Victoria Real Estate Board proposing tax change to relieve city's rental squeeze
Sep 30 2012
Jim Bennett has been working for years trying to get the federal government to change capital gains legislation so that apartment building owners will have incentive to build more such buildings when they sell old onesPhotograph by: Darren Stone , Times Colonist
More than half of Victorians are renters, along with one-third of all households in the capital region. But new apartment buildings built for renters are few and far between - secondary suites and investment condos are often tenants' only choice.
The Victoria Real Estate Board is convinced a single tax change could give renters more - and more affordable - options.
Right now, if someone who purchased a rental apartment building for $100,000 in the 1970s wanted to sell, they would face about $1 million in capital gains taxes on a sale of $5 million.
In the past, they could have deferred those taxes by investing in a new rental-property development. But that changed in 1972, when Ottawa eliminated the capital-gains deferral for rental buildings, something the board has worked to have reinstated.
Within five years of the change, purpose-built apartment construction in Canada plunged by 90 per cent, said Al Kemp, Victoria-based CEO of the Rental Owners and Managers Society of B.C.
"The typical apartment in Victoria is 40 years old," Kemp said. If not for secondary suites - there are an estimated 9,000 in Saanich alone - he couldn't imagine where people would live.
Currently, there are "literally billions of dollars doing nothing" for the larger economy because of the capital-gains problem, Kemp said.
The current tax structure has some landlords refusing to sell - some on the grounds of the tax hit and others who say they won't have enough after-tax proceeds to reinvest in new units, said Carol Crabb, president of the Victoria Real Estate Board.
If they could defer the taxes, owners of apartments and other rental properties would have an incentive to sell and invest in new apartments, Crabb said.
Tenant advocates agree incentives are needed to expand the rental-housing stock, pointing out Victoria rents are among the highest in Canada.
Jill Atkey of the B.C. Non-Profit Housing Association said Ottawa has focused for years on homeownership incentives, such as low interest rates and renovation grants.
Rental construction has stagnated, she said, "in large part" for lack of tax incentives.
Based on an analysis of census data, the capital region will need between 9,000 and 12,000 new rental units - including social housing - in the next 25 years, Atkey said. Of those, up to 8,200 units will have to come from the private sector, she said.
Spokesman Tom Durning of Vancouver-based B.C.'s Tenant Resource & Advisory Centre agreed "the economics aren't there" yet for rental housing construction.
"We need some incentives to get affordable housing built," Durning said.
The Victoria Real Estate Board worked on the issue with outgoing Victoria NDP MP Denise Savoie, who unsuccessfully championed a similar tax change in 2009 and 2010 in the House of Commons.
While the Conservatives campaigned in 2006 on capital-gains changes, nothing transpired.
Ottawa has provided "nothing of note" since it bailed out of new social housing in 1992, Durning said.
The dearth of new apartment buildings translates into more than higher rents, according to the Federation of Canadian Municipalities.
It restricts workers' ability to move for new employment, costs construction jobs now that the demand for new houses is slowing and short-changes immigrants, young families and seniors who can't afford or don't want to live in houses.
John Dickie, president of the Canadian Federation of Apartments Association, said the current capitalgains policy is unfair to tenants.
"The policy is a bias against renting and that's a question of fairness," he said.