Municipal tax hikes make housing less affordable

A city of taxes

Taxes in Kelowna might be going up again.

While this may be good for services (if used appropriately), the only guarantee is that this increase would increase the cost of housing.

The City of Kelowna only has two major means of collecting taxpayer dollars to pay for services — taxes on the construction of new housing and property taxes.

Let’s start with property taxes. Under Mayor Colin Basran, municipal property taxes have increased approximately 22%. Property tax increases cost homeowners more money each year, and it costs renters more money as these increased costs are often passed on to renters from landlords. However, property taxes are essential in ensuring we have the kinds of services that residents rely on.

On the other hand, new development is a cash cow for local government. The city receives tens of thousands of dollars from each new home through various charges (taxes) to offset costs of increased service requirement. While these taxes are needed to fund transportation, sewage, water and more — new development is also a critical step to increasing the affordability of housing. Canada has some of the least affordable housing in the world and coincidentally has the lowest number of homes per capita in the G7.

One of the new development taxes utilized in Kelowna is a parks development charge. This tax is used to secure new park space throughout the city. However, in 2019, Mayor Basran and council voted to double the existing parks development charge from $7,000 a unit to $14,180 a unit. However, whether the city needed a substantial increase in parks funding given their existing holdings is likely debatable (see ‘City is a real estate mogul’).

The most recent proposed tax increase is to development cost charges (DCCs). The proposed increase varies depending on the development type and its location within the city ranging from 7% to 32%. To put this into numbers, a new single-family home’s DCCs in the north of Kelowna would increase about $10,000 and in southwest Mission it would increase about $7,000 under this proposal.

So how does this make housing less affordable? It’s well-established that these tax increases are put back onto homebuyers and reflected in the cost of a new home. Increase DCCs or parks charges by $10,000? The price of that new home just increased by $10,000.

This means that if the proposed DCC increase goes through that the price of a new home north of the inner city will have increased by $17,180 over the last two years just due to tax increases, without accounting for increases in land costs or building materials. Overall $43,344 of the price of that home will be made up of DCCs, parks charges, water charges, wastewater charges, and drainage charges. This also doesn’t include the cost of applying for getting a zoning amendment if required, which comes at an additional substantial cost that will be passed on to the buyer.

The point of this column is not to argue one way or another on the proposed DCC increases. DCCs play an important role in building a sustainable and well-serviced city. However, often absent from the public discussion is who pays for these increases. At the end of the day, these are taxes paid by homebuyers. There’s nothing inherently wrong with increasing flat-rate taxes as inflation changes over time, however, to do so without being upfront on the impacts to the cost of housing during a housing crisis would be disingenuous.

In order for the city to justify increasing taxes on new developments and thus increasing the cost of new homes, municipal officials must be positive that the revenue they’re currently collecting is being spent efficiently and effectively — without waste — and yet is still unable to cover costs of adequately servicing new developments.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Adam Wilson is from Kelowna and has an educational background in urban planning, where he published his research on the politicization of cycling infrastructure in the Journal of Transportation Geography. 

Adam was named as one of Kelowna’s Top 40 Under 40 in 2017 for both his research into cycling infrastructure and a number of political interviews he had done with Macleans, the National Post and CBC News. 

He previously worked as an urban planner in Toronto, where he focused on provincial legislation and municipal approval processes.

Most recently, Adam worked for Ontario’s Ministry of Municipal Affairs and Housing, where he held various positions, including as the minister’s executive director of policy and strategic planning, and the minister’s director of communications. 

Adam now lives in Kelowna with his partner and works in the health care sector, while running his own consultancy that provides strategic advice on local municipal issues.

Email Adam at: [email protected]

His website is adamwilson.ca

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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