It's even worse in Australia, which most properties do not have a yearly property tax. So you pay a 'stamp duty' when you purchase the property, based on a % of the sale price.
This means you have people living in Sydney with multi-million dollar properties - which are just modest houses in now-desirable suburbs - who haven't paid any property tax since the 60's, and who can't move anywhere because they'd be up for so much stamp duty in one hit (easily 50-100k).
Furthermore, the state government has unpredictable revenue streams based on the ups and downs of the property market (you can have high prices but low volume) and the labor market is more calcified because people are unlikely to sell and move to access a new job.
The result is tightly held real estate, variable state government revenue and ever-higher prices. Adding fuel to the mess is a universal belief by local governments that housing development is evil and must be curtailed, so they concentrate on high density and infill development, which drives the prices of stand alone property ever higher.
Unsurprisingly, Australia just about outpaces Canada for the most severely unaffordable housing market.
And yet if you ask the average person in the street, they will blame 'interest rates' or 'Chinese buyers', and not once look at the ridiculous blockage on supply.
> This means you have people living in Sydney with multi-million dollar properties - which are just modest houses in now-desirable suburbs - who haven't paid any property tax since the 60's, and who can't move anywhere because they'd be up for so much stamp duty in one hit (easily 50-100k).
I don't understand. When you're making millions on the sale of the property, how is 100k in stamp duty a problem? It's on the same order as your agent's commission!
Why isn't every house incorporated (bought by a company, then have that company bought/sold instead of the house) ? Note: this is how it's done for a lot of houses in western europe, and there it's a 100% legal way to avoid this tax.
The problem is that you're going to have to pay 30% company tax on profits, and it's hard to get a mortgage. However this can always be structured so there aren't any profits (e.g. by improving the house, saving up for another house, ...)
I've read that Californian municipalities say that transferring control of the company that owns a property results in the underlying property being valued at current market prices. They'll get their tax regardless.
Your primary owner-occupied residence is exempt from capital gains tax in Australia. If you put a corporation in the middle, that exemption might vanish? (I don't know too much about the legal shenanigans here.)
If you want to leave your 4 bedroom, 1 million dollar property and buy a 2 bedroom, 1 million dollar apartment, you have to forego 100k just to do this? Obviously most people choose to not move. They'd rather the money goes tax free to their kids, or to just borrow against the house and spend the money.
It's a strange attitude to suggest that paying $100k to the government is 'not a problem' just because your house is worth more. If you were in the same position I think your attitude would change somewhat.
Its the exact same thing here in Vancouver, there are even protests because someone is going to tear down a small house that fits one family and build a bigger house on the same property that fits multiple families.
We have a low interest rate fuelled asset bubble and 1%'ers are complaining that they can't afford detached housing in Vancouver, never realizing that if everyone in Vancouver live in detached housing we'd need 150% of the available land in Vancouver (like no roads, offices, parks, pools, etc just detached housing)
It's stupid to expect to be able to live in detached housing in a world class city. The other thing is that Vancouver isn't really a 'city' in the way that many others are, the 'burbs are separate cities so we get this 'most unaffordable' label when its really much better than many other cities.
Its the exact same thing here in Vancouver, there are even protests because someone is going to tear down a small house that fits one family and build a bigger house on the same property that fits multiple families.
This is new - has the owner said that multiple families will live in that house?
It's stupid to expect to be able to live in detached housing in a world class city
Since when did Vancouver become a world class city? I don't mean that to be cruel; I live here myself. But Vancouver has neither the culture nor the power nor the money to be considered world class. The people are poor, the economy has a paucity of opportunities, and now the housing really is only marginally affordable, even if you go out somewhere crazy far like White Rock.
>The other thing is that Vancouver isn't really a 'city' in the way that many others are, the 'burbs are separate cities so we get this 'most unaffordable' label when its really much better than many other cities.
What are you comparing to? Here in the US, it's exactly the same. Every single "big city" is really a metro area with a core city that bears the famous name, and a slew of separate cities bordering it. "Phoenix" for instance is a collection of a bunch of cities: Phoenix, Mesa, Tempe, Chandler, Glendale, Scottsdale, Gilbert, Paradise Valley, Sun City, Peoria, etc. "Los Angeles" has more cities than I can count. "New York City" is a little more centralized (since the city annexed a bunch of the bordering cities back in the late 1800s, turning them into "boroughs"), but still has White Plains, Tarrytown, and cities in bordering states like Stamford, Jersey City, Newark, Bayonne, etc.
Maybe European cities are singular like that, but not here in the US.
And yet if you ask the average person in the street, they will blame 'interest rates' or 'Chinese buyers', and not once look at the ridiculous blockage on supply.
I think that this is the other dimension to the Vancouver housing problem that no one is talking about yet. Vancouver is separated from the rest of the province by the Fraser river to the south-east, and regional development policy for about 30 years has been fashioned to make it difficult for anyone to live south of the Fraser.
If we put more bridges across the Fraser and built more highways, I think most of this problem would go away on its own.
no, it's all diked appropriately for the most part. Of course some would like the diking to be improved as there has been some minor flooding every 20 years or so. But that flooding is typically limited to the lowest areas which are almost always agricultural land. It would be a huge stretch to say the area is prone to flooding.
At this point they need to be widened and expanded.
What I'm advocating isn't simply a one-off highway and bridge expansion; rather I want the regional development plan scrapped and I want a new one that no longer treats Richmond/Delta/Surrey as a separate development region. Rather than fighting and antagonizing families who want to live south of the Fraser, we should try to integrate Delta and Surrey more completely with Vancouver and Burquitlam. Highways to bring people to their jobs in Vancouver, yes; but also a focus on encouraging businesses, perhaps through preferential taxes, to locate in Delta and Surrey. We should be planning, zoning, and developing to minimize the presence of the Fraser. That would include more bridges, but it would also include more mass transit.
And if we need to pay for this somehow, I can't think of a better way than a non-linear property tax on everyone west of Cambie. ;-)
This sounds like an excellent argument for getting rid of property taxes altogether.
Property taxes have some major fundamental problems, not least of which that using them to pay for local services tends to make such services better in more affluent areas and worse in less affluent areas. They produce potentially unbounded and unexpected expenses long after paying off the house itself (which impacts retirees and others trying to predict future expenses). And on top of that, as mentioned in the comments here, attempts to control the growth of property taxes can create major supply issues in the housing market.
So why not get rid of property taxes altogether? Most states/countries already have either income tax, sales tax, or both. Why not settle on one tax, either income or sales, and use that for all government expenses?
You are proposing to remove taxation on a bull market (property)? This would inflate prices even more, as investors make a run for nice tax-free properties. It doesn't make sense, sorry.
You need to remove incentives to invest in property altogether. It's one of the worst and most unproductive markets, and not even a market in practice because everyone needs a home. My personal pope-emperor utopia would forbid companies from owning residential buildings, and tax individuals 10% of house value yearly on any house (with the first two exempted). Redevelopment should be allowed only when the area is in clear state of abandon, with strict rules on the amount of commercial space that can replace residential space.
The property market needs to die -- and I say that as a homeowner.
I'm talking about taxes on personal residences, used as residences. I don't particularly want to argue in this post about what taxes might apply to second/third/fourth/investment/etc houses, or about the desirability of using excise taxes to control behavior.
In the context of property used as a residence, I'm suggesting that property taxes produce undesirable effects, and that other forms of taxation might potentially work better.
But that's what inflates property markets -- investors buying and selling multiple properties, realtors identifying and driving growth in this or that neighbourhood. London, SF, Sydney or Vancouver are all awash in investment cash for properties, that's what drives prices.
"In the context of property used as a residence", most European countries do not tax first homes, end of story. It doesn't stop prices from growing.
> "In the context of property used as a residence", most European countries do not tax first homes, end of story.
I'm not talking about sales taxes on the sale price of a home; the US doesn't tax those either. I'm talking about property taxes, as in the taxes typically assessed by a local government to property owners as a percentage of the appraised value of their property. I'm saying that such property taxes produce various undesirable effects (as mentioned several comments up).
That's orthogonal to questions of how to deal with people owning, buying, or selling multiple homes. It may or may not make sense to apply different rules in those cases, such as not providing an exemption for sales taxes on such properties. (Though you'd have to be careful there to not cause problems with rental prices.)
Here's an idea. Make utility services scale with people density. Relax restrictions on how much they can profit off sqft. Single home dwellers are penalized with increased upkeep costs and higher density buildings are encouraged.
What? That's crap. Why should single home dwellers have to pay more for water and electricity and gas just because their house is bigger? Then you'll have apartment dwellers running the heat with the windows open.
Utilities should be paid per-use, just as it is now. People with bigger houses are naturally going to pay more because a bigger house usually needs more power/fuel for HVAC, unless their house is more efficient. Also, we need to incentivize making homes more energy-efficient, and regressive policies like yours discourage efficiency. Smaller isn't always better; crappy old small houses and apartments can easily use far more energy than new McMansions.
And that leads me to one big problem in the rental market is that landlords never spend a dime on improving or renovating homes for better energy-efficiency, because the tenant has to pay all the utilities.
Water and electricity and gas are generally less cost-efficient to provide to less-dense neighborhoods, as the length of wire & pipe (and maintenance overhead) needed to serve a given number of residences is significantly higher. This is likewise why electricity and phone service were not provided to rural areas until subsidized by the government by taxing urban dwellers.
To new neighborhoods, you're right. To existing neighborhoods, you're wrong: the infrastructure is already there. There's no reason to raise rates for people for something that's already paid for. That's like adding a toll to a road that's been there for 50 years; it's just profiteering.
Maintenance is not going to be any higher for lower density; it's not like you see electric utility workers in the suburbs constantly, repairing stuff. And access is more difficult in higher-density housing too: in a suburb, you just drive the truck up to the transformer, but in a large building, it isn't that easy.
As for rural areas, there's a huge difference between urban and rural areas (where houses are miles apart), and urban and suburban areas (where houses are 20 feet apart).
> And that leads me to one big problem in the rental market is that landlords never spend a dime on improving or renovating homes for better energy-efficiency, because the tenant has to pay all the utilities.
If that were the case they could charge 'fixed utilities' at a reasonable price and then when they upgrade for energy efficiency they reap those gains.
You mean force the landlords to pay for the utilities? Doing that means the tenants then blast the heat with the windows and doors wide open: they have no incentive to be economical with their energy usage. All it takes is one bad tenant like that with $2000/month utility bills and the landlord has to declare bankruptcy.
Why not just have some kind of regulation requiring rental dwellings to meet certain energy efficiency standards? And combine this with some programs to help landlords upgrade, perhaps with low-interest loans or something.
I am not a proponent for taxes, most of my arguments centre around the idiocy of most taxes. And you are correct in your analysis, particularly as the improvement component on the land is already taxed by sales taxes for the materials and income taxes for the labour.
However, it's best to tax broadly and close to the generation of income.
I think land taxes couples with sales and income taxes is an efficient combination. Land taxes penalise land banking, and encourage the most efficient use of land.
Sales taxes penalise consumption, and encourage savings or investment.
Of all, income taxes penalise earnings, but earnings are unavoidable for most people. But they do incentivise investment income where there is a differential, which could be mildly beneficial.
The key to all these is uniform applicability and flat rates. The massive drag that tax minimisation has on an economy is underestimated routinely.
From the property front - land taxes should be paid annually, there should be more releases of land with fewer restrictions, and there should be no/minimal transaction taxes to go in/out of a property.
It's the land value tax that incentivizes more efficient use of land. A property tax is levied on both the land and the improvements built on top of it. By only taxing land, the land use tax incentivizes maximizing the improvements-to-land ratio.
Improved land tends to draw more from community resources. If we just tax the land, someone builds a huge apartment building, then it really sucks for the local schools.
Additionally, much speculation is in post improved land...e.g. apartments; they have to do something with their property also, not just build it up. Otherwise its a drain on the economy and distorts the real estate market.
An appropriate land value tax is proportionate to what improvements the community expects to be present on the land on average -- that is, how desirable the area is as a whole. That should scale pretty well on a school district level.
As for discouraging speculation, property and land tax schemes can both be used. However, in an environment in which other landowners are improving, the tax burden of a speculator just sitting on their property goes up under a land value tax.
This means you have people living in Sydney with multi-million dollar properties - which are just modest houses in now-desirable suburbs - who haven't paid any property tax since the 60's, and who can't move anywhere because they'd be up for so much stamp duty in one hit (easily 50-100k).
Furthermore, the state government has unpredictable revenue streams based on the ups and downs of the property market (you can have high prices but low volume) and the labor market is more calcified because people are unlikely to sell and move to access a new job.
The result is tightly held real estate, variable state government revenue and ever-higher prices. Adding fuel to the mess is a universal belief by local governments that housing development is evil and must be curtailed, so they concentrate on high density and infill development, which drives the prices of stand alone property ever higher.
Unsurprisingly, Australia just about outpaces Canada for the most severely unaffordable housing market.
And yet if you ask the average person in the street, they will blame 'interest rates' or 'Chinese buyers', and not once look at the ridiculous blockage on supply.