Property Tax Snacks

co-authored with Jens von Bergmann & cross-posted over at MountainMath.

 

Residential Property Taxes have been rising in Vancouver. As always, we’re seeing a lot of sturm and drang about the rise. But we think it’s ultimately a good thing. Why? Here’s three perspectives. From a fiscal perspective, property taxes pool our resources to enable our government to pursue projects and provide for the common good. They’re a big component of how we take care of each other and set priorities. From a social equity perspective, property taxes are directed at wealth, which is highly unequal in its distribution. Property taxes are also – at least around here – mostly a tax on land value, the rise in which is socially produced and largely unearned by any landowner. We should definitely be looking to redirect the massive gains in real estate wealth in this province toward the common good (Henry George for the win!) Finally, from a financial perspective, higher property taxes increase the carrying cost of treating housing like any other investment. They also work to stabilize the market to the extent they counterbalance the weight of shifts in interest rates. In this sense, property taxes and prices are endogenous.

Also worth noting: Vancouver’s property taxes are very, very low. Measured as the “mill rate” – or the rate of taxes owing per $1,000 in property value – the City of Vancouver’s rate is far below most other municipalities in BC (and further afield), especially outside the Lower Mainland.

prop-tax-1

Within municipalities, property taxes hit real estate wealth, but they’re basically “flat taxes”, set at the same proportion to property values regardless of underlying disparities. What’s more, looking across municipalities, there’s a perverse regressivity to property taxes. The wealthy people (e.g. living in Vancouver or West Vancouver) pay lower tax rates on their properties than those generally less well-off (e.g. living in Nanaimo, Port Alberni, or Prince Rupert). Measures like the School Tax, progressively applied to properties over $3 million, only partially counteracts this underlying regressivity at the Provincial scale. Still, we should be looking at more ways to bend property taxes in a progressive direction, and perhaps even use them to provide relief for income taxes. In short, we can definitely make property taxes a better tool for promoting a more fair BC.

The comparison between places like Vancouver and places like Prince Rupert also helps demonstrate the endogeneity of property taxes and prices. Someone owning a $1M property in both municipalities pays different tax rates. The present value of that tax break the property in Vancouver gets above the property in Prince Rupert, assuming the spread stays constant, is $229k. That serves to inflate property values in Vancouver. Which in turn serves to depress the mill rate in Vancouver. Rinse and repeat.

Let’s briefly touch on property taxes in terms of fairness between the City’s renters and property owners. The city has been working on making itself more fair to renters, who make up the majority of its population but find their options for remaining in the city increasingly constrained. Here we want to provide a simple comparison of property owners to renters in terms of rising costs they face. What’s risen faster, rents or taxes? We also don’t want to forget about rising asset prices too! After all, most property owners have reaped enormous gains in wealth that haven’t been available to renters. Here we’ll set aside other benefits available only to owners (including homeowner grants reducing property taxes, the complete absence of capital gains taxation on sales of principal residence, and even the lack of taxation on the imputed rents home owners pay to themselves) and just look at the rise in property taxes paid and gains in property values relative to median rents over the last few years. What’s that look like?

vancouver_price_tax

Here we’ve drawn upon a representative sample of detached properties and apartment condos and used their actual property taxes paid for the property tax data, and used repeat-sales HPI for single family and apartment condo within the boundaries of the City of Vancouver. The rise in property taxes paid by owners of detached properties slightly exceeds, but otherwise more or less matches the rise in median rents over recent years. The property taxes paid by apartment condo owners has had a more complicated journey, ultimately remaining below the rise in median rents (and remember, many of those condos are being rented out!) Overall, property taxes and rents have pretty much kept pace with one another. Property values, on the other hand, are through the roof! Up until very recently, we saw especially strong rise in the value of detached houses. Rapid price appreciation in the detached market (2010-2016) pushed property tax growth higher for detached houses than for condos, who are only recently catching up. The expansion in municipal budgets has driven recent property tax growth, but it remains in line with the increase in rents being paid by representative residents of the City.

Given our low vacancy rates, there is little doubt that rents would’ve risen much quicker without provincial rent control. But regardless, rents have still kept pace with rising property taxes. We still have lots of room to raise our property taxes on all of the grounds mentioned above. We could also use more progressivity in our property tax rates, working to counteract their regressive tendencies. Unlike for renters and rising rents, the research indicates that property tax increases seldom result in displacement of home owners. That said, if property owners feel their budgets squeezed too tight, the province also provides a wealth of opportunities for deferring payments. That’s yet another benefit that’s just not available to renters. But if the province wants to start supporting tenants who need a break to catch up on their rent payments, it might help put a big dent in the sky-high proportion of BC’s residents who feel forced to move.

 

As usual, the code for this post is available on GitHub for anyone to reproduce or adapt for their own purposes.

Fun with Real Estate Wealth

Let’s take a moment to talk about real estate wealth! It might be a handy cure to perennial bellyaching about property taxes.

I’m going to pull from the public tables of Statistics Canada’s Survey of Financial Security, a great source of data on wealth in Canada. The data, asking Canadians for detailed information about their collected assets and debts, run from 1999 to 2016 (with the newest data being collected now!) And guess what? They’ve got real estate data in there! So cool. We’ve used this data before to help question the popular narrative in Vancouver that “foreign investment” in Vancouver real estate should be our primary concern (we’ve got a whole lot more domestic investors… why give them a pass?)

Here let’s just look at data on real estate wealth by overall wealth quintile (From StatCan Table 11-10-0049-01) . That means we’ll divide economic families (and those outside of such families) into five groups ordered by their total net wealth. What’s the average real estate holdings in each total wealth quintile, both in terms of their principal residence and any other real estate they might own? First let’s look at Canada as a whole, then specifically at Metro Vancouver.

Real-Estate-Wealth-Canada-Qs

Real-Estate-Wealth-YVR-Qs

Here I’m taking average real estate holdings for each quintile by multiplying the proportion of those who own the asset by the average asset value of those with the asset. You’ll notice I’ve dropped the lowest two quintiles, either because there’s not enough property holders in these quintiles to provide reliable estimates (for Metro Vancouver), or the estimates are consistently below $10k (lowest Quintile) or $100k (2nd Quintile) in all years (for Canada as a whole).

What do we see? In Vancouver, no surprise, we see very heavy real estate wealth. The upper middle (4th Quintile) here looks a lot like the top quintile in the rest of Canada. The top quintile here is loaded with wealth both from their principal residence and from other real estate holdings beyond. Effectively the property tax here is a flat tax on wealth. Hooray! We’re doing a wealth tax! And while it’s mostly flat, we actually do get a bit of progressivity in this tax, both through the provincial School Tax kicking in over $3 million and the Home Owners Grant providing relief toward the lower end.

Raising property taxes on our extraordinary unearned and unequal real estate wealth: what’s not to like?

Why Do People Move? New Data, Mysteries, and Agendas

How often do people move, and why? Canada has ok data on the first question, and as of yesterday (!) also some ok data on the second. The USA just released its most recent data, with even better answers for both questions. The big finding out of the USA data, attracting significant media coverage, is that Americans just aren’t moving as much as they used to… which is pretty interesting.

Let’s start by comparing the USA to Canada in broad terms. Here I’m looking only at moves over the course of a year (the one-year mover rate), and I’ll just pull from the USA data on movers for recent Canadian census years (2001, 2006, 2011, 2016), and add the most recent year available (for 2018-2019). I’ll also break the numbers down into their component types of moves: short-distance mobility (within county in the USA, within municipality in Canada), longer-distance migration (between counties and states, or within and across provincial lines), and immigration (from another country).*

Mobility1

Overall mobility for both Canadians and Americans dropped between 2006 and 2011, with the intervening Great Recession likely a big explanation for the decline (as well as its greater severity in the USA). But Canadian mobility rebounded, while the Americans continued to… well… stay at home. Just under 10% of Americans moved in the last year, compared to just over 11% in 2015-2016, when a comparable 13% of Canadians moved.

What’s apparent for both countries is that short-distance moves (within the same county or municipality) dominate moves overall, and correspondingly tend to drive broader trends in mobility and migration. Even though geographies of moving can be funky (and US counties are especially weird in this regard), this is a pretty stable pattern. Given the different geographies, it’s hard to read too much into the differences in longer-distance moves between Canada and the USA, but more long-distance moves cross state lines in the USA than provincial lines in Canada. And finally, while still small overall, immigrants (crossing international lines in the last year) make up a bigger proportion of movers in Canada than the United States, actually exceeding the proportion of movers crossing provincial lines.

But why do people move? The USA has good data on that! (Tables 17-18). Here we’ve got the main reason for a given move (often there are more than one), divided into a set of common categories. Let’s break it down by distance moved to show off some general patterns and how short-distance moves are different than longer distance and international moves.

Mobility2

Pretty neat! Short-distance moves (within counties) are dominated by those moving for housing reasons. Longer-distance moves (between counties) are much more heavily focused on work reasons, chief among these moving for a new job. International movers respond primarily to other concerns, with education being a big one! (Housing reasons drop away almost entirely). Strikingly, moves for family reasons are pretty constant across all distances. Thinking about immigration, the categories we get, including: Work, Family, Education, and Other (including refugees) map onto a variety of federal immigration programs, both in the USA and Canada.

Let’s also talk a little bit about the actual reasons given, starting with the work-related categories (in green), including moves because of a new job, moves because of looking for work or recently losing a job, moves to be closer to work (reducing a commute), moves because of retirement, and other job moves. Most work-related moves are for a new job or to be closer to work. Next come family-related categories (in yellow), including moves because of changes in marital status (e.g., moving in, getting a divorce), starting a new household (e.g. moving out of the parental home), and other family (e.g. moving to be closer to a parent, needing room for more kids, etc.). After that I’ve placed a variety of miscellaneous reasons for moving in shades of brown and red. The largest of these, separated out from a generalized “other,” are moving for school (e.g. university), moving for health reasons (e.g. closer to care), and change of climate (e.g. moving to Florida). But natural disasters also motivate a significant number of moves, especially for international movers, and in a world of climate change that’s definitely a category to keep an eye on. Finally let’s turn to housing-related categories (in blue). Here we see people moving because they wanted to own a home (usually after renting), because they wanted a better home, to live in a better neighbourhood, to live in cheaper housing, or because they were evicted or foreclosed upon, with a residual of other housing-related reasons bringing up the rear.

Let’s look at historical variation in reasons for move with handy data from the past twenty years.

Mobility3

Work-related and Family-related reasons for moving seem to have declined only slightly over time. The big decline in American mobility is strikingly concentrated in the decline in moving for Housing-related reasons. We might think of this as reflecting a real decline in housing opportunities, leaving younger people, in particular, “stuck in place,” as per this Brookings report. “Other” reasons for moving may have gone up slightly in recent years, though it’s difficult to fully compare given a variety of changes to survey instruments and coding (e.g., an instrument error may explain truncation in the 2012-2015 era, and new coding procedures for write-in reasons were adopted in 2016).

What’s the new Canadian data on reason for move look like? Unfortunately, it’s different and slightly less useful for some questions than the US data. But it’s something! (Hat tip to Jens, who told me it was out & already wrote up a blog post about it). What the Canadian Housing Survey has done is ask people about whether they’ve moved in the last FIVE years (rather than the last one year). If they’ve moved, the survey asked the reasons for their last move. Canadians could report more than one, which reflects the complexity behind peoples’ actual moves, but unfortunately also makes it difficult to distinguish and compare the main reason for peoples’ move. But let’s look at reasons overall. We don’t have quite the same set of reasons codified in Canada as in the USA, but there is significant overlap, and broad categories can be grouped in more or less similar fashion. Here (for selfish reasons) I also provide a cut-out for my province of British Columbia (BC).

Mobility5

In broad terms, we can see that the categories and their relative importance match up pretty well with what we get in the USA. Housing factors dominate reasons for move, and the largest reason people in Canada give for their moves is that they moved “to upgrade to a larger dwelling or better quality dwelling,” an explanation involved in over a quarter of all moves. Moving for family-related reasons comes next, followed by moving for work-related reasons, as in the data for the USA. Leftover “other reasons” in Canada is a little more inclusive in Canada than in the USA, but we can see that it’s still a residual category, without as much overall explanatory power as the others.

Looking at specific reasons, where they match up to reasons in the USA data, they tend to carry the same general explanatory power. Most moves are about finding housing, matching it to one’s family or household, and matching up to a job. But there’s one reason for move that really jumps out in the Canadian data, despite playing a much smaller role in the American data. So let’s talk more about evictions and foreclosures!

Being “forced to move by a landlord, a bank or other financial institution or the government” is a factor in over 6% of Canadian moves, jumping up to a staggering 10% of moves in British Columbia. One-in-ten moves involves a shove out the door! Those are big numbers. I’ve got ninety-nine reasons for why we might expect BC to see a higher proportion of moves involving these kinds of interactions than Canada as a whole (e.g., we don’t have enough homes, we’re dominated by Metro Vancouver‘s super-tight housing market, and we rely much too heavily on unstable secondary suites and condo rentals that can be reclaimed for use by their owners). But assuming this is mostly about eviction and foreclosure, I really don’t have any good explanation for why they would be playing such an outsized role in explaining moves in Canada relative to the USA. It’s a mystery!

To get a sense of how big of a difference we’re talking about, let’s go back to the data from the USA. In the most recent year, less than 1% of moves (an estimated 216,000 in total) were mainly the result of an eviction or foreclosure. We can go back further. The USA only began providing and recording evictions and foreclosures as a standard option in 2012, but they include a coding of write-in answers in 2011. Good timing, with respect to the aftermath of the Great Recession, as foreclosures piled up, weighing heavily on peoples’ lives as well as the post-Recession recovery more broadly. In the peak year of 2011-2012, an astonishing 792,000 Americans reported moving due to eviction or foreclosure. And yet… that number still represented just over 2% of all movers, with over 35 million moving in that year.

Mobility4

By contrast with the USA, Canada has low mortgage arrears and foreclosure rates and tends toward relatively strong tenant protections. It might simply come down to the survey options available for people to choose. “Forced to move” may be read as more inclusive than “eviction or foreclosure” in such a way that people more readily recognize their circumstances in the former (language of everyday life) than in the latter (legal language). Canadians may also be expanding the range of reasons they were forced to move to encapsulate more ambiguous situations like “my landlord kept trying to sell the place, with showings every week, so we had to get out of there.” So maybe the US and Canadian data just aren’t fully comparable here.

Returning to my ninety-nine reasons for BC’s high rate of forced moves relative to Canada as a whole, it’s worth noting that we do actually have some data on evictions, thanks to Nick Blomley’s team at SFU. Eviction proceedings mostly follow missed rent checks, just as foreclosures almost entirely follow borrowers missing their mortgage payments. Overall, even in Metro Vancouver, the proportion of evictions related to landlords reclaiming dwellings for their own use appears to be pretty small, involving less than 4% of tenant-landlord disputes between 2006-2017 (compared to nearly 40% involving missed rental payments, p. 9 & 12). That said, landlords reclaiming dwellings for their own use seems to be on the rise (p. 10). But overall, the informal ways people feel forced to move by their landlords, banks, or governments, may play a significantly larger role than formal eviction or foreclosures, perhaps even pointing to some shortcomings of the US data for missing a more expansive understanding of forced moves. Can you guess what I’m going to say next? We need more research on this topic!

Forced moves attract attention because they’re the kinds of outcomes we should be working hard to prevent, and it’s important to provide strong protections enabling and supporting people to stay put in their housing where possible. There are good reasons to support an anti-displacement agenda, especially providing for tenant protections. But bearing this in mind, it’s also important to recognize and normalize moving.

Most moves represent positive experiences for people: leaving home, getting married, making room for a child, getting a new job, moving closer to work, moving to better housing or a better neighbourhood. Sometimes such moves are vital, as when people need to escape from a bad family situation. The right to move is protected in some form or another in both the USA and Canada (Charter of Rights!). But it’s largely meaningless without the right to housing. We should be protecting the right to move, together with the right to housing in places people want to move.

To put the matter differently, an anti-displacement agenda is important to protect peoples’ existing housing arrangements, focused on those currently lacking legal standing to remain in place (i.e. most tenants). But anti-displacement efforts must be coupled with a broad pro-mobility, pro-housing agenda in order to fully enact, protect and expand peoples’ right to move and right to housing. Fortunately, evictions and foreclosures seem to be declining in the USA, but moving overall has also declined. Evidence suggests that the decline in moving in America may be most strongly related to a decline in housing opportunities (e.g. Glaeser & Gyourko). We know moving overall has rebounded in Canada, though we don’t yet know if people are increasingly feeling forced to move. The numbers out of BC are certainly disturbing. Pushing for an expansive right to housing means continuing to work toward strong protections for existing tenants, but also – and crucially – working to make sure people can move pretty close to the places they want and need to go.

Let me end by proposing a simple motto for our governments to work toward: Freedom to move and freedom to stay, we’ll get you housing either way.

 

*- I use the data with the most recent base in the US dataset (e.g., 2010 census for 2010-2011 year in USA), and for the 2001 Census year in Canada I extrapolate the finer categories here from cruder categories available using the corresponding proportions in the 2006 Census year.  Check original files for a variety of other cautions with the data.

Metrics and Bird Memes

 

Working with Jens von Bermann, I gave a talk yesterday at #HousingCentral on housing metrics! Specifically, we talked through and expanded upon our earlier joint blog post on the same topic. Click the image below to visit our full slides.

Image-Talk-HousingCentral

Included in the slides are a variety of graphics, mostly from past posts of mine and Jens’. In case you’re curious, follow the links below to find out more about them:

Rent correlation with vacancy rates

Price correlation with inventory (borrowed from YVR Housing Analyst)

Crowding measures

Urban Density

Homeless Counts

Empty Homes

Core Housing Need

and Job Vacancies

As for the conference, Housing Central is an annual shindig put on by the BC Non-Profit Housing Association (BCNPHA), including a special set of panels on research from the fine folks at the Pacific Housing Research Network (PHRN). Check the PHRN Symposium website for calls if you’re interested in presenting!

Last but not least, I took some bird pictures down along the southern edge of the Fraser River delta, and I really, REALLY want to turn them into as many housing memes as I can. So here’s me summarizing our Housing Central talk with a bird-based housing meme.

Birds-per-Post-2

Enjoy!