Property taxes and rent increases

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It’s City budgetting time, and there are claims that a larger property tax increase, rather than a smaller one, is “really gonna hurt renters.”

Let’s take a quick look at two things: rent control and economics.

Rent control. During existing tenancies, landlords who comply with the law generally increase rents by the legal maximum per year, regardless of increases to property tax, insurance, mortgage interest rates, etc. In BC, that’s 2% for 2023 and 3.5% for 2024.

So for renters in existing tenancies, property tax increases don’t affect rents.

Economics. Between tenancies, landlords can increase the market rent to whatever the market will bear. Will a prospective renter be willing to pay an offered rent? With a 1% vacancy rate, it’s a landlord’s market, and rents are high. It’s the basic economics of supply and demand.

And how much will a property tax increase affect overall market rents? To get a rough idea, let’s assume that:

  • landlords pass on 100% of the property tax increase to the rent;
  • market rent is $2,000 per month; and,
  • property taxes on the suite are $3,600 per year, or $300 per month.

A 10% tax increase in the property tax rate would be $30 per month (1.5% of rent, i.e. below the rent control cap). So the difference between, say, a 6% property tax increase and a 10% tax increase would be $12 per month. But remember, this isn’t a rent increase for someone who is currently renting a suite (their rent increase is determined by rent control legislation), but rather an increase to the asking rent for future renters.

Actual market rent increases are much larger. The most recent CMHC Rental Market Survey shows monthly rent for an average 2BR Victoria suite went up by $259 (from $1,897 / month to $2,156) in the year up to October 2022.

For visual learners like me, here’s a chart showing the relative scale of the average market rent increase, a 10% property tax increase, and the difference between between a 10% and a 6% property tax increase.

As you can see, a 10% property tax increase is quite small compared to market rent increases. And the difference between a 10% property tax increase and a 6% property tax increase is even smaller.

And don’t forget that landlords can only raise rent to what the market will bear. Will that extra cost of property tax result in a slightly larger rent increase? Maybe or maybe not.

So to sum up:

  • an existing tenancy’s rent increase is subject to rent control regardless of property tax increases; and,
  • for a suite between tenancies, a 10% property tax increase could have a small effect on rent offered, or none.

The bottom line?

Anyone who is genuinely concerned about rents being high should focus on increasing the vacancy rate.