Cool climate for small businesses turns frosty
Jeff Dion’s family has run an industrial signage business for 12 years in the area around Clark Drive and Powell Street, and although they have a good relationship with their landlord, they don’t know how much longer they’ll be able to stay in the building, or the neighbourhood, or the city.
The property’s assessed value has more than doubled year over year for two years running, Dion said, and the family worries next year’s property tax bill hike will be the one that forces them to lay off some of their five employees or leave town.
Like most independent business owners in Vancouver, Dion pays a triple-net lease, in which the tenant is responsible not only for paying the landlord the rent, but also maintenance fees and property taxes. It’s the last one that’s been the killer in Vancouver lately.
Dion’s wife Melissa said their landlord is sympathetic, but as land values in the area have soared, he has no choice but to pass the property tax on to tenants, or just sell the land from under them.
“Our landlord asked us: ‘What are you going to do? Mine diamonds?’” Melissa said. “He wants to keep us, but if the taxes keep going up, he’s not going to be able to pay it for charity.”
A pair of new reports released this week, taken together, paint a picture of what the Dions and fellow merchants around town will tell you: Vancouver is becoming an increasingly inhospitable environment for local independent businesses.
Vancouver is bucking a national trend by shifting more of its tax burden from residents toward businesses, according to a report released Tuesday by Altus Group.
At the same time, real property tax growth in Metro Vancouver has closely tracked a rise in municipal spending and dramatically outpaced population growth over the last decade, placing an “unfair” and “disproportionate” burden on small businesses, according to a separate report released Wednesday by the Canadian Federation of Independent Businesses.
Real property tax growth outpaced population growth in B.C. nearly fourfold, rising a total of 45 per cent between 2005 and 2015, while the population grew 12 per cent, according to the CFIB report. During that time, Vancouver increased operating spending per person by 20 per cent, after adjusting for inflation and population growth, the report said.
The report from Altus Group, a Toronto-based real estate research and advisory firm, examined the ratio of commercial tax rates to residential tax rates for 10 major cities across Canada, and found Vancouver was an outlier.
While most Canadian cities shifted more of the property tax burden from business owners toward homeowners in the past year, “Vancouver seems to be going in a different direction,” said Terry Bishop, president of Altus’ property tax group.
“You would have thought with the overheated real estate market (in Vancouver), there would be an opportunity to look at the ratio of commercial to residential rates, and bring them down if anything,” Bishop said.
Other cities with hot real estate markets, including Toronto and Montreal, have taken different approaches, Bishop said, trying to close the “tax gap,” shift the burden toward residents, and improve the business climate.
City councillors may be hesitant to increase the tax burden for homeowners since they account for so many more votes than business owners, Bishop said, but added: “You also hear government trying to implement measures to slow down the residential property market, and if they did increase property taxes on residential properties and back off on commercial properties a bit, that would be a tool they could use to slow down the residential market.”
In 2015, former Vancouver Sun columnist Don Cayo, who regularly wrote about the need for property tax reform before his retirement last year, described Vancouver’s ratio of commercial to residential property taxes as “way out of line when judged by any fairness yardstick,” with businesses paying a “disproportionately large share of city hall’s expenses.”
Since that time, Vancouver’s ratio has continued to rise and grow “more unfair,” said Aaron Aerts, B.C. economist for the CFIB, adding it’s an issue across the Metro region.
“We’ve heard a lot of our members seeing 30 to 40 per cent increases on their tax bill year over year,” Aerts said. “If you look at downtown Vancouver and at Fourth Avenue in Kits, you’ll see how many small businesses are shutting their doors every week.”
It’s far easier for large companies, like national and international chains, to absorb big property tax hikes, Aerts said.
But it’s tough for independent businesses, even for beloved Vancouver institutions like the Dover Arms Pub and 3 Vets, both of which closed this year, blaming property taxes.
Jeff Dion said all the local independent business owners he knows are in the same boat. A neighbour recently confided to him he was thinking about finally selling his long-running and in-demand sheet metal business and moving on.
“He said: ‘I’m just working to pay property tax.’”