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episode # 78

How Owning a Home in Vancouver Could Land You in Jail with Michael Geller

Matt and Adam welcome Architect and SFU Adjunct Professor Michael Geller to the podcast for a chat about the recently implemented City of Vancouver Vacant Homes Tax and other policy changes that could unwittingly affect homeowners in our city and across Canada.

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Episode Summary


 

About Michael:

Michael started as an architect in Toronto. He joined CMHC and was involved in Vancouver, Ottawa, and Toronto, overseeing the social housing program and Vancouver’s first-phase redevelopment of south-shore False Creek. In 1981, he joined a private development company, Narod (which no longer exists). Michael became a private real estate and development consultant until 1999, when he joined Simon Fraser University to oversee the UniverCity development on Burnaby Mountain. He took a year off and has dabbled in various things since then (municipal politics, innovative infill developments, writing, and teaching).

On his New rules could turn Vancouver home owners into criminals article:

The City’s empty homes tax, which people consider well-intentioned, is what prompted the article. Michael was troubled at the idea of people with second homes in Vancouver being taxed, because they often make large contributions to the city, they don’t use many services, and they pay full property taxes. Plus, a person’s home is their castle. The real intent of this program was to free up rental housing, and these people are not going to rent out their homes for the short periods they aren’t in Vancouver. To get around the tax, they enter into creative—and often fraudulent—leases. Otherwise, they are law-abiding citizens.

Recently, the Federal government also imposed the regulation that when anyone sells their property (any property), they must note it on their subsequent year’s income tax return. This is because so many people have been flipping properties and avoiding taxes with fraud. However, anyone who has built a laneway home will soon discover that they are subject to a series of taxes (capital gains). They must self-assess GST payments on the cost of building the home, but also on the land value associated with the home. The City will determine the amount, but it could mean hundreds of thousands of dollars. People may deliberately hide this, just as many people have with illegal basement suites—which may also be subject to the same tax as laneway homes.

On if this is specific to Vancouver vs. other areas of Canada:

The CRA mainly considered Vancouver and Toronto when making this requirement, because the flipping occurred in those cities. However, the laneway home and basement suite provisions apply across the country. (Vancouver and Toronto are largely affected due to the amount of laneway homes in those markets.)

On if this will incentivize people to build and rent out laneway homes (with Vancouver’s housing crisis, this couldn’t come at a worse time):

Michael thinks the opposite will happen: people who would have otherwise considered a laneway home will be deterred when they realize how much GST they need to pay (exceptions exist when building for family members). The City of Vancouver has a great publication online about building a laneway house which mentions the impact on property value and taxes, but there is no reference to considering federal taxes. There are tax rebate programs but, overall, the GST is an upfront expense and you will lose a portion of your principal residence deduction when you sell. (Most people don’t consider that the laneway house portion of their property is not tax-free.)

On the unauthorized basement suites in the city and how they play out in terms of primary residence for tax purposes:

Those who have been reporting the income (many haven’t) should seek a capital appreciation deduction. If this is done and if structural improvements or repairs were done, it is treated differently in terms of determining the tax-free gains on the sale of the house.

On whether the various governments trying to address the affordable housing crisis are going about it in the right way:

No. Too much emphasis is put on using taxation policy to reduce demand (like with the foreign buyers’ tax) or to free up rental housing (like with the empty homes tax), when the more important thing to do is speed up the development permit applications with the City (many are for rental housing). Almost everything is backlogged—currently, the approval process wait time to build a laneway home is eight to nine months. Even with standard plans, builders report that the applications are treated as though they’re new.

Other things that can be done include using land zones for multi-family housing (such as townhouses and low-rises), but the zoning restricts this. Re-zoning involves a lengthy approval process. It’s also expensive, as municipalities can charge community amenity contribution payments (which is legit, but sadly the people who pay are the homebuyers and the public, not the developers).

Michael agrees with the proposed legislative changes relating to Airbnb. This is probably sucking up more rental housing stock than second homes, and most people treat this as revenue-generating and are not reporting that income. With these new regulations, he suspects more people will behave in an illegal fashion.

On the affordability problem being a supply issue and if we can build our way out of it:

No. It’s not just supply—this only works for middle and upper-income categories. However, given the cost of land and construction, you can’t make new housing that’s affordable to minimum-wage earners. So, you need to combine supply with government subsidies (like social housing, non-market housing, rent supplements, shelter allowances, etc.) We rely too much on taxation programs, as well.

On if the empty homes issue is a Vancouver-specific or global problem:

The phenomenon of people using condos as safety deposit boxes is global, though much of it has been triggered by people wanting to get money out of Asian countries. This is happening in other places too, such as Sydney, Auckland, and Hong Kong.

On the distinction between empty homes and second homes:

This is being done by self-declaration when you pay your taxes. There is confusion about whether a second home you occupy for half the year is tax-free. Michael is told it’s not, that it must be rented for a minimum of six months a year for periods of at least 30 days. If we make it 100 days per year, for example, there’s a better chance that more people would comply with the program. The City could have made the distinction, and they likely eventually will. City councillors don’t seem to fully understand this, and the staff claim that consultants told them to use the number of days occupied. There was very little research done. Michael has researched vacant homes taxes and found they generally don’t work because so many people abuse them, and the administrative costs are often greater than the revenue generated. He thinks within the next year, the City of Vancouver will not fine anyone $10,000 per day for keeping a home empty.

On what could increase the supply of affordable housing in Vancouver:

  1. Take minimum parking requirements and convert them into the maximum parking requirements (i.e. encourage people to build less, rather than more, parking)—about 18% of rent is attributable to a parking space, which some people don’t even need.

 

  1. Build smaller places. Many people have and can live in 260 square feet, but many municipalities won’t allow micro-housing (to rent or own).

 

  1. Many housing forms that we don’t have here are popular around the world. Many people don’t want to be part of a strata. In many places townhomes are individually-owned (fee simple), so we could do this here.

On what he’d advise first-time home buyers:

Buy property. Over the long-term, prices generally go up. If you can’t afford to buy, consider home sharing (buying with another person or couple). People should explore the shared appreciation mortgage, or shared equity. If you don’t have a down payment, a family member or someone else can put up some of the equity with the understanding that they share in it when the property sells. This is common in the UK and other places.

Five-wire:

  1. Favorite area in Vancouver: Mt. Pleasant or Kits Point
  2. Favorite bar or restaurant: Salade de Fruits Cafe (at 7th & Granville)
  3. Downtown penthouse or west-side mansion: downtown penthouse
  4. First place he’d take someone from out of town: Granville Island or Steveston
  5. Kits Beach or Wreck Beach: Kits Beach

To learn more about Michael:

Please visit his website and his blog

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