Taxation and disincentives creating rental shortage

Greater Victoria’s 0.6 per cent vacancy rate is hurting business’s ability to recruit and retain employees, says the Chamber of Commerce.

Greater Victoria’s 0.6 per cent vacancy rate is hurting business’s ability to recruit and retain employees, according to the Greater Victoria Chamber of Commerce.

It’s well below the four per cent rate the city has declared as being marginally acceptable and much of the fault lies with government.

The City of Victoria’s approval process for a new rental development can stretch a project’s duration to over three years, according to Bruce Carter, the CEO of the chamber.

“You have to go to the city and they demand a neighbourhood consultation. You may need to rezone and then get a development permit. The application process alone takes six months,” said Carter. “If you get bounced back to a public hearing, it’s another six month reset.”

Kathy Hogan of the Urban Development Institute said many civic officials and politicians don’t fully understand the development process. Every delay in approvals raises the costs of the project — costs that are eventually passed on to the renter.

Carter added community amenity charges act as a further disincentive to rental development. The increased property value flowing from the development is calculated and the developer has to pay 70 per cent of that value back to the city. Those monies are earmarked for things like parks, public art, and social housing in the area.

“If I, as a developer, increase the property value by $1 million I have to write the city a cheque for $700,000. I’ve taken all the risk, but they take 70 per cent of the property value improvement,” said Carter.

Community amenity charges are also not consistent. For example, the District of Saanich does not levy an amenity charge.

Victoria councillor Chris Coleman defends the approval process and the amenity charge.

“Rental development has to be sustainable,” said Coleman. “When increasing density in a neighbourhood you have to be sure that the (neighbourhood’s) ‘living room’ can handle it.”

He said he understands the developers’ concerns and is committed to streamline the process and consider other concessions that could help make projects more viable, but maintains it’s “all about finding a balance.”

Disincentives don’t stop at the civic level.

The chamber lobbies the federal government on the issue and are meeting with the Federal Liberal Caucus this week to lobby for changes that may help address some of disincentives to development that originate at that level.

Changes in the federal tax code have eliminated investments in rental property from an earlier capital gains exemption, an exemption that still exists for other business properties.

As well, the rental income generated by a property is not considered as “active business income” and, as such, is not eligible for the small business credit available to other businesses — a move that means creates a starting corporate tax rate (on the rental income) of over 40 per cent.

Even the GST discriminates against rental housing, said Carter.

“Under the regulations, landlords can’t recover tax paid on the money spent on rental properties,” Carter said.