Introduction

Housing is so expensive in British Columbia and across Canada because land is so expensive. While homes deteriorate and depreciate over time, losing value; the land beneath them continues to rise in value. This is why property has generally been such a good investment and store of value — even if the house loses value, the land appreciation more than makes up for it.

So when we talk about rising house prices, we’re actually talking about rising land prices. For the average residential property in Canada, land accounts for nearly 60% of the property price, but in B.C.’s urban areas this is as high as 80%. Over the past 20 years, the combined value of all homes in Canada has doubled but combined land values have nearly quadrupled.

Taken together, these trends mean that as land values continue to rise and drive ever higher property prices, housing has become increasingly expensive while homeownership has become inaccessible to the majority of young British Columbians.

There is a way to restore sanity to housing prices and leave B.C. residents better off: taxing land value.

How it works

When you lower taxes on something, you encourage more consumption of that good. More often than not this also results in more production. Lowering taxes on land has the same effect — it becomes an even better investment and encourages people to buy more and hold onto it longer. However unlike other goods, we can’t make more land, so prices surge upwards.

Because land is now expensive, only those with access to a lot of capital can afford to buy property and in turn, only they get to benefit from rising values. Everyone else simply has to pay higher rents. This results in the concentration of property ownership and the housing crisis we are presently suffering.

However, the inverse is also true! When you increase taxes on land, it becomes a less attractive investment — prices fall and do not appreciate as much in the long term. This means that land (and therefore housing) is cheaper to buy. This results in lower purchase prices and mortgage payments, plus lower costs for new builds.

While these changes would create a more prosperous and competitive economy, not everyone would benefit from this tradeoff alone. However, the revenue from land value taxes can replace less productive taxes or simply be rebated to B.C. residents, leaving nearly all households better off.

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LVT will make properties cheaper and housing more accessible, and its revenues can be used in numerous productive ways. The two examples below illustrate some of the possibilities of what can be accomplished with a land value tax.

Replace anti-productive taxes

With a 5.4% tax on land values, B.C. could eliminate:

• All provincial personal income taxes - meaning you keep more of what you earn

• All property taxes (municipal and provincial) - meaning you can build more and better without having to pay higher taxes

• All minor property taxes (SVT, property transfer taxes) - meaning less hidden expenses in moving to right home for your needs

• All corporate income taxes - meaning more capital for much-needed investments and higher profitability for business and the workers they employ

In this example we see the potential for land value (B.C.’s greatest asset) to replace anti-productive taxes. This change could transform the competitiveness and liveability of the province by making it a much more affordable place to live, work, and invest.

The average B.C. house price of just over $1,000,000 would decrease by 40% to just under $600,000, drastically reducing the immense debts that home purchasers must incur and spend their lives paying.

Of course, such a major change to the tax landscape can take place selectively, incrementally, and gradually over time. We can start by replacing the most anti-productive taxes and build from there.

What this looks like

The median family income in B.C. as of 2022 was $101,520. The average residential property price in B.C. for a family in that income bracket was around $817,000 (comprising of $517,000 in land value and $300,000 in structure value) . This hypothetical family would:

• Pay roughly $8,600 in LVT

• Save $3,200 in Property Taxes

• Save $4,700 in Provincial Income Taxes

• Net approximately $700 less income

While a sudden change to this effect might leave this homeowning family paying slightly more, implementing these changes over time would likely raise work incomes significantly. Meanwhile, nearly every renter would be better off and enjoy the benefits of the tax cuts.

Make life more affordable

A more moderate, 1% tax on non-agricultural land could provide every B.C. household with an annual rebate of $6,500.

• This would more than offset the increased tax cost for nearly every homeowner.

• It would help compensate the millions of renters who have contributed to a booming housing market, without being able to benefit from its upside.

• It would stimulate the economy by unlocking more unproductive land capital and transforming it into spending power.

• It would ensure all British Columbians can benefit from rising productivity and prices, not merely those already with a foot in the door of the housing market.

We see in this example that even a very modest LVT of 1% could transform the prospects of B.C. families. The average homeowning family would see their net income rise by $2,500 even after accounting for the tax. The average renting family would see their income rise by nearly the full amount of the rebate, $6,500.

In addition, housing prices would fall by an average of 16% across the province, and even more in urban centers where housing is in highest demand.

What this looks like

The median family income in B.C. as of 2022 was $101,520. The average residential property price in B.C. for a family in that income bracket was around $817,000 (comprising of $517,000 in land value and $300,000 in structure value) . This hypothetical family would:

• Pay roughly $3,500 in LVT

• Receive a $6,500 dollar rebate

• Net approximately $3,000 more income

This scenario would leave all renters and all but the top 10% of homeowners better off from an income standpoint, while still enabling housing prices to come down.

Looking for a deeper dive into this topic? Read the Case for LVT here.