouver staff recently noted that mass eviction notices often follow new owners buying a building.Vancouver’s council has recently taken action against so-called renovictions, a practice that has become “one of the top concerns” of Vancouver renters, as noted in a November memo from the city to the B.C. government. “Whereas long-term property owners typically favour maintaining stable tenancies, new owners may look to unit turnover as a way to raise revenues on a new investment.”Vancouver’s housing crisis, with its stories of displacement and heartbreak, sometimes seems to pit tenants against landlords. And while it’s still worth shining a light on landlords who engage in unscrupulous or illegal tactics, the vilification of landlords a whole doesn’t seem particularly helpful.A majority of Vancouver households are renters, most of whom have private landlords. Private landlords, even the most community-minded ones, are in business. And while governments shouldn’t cater to the whims of landlords or any other business complaining about high taxes, it also doesn’t seem sustainable to rely on private businesses to operate our housing at a loss.If the current system is, as Johnston and others describe, increasingly threatening the viability of older rental apartments, that’s another element of the housing crisis that merits attention. But solutions won’t be simple.“We will never, ever renovict someone. We just won’t. That’s not what we’re about,” said Johnston. “But the ticking time bomb now for a lot of these older buildings is the bottom line is going the wrong way quite quickly, and all that means is people won’t be able to afford to keep the buildings up. Period. And that takes what today is a good stock of affordable housing and truly puts them in jeopardy.”email@example.com/fumanoLISTEN: Housing Matters host Stuart McNish speaks with Hani Lammam from Cressey Developments, Vancouver City Councillor Jean Swanson, and Tom Davidoff a professor at the Sauder School of Business about ways to create rental housing supply to meet demand across Metro Vancouver. Subscribe to Housing Matters on Apple Podcasts, Google Play, Stitcher, and Spotify.