It’s a crap shoot for everyone except owners of high-end commercial properties

Don Cayo
Sun

Gordon Campbell’s decision to freeze B.C. property assessments at the 2007 level will mean a six- or seven-figure windfall for owners of high-end office and commercial properties.

For everyone else, it’s a crap shoot with loaded dice. The odds of not losing at least a few bucks, and maybe your shirt, are nil if you’re a developer, poor if you own a business in a second-best location, and worse than at a casino if you own a home.

Why? Let’s start by dispensing with three misconceptions. Two stem from over-optimistic interpretations of what Campbell said. First, your tax bill isn’t frozen, only the assessed value of your property. Thus the tax bill may still go up, possibly by a lot, depending on how much your municipal council spends next year. This fact is absolutely unaffected by the freeze.

And your assessment isn’t frozen at the level you paid tax on in 2007 — an era that looks like the good old days to most B.C. taxpayers. It’s frozen at the July 1, 2007, level, which is the basis for your 2008 tax bill and which, for most of us, reflected a big jump from the year before.

Finally, Campbell was wrong when he rationalized the freeze with a claim that prices peaked on or about July 1, 2008 — the date that would be the basis for 2009 tax bills if he hadn’t frozen the assessments.

Maybe a few properties did. But most values peaked months before that — except for those high-end commercial properties whose owners will profit so greatly from this new policy. Big commercial buildings are rarely sold, probably because they’re in short supply and occupancy rates are sky high. If one does come on the market, it’s snapped up — especially now as any investor with money desperately wants places to park it other than in volatile stocks. So prices are still rising.

I found records for only seven such sales in the last quarter, and my calculations show the freeze will benefit the new owners to the tune of hundreds of thousands, even millions, of dollars. The region’s largest recent sale, a collection of buildings in Richmond‘s Crestwood Corporate Centre, is reported by Colliers International to have sold for $209 million. Yet when I calculate the 2007 assessed value, it’s just $147 million, or $62 million less. Most years, the 2009 tax bill would be based on the selling price, but now it will be based on the old valuation. The total business tax rate is $16.75 per $1,000, so the tax savings is more than $1 million.

It’s impossible to say precisely what the savings is for any of the hundreds of buildings that haven’t change hands — only a selling price could tell us exactly what the value would be without the freeze. But the story is similar for the handful of other recent sales I checked. Clearly, the price trend is high and still rising.

The price trend on virtually every other kind of property is, of course, dropping. And that’s why the outcome of this tax freeze is so unequal and unfair.

Since the percentage of city costs paid by businesses is fixed, any company not housed in these privileged buildings will lose thanks to this freeze. They must pick up the tab for the millions and millions the big guys save.

What about housing? If your 2007 assessment was less than your house was actually worth — and, according to a West Vancouver study I wrote about recently, quite a few are — then your luck will continue for another year. If your assessment was too high, you’ll lose for another year. And even if it was dead on, you’ll be stuck with extra costs because those with low assessments won’t be paying their share.

But that’s just the beginning. It’s clear from an analysis of Metro-area condo and townhouse sales data that prices peaked months earlier than the premier claims. Average prices tell only part of the story as they don’t necessarily compare the similar units, but it’s significant that they trended downward between July ’07 and July ’08. The drop was about five per cent in Vancouver, and a little less in surrounding communities.

Sales volumes, however, tanked. From 220 units to 90 in Vancouver, 380 to 203 in Surrey, 347 to 150 in Richmond, and so on. This jibes with what real estate contacts and newspaper stories tell me about new developments. Not only are a few high-profile projects stalled, but nobody is starting new ones. This means land suitable for development is, for the short-term, unsaleable unless it’s at anything approaching yesterday’s prices. For modest older homes that could be torn down, developers who just want the land are no longer competing with starter homebuyers, so the lower end of the market for stand-alone homes — for example, those bungalows on 33-foot lots in Kits — is taking a beating, too.

Upscale homes might resist the trend a little longer. But, with every class of home, it depends on specific circumstances — neighbourhood, amenities, whether you find a buyer who wants it bad enough.

And regardless of what kind of home you have, what will happen to your right to appeal if your assessment is way too high and/or there’s evidence prices in your neighbourhood are in the toilet? For example, a condo in a Victoria building that’s leaky and in dire need of repair was recently dumped for just $60,000 as the owner scrambled to avoid liability. Will other units in the building still be valued at the July 1, 2007, level — typically in the high $300,000s?

I’ve found nothing on BC Assessments’ website to answer that kind of question, although the content seems to be changing constantly, so no telling what I might have missed. Revenue Minister Kevin Krueger has said you can still appeal, but, as I understand the freeze, either way someone will lose and lose big. If close neighbours of the Victoria leaky condo can’t get their assessments slashed, they lose. If they can, people in other sharply devalued properties that haven’t had a recent sale to cite in support of an appeal will lose because their property values will be unadjusted.

And think for a moment about the phrase “as I understand the freeze.” Because myriad details are foggy. What if you had an exemption — and there are several kinds — in ’07? Does it automatically continue in ’08? What if your house burned to the ground and you’re left with bare land, or it was gutted, and now you just have a shell? What if a ho-hum commercial building in a gentrifying area was converted into trendy lofts? Or what if a strata unit changed from owner- to renter-occupied, or vice versa? What if … ? What if … ? What if … ?

All BC Assessments has to do is find fair and consistent answers to these kinds of questions for 1.8 million properties and then get the bills out next month. Good luck.

And good luck to you, Dear Reader. I hope you win the crap shoot. But don’t bet the farm.

© The Vancouver Sun 2008

This entry was posted on Saturday, November 8th, 2008 at 12:00 pm and is filed under Other News Articles. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.