Saturday, February 3, 2024

In The Long Run


Like most other homeowners in B.C. I recently received my 2024 Property Assessment Notice and the first thing I noticed about the taxable value (which is 4.5 times what I originally paid for the property) is that the land value makes up 85% of the total and the building itself is only 15% of the total. My apartment is in Vancouver's west end, where older buildings are selling for $1,000.00 per square foot and newer ones anywhere from $1,500.00 - $3,000.00 per square foot. However, according to various sources, the actual construction cost is only between $100-$300 per square foot and the rest is all land cost.

Clearly it isn't the cost of construction that is driving the insane prices that have plagued the Greater Vancouver area over the past 20 years, it's the land values. And when you consider that buildings only depreciate in value as they age, the numbers are even more disturbing. But, rather than point fingers at what may or may not be the forces behind this rise in property values, perhaps this is an opportunity to look at things a little differently in order to solve a problem that is vexing anyone who lives here.

Instead of trying to own the land, why not just lease it instead? It's the new model for any land the First Nations own and are developing. It's also the way the kings, queens, and assorted nobility in the U.K. do it. Go ahead and try to buy land in Mayfair or Knightsbridge, you can only lease. You can own your apartment or townhouse but not the land it sits on. For that you have options, like paying a monthly lease payment or having the lease payment built into the cost of the apartment. The lease can be 100 years or more and it can also be renewed when it expires. 

The trouble with leased land in Vancouver is there isn't much of it. Most of the land around the south side of False Creek is city owned land on lease to the various tenants but the vast majority of land is freehold. So how can we free up more land for leasing?

The proposed Jericho development is one place. Here the Musqueam, Squamish, and Tsleil-Waututh First Nations, who have bought the land, have formed a company called MST Developments and their plan is to develop the site with a mix of 13,000 rentals and leasehold condos. In keeping with their philosophy that nobody can really own the land, the First Nations are taking a long term rental/lease approach that will provide them with an income stream that lasts forever.

Perhaps another contributing factor to Vancouver's high land prices is the exceptionally low property tax rates. Raising the rates would not only provide the city with more revenue to support parks, recreation, and transit services, it would make the land less attractive to investors and lower the price. But with Vancouver property owners mostly land rich and cash poor perhaps a program, whereby the government buys back the land from individuals and then leases it to them on a monthly basis, would be a way to add more leasehold property to the available inventory and build up an income stream that would last into perpetuity.

Under this plan people could still buy and sell their home but without ownership of the land the price would be easily affordable to just about anyone. A brand new 2,000 square foot home would be no more than $600,000.00 and an older home would be considerably cheaper as it would be depreciating every year. Instead of thinking of a home as an investment it should be viewed as an affordable place to live and raise a family. Let the government and First Nations own the land it's the most cost effective solution in the long run.