Commentary

Queen's Park Forces Hamilton To Reward Failure

The Municipal Act mandates property tax breaks for vacant properties, which reward property owners who keep their buildings empty and encourage speculators to hold out for public subsidies.

By John Neary
Published March 22, 2010

Hamilton's property tax breaks [PDF link] for vacant commercial and industrial properties are a favourite target of criticism on RTH.

It's not hard to see why. No public interest is served by rewarding property owners who keep their buildings empty, and no principle of justice is upheld by giving tax breaks to a subset of those people who are wealthy enough to own industrial and commercial buildings. (Especially the particular subset that fails to put those buildings to use.)

Moreover, tax breaks encourage speculators to hold onto empty buildings for years in the hope of receiving public funds to fix them up, although the buildings don't always survive.

However, the city isn't to blame on this one. You see, it's only doing what the province requires it to do.

Section 364 of the Municipal Act compels all Ontario municipalities (except Toronto, which is similarly compelled by the City of Toronto Act) to offer a 30 percent property tax rebate to vacant commercial properties, and a 35 percent rebate to vacant industrial properties.

To put it otherwise: while North Carolina held out tax incentives for Siemens to invest in Charlotte, our provincial government offered a tax incentive to shutter the Hamilton plant. Once the doors close for the last time, their property taxes will drop by 35 percent!

No one is compelled to own property in our society, and fairness should almost always argue against property tax breaks on the basis of hardship. (Almost, but not always.)

However, being wealthy enough to own commercial or industrial property pretty much rules out hardship. Tax breaks could also be justified if they served the public good, but what public good is there in keeping buildings empty?

The Municipal Act should enforce higher taxes on vacant property, which would force the speculators who own most of our downtown to choose between redeveloping their land or selling it to someone else who actually wants to.

If we want an end to perverse economic incentives for failure, we should take our case to Queen's Park, not to City Hall.

John Neary lives in Beasley Neighbourhood and practices general internal medicine at St. Joseph's Healthcare Hamilton. He would like Hamilton to develop an urban environment that creates less gainful employment for his profession.

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By MattJelly (registered) - website | Posted March 22, 2010 at 21:25:04

Thanks for posting this John. Very good points- this rebate has bothered me for years, because it incentivizes vacancy. One thing I'd point out though- some buildings, while vacant, should be categorically denied when they apply for this rebate, because they allow film companies to use the building, and are technically doing business in these properties. I would be very interested to see a list of buildings that have applied for the rebate, and cross-examine it with a list of buildings used for film shoots. I've asked the Film Liason office for information, but haven't received a reply back.

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By kevin (registered) | Posted March 22, 2010 at 21:30:26

Great article, John, but, it makes me sad. Who makes a decision like that? If Matt Jelly runs for mayor, I'll volunteer.

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By A (anonymous) | Posted March 22, 2010 at 21:57:25

Then the City needs to speak up and lead that march to Queen's Park.

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By C. Erl (registered) - website | Posted March 23, 2010 at 00:16:25

Great points, and we all need to remember that cities are sandwiched between saloons and asylums in the constitution.

Municipalities need more powers than those afforded to them in 1867, considering the changing nature of a city's wants and needs. To see the real change needed in Hamilton, and in any city for that matter, municipal government needs the tools by which it can complete the job.

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By canbyte (registered) | Posted March 23, 2010 at 01:37:22

Interesting points all. Firstly though, i doubt that Siemens developed their plan in hopes of getting a tax break, and i'm sure the property will be on the market ere long. Getting a tax break might motivate some but most developers want to make money and are willing to wait for the right CONDITIONS. I believe that rather than pursuing a punitive strategy, we should all spend more time on figuring out why conditions are not right enough to entice owners to develop.

Imposing a tax penalty is interesting but seems draconian. By the time you get this through, it will be just in time for the made in America Depression 2 (2012?). Owners, unless extremely well funded will likely go bust anyway and who will want to buy at such a time, especially when faced with your penalty? That means more properties not paying any tax at all so the City becomes the repossessor of the last resort. Not very appetizing.

I also noticed (in Business Link) that Siemens is OPENING a new facility in ...... wait for it...... Burlington! What does that tell you about business conditions in the two communities!!! Vote me down if you wish but their actions speak louder than my pipsqueak words. Hamilton (& writers here) seem determined to learn the hard way.

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By Undustrial (registered) - website | Posted March 23, 2010 at 04:22:31

There are far too many economic side-benefits to leaving building in horrid condition, if you're wealthy enough to take advantage of them. A single Lister Block can drive property values down for blocks in every direction. Look at the "Loffts" on Dundurn, across from the Beer store. They get spray painted, were effectively open to the public for years, are falling down, look absolutely awful and frequently catches fire (which on at least one occasion knocked out power all the way to Locke).

If one were in the business of, say, buying up undervalued properties in areas about to be "developed", this kind of behaviour would make perfect sense, even without these disgusting tax breaks. But, of course, no prominent Hamiltonian developers are involved in such behaviour...

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By Brandon (registered) | Posted March 23, 2010 at 08:03:51

I'm thinking that there should be a two year grace period or so from the purchase of a property, followed by an increase in taxes of about 50%/yr if it remains undeveloped. A tax break to keep it vacant is ridiculous.

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By zippo (registered) | Posted March 23, 2010 at 08:41:10

As well as the property tax issue I believe it is also the case that if a building owner allows it to decay, resulting in a decrease in it's market value, they can use that loss in value as an income tax deduction (Capital loss) to offset other income. Yet another perverse incentive in our tax system; government support of "demolition by neglect".

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By John Neary (registered) | Posted March 23, 2010 at 09:31:06

Firstly though, i doubt that Siemens developed their plan in hopes of getting a tax break

I agree. But we still should not give them one in return for closing a plant and putting 550 people out of work.

Imposing a tax penalty is interesting but seems draconian. By the time you get this through, it will be just in time for the made in America Depression 2 (2012?). Owners, unless extremely well funded will likely go bust anyway and who will want to buy at such a time, especially when faced with your penalty? That means more properties not paying any tax at all so the City becomes the repossessor of the last resort. Not very appetizing.

Investing is not supposed to be risk-free. No one is sticking a gun to the heads of these guys and forcing them to buy property. And it is generally the case in this world that doing nothing with your assets does not generate any return.

These buildings are not for sale on the cheap. Battaglia et al wanted $7.5 million from Stinson for the Connaught. The renovated Lister is costing the city almost $30 million -- it's hard to know how that breaks down, but it must value the building at several million dollars at least.

This issue isn't about a grudge, at least not primarily. It should not be cheap to hold onto empty property. And if the owners of downtown property can't figure out how to make money with their assets, our tax system should encourage them to sell. They may have to realize a loss. Life is hard.

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By MattJelly (registered) - website | Posted March 23, 2010 at 11:12:50

Well said, John. I couldn't agree with you more.

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By MattJelly (registered) - website | Posted March 23, 2010 at 11:39:34

The Connaught is only assessed at $3.5 Million... isn't it kind of crazy they would ask for more than twice that amount? I don't believe they actually want to sell it.

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By John Neary (registered) | Posted March 23, 2010 at 11:55:31

Of course they don't. Their entire business plan is about holding out for more than it's worth in the hope that government will pay up in order to get rid of the blight that it creates.

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By Nick T (anonymous) | Posted March 23, 2010 at 13:05:02

As long as The Gary Proctor building remains, I think we can all rejoice.

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By MattJelly (registered) - website | Posted March 23, 2010 at 13:11:49

Lol.

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By canbyte (registered) | Posted March 23, 2010 at 13:51:17

John and Undustrious made assertions that to be honest, kind of blew me away - i thought i was cynical enough but evidently not! They are very serious charges and i would like some links to indicate that such really does go on (other than residential-racial block busting of the old days).

Meantime, i'd like to cling to my perhaps naive belief that rational self interest (vision) has more incentive value than shallow opportunism based on an impossible-to-predict gummerment bailout. I will acknowledge that such opportunism could be a very important FALLBACK for waiting owners but to stake ones millions on that alone seems unbelievable. Again, perhaps i'm too naive but i'd like to believe that tracing the root cause back to business conditions is more likely to bring wise policy than resorting to short term punitiveness. Can you point to where your suggestion was the successful option?

Having said that, and in consideration of moneybags sloshing around internationally, Brandon's suggestion at least moves in the direction of compromise. I'd suggest 5 or 10% increase per year might suffice and persuade even my soft-on-brownfield-developers mind that a firm but gentle nudge (or threat of) might have some merit without being draconian.

.

Comment edited by canbyte on 2010-03-23 12:57:31

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By John Neary (registered) | Posted March 23, 2010 at 14:32:12

@canbyte,

The city is paying $30 million for the (restored) Lister Block. And the owners of the Connaught had hoped to get $18 million from the province to renovate the Connaught -- the ownership of which would not change hands.

"Without being draconian" ... I must be missing something. I believe in the right to own private property. But I don't see anything draconian about a tax system that creates incentives for success rather than failure. (I'm talking about property tax on investment property, not personal income taxes.)

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By Anders (registered) | Posted March 23, 2010 at 15:27:51

The danger if you take away the tax break is developers will just tear these buildings down to avoid paying the taxes altogether. This article from the UK suggests this is what happened there under similar circumstances.

"Empty buildings, many of which are nearing the end of their useful life, are being torn down early rather than offered to the market on short leases...

The City of London's planning and transportation committee has already taken informal legal advice over what it can do to stop developers demolishing empty buildings and leaving rubble-strewn sites for months or years while they wait for the market to improve. Equally, there is the possibility that those developments already under construction could be stopped before they are completed, the point at which they become liable for business rates."

Comment edited by administrator Ryan on 2010-03-23 14:55:33

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By MattJelly (registered) - website | Posted March 23, 2010 at 15:50:58

John, I did a bit of digging today on this, specifically in regards to the Connaught.

Since 2005, the owners have applied and received this rebate each year. The previous owners applied for the rebate in 2001, and they were exempted for an amount of $7266.85. I'm not sure the exact amounts the consortium (Grand Connaught Development) has been exempted in years since, but it's safe to assume it's more now because much more of the building is vacant now than it was in 2001, when the hotel was still in operation. Owners are allowed to receive a rebate on specific parts of a property which are vacant, even if the entire building isn't vacant.

The current owners have applied for this rebate for each year they've owned it. I'm waiting back on info from the Director of Taxation on the amounts the consortium have been rebated over the past 4-5 years, and I'll share that info here as soon as I have it.

I've inquired whether they've allowed filmshoots in parts of the building which have qualified for the rebate- if so, they wouldn't qualify for the rebate for the time the building is being used for the shoot- and specifically for the parts of the building used by the film shoot. They're apparently also going to get back to me on that.

It's time to start lobbying the Province to change this policy- it may make sense for some communities, but it certainly doesn't work for us here.

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By Ryan (registered) - website | Posted March 23, 2010 at 15:56:55

Anders, the problem was that you had a space between the link text enclosed in square brackets and the link URL enclosed in parentheses:

[link text] (url)

There must not be a space between them:

[link text](url)

I updated your comment to fix it.

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By Mor e roads (anonymous) | Posted March 23, 2010 at 16:23:54

The City of Hamilton should do what the government does when crop prices get too low, they should buy up the excess supply of land and take it off the market until land prices increase.

This would allow the city to maintain existing structures, while also sending a signal to investors that the downtown area is a place where you can make money. When investors (i.e. condo owners) know that downtown land prices will not fall after buying downtown, the whole area will be seen as a safer place to invest.

In time, as land prices rise, the city could either sell off some of its land holdings, or offer them up for 99 year leases. The way things stand today, the imbalance of supply and demand is keeping investors from doing exactly what we want them to do, invest.

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By Undustrial (registered) - website | Posted March 23, 2010 at 17:40:26

The thing with land is that doing nothing with it can still generate massive amounts of money. If history shows one thing, it's that land virtually always goes up in value, for whomever is able to hold onto the title. As all the trouble in Caledonia shows, sometimes shady land speculation can take generations, or centuries to come to fruition (becoming suburban sprawl).

The earth may be vast, but inner city real estate is not. Those with the clout to buy up buildings and leave them to rot can afford to wait it out. It helps drive up commercial and residential rents (as more people are forced to compete for fewer space), but lower property values. If the building burns down, it's a multi-million dollar windfall, and the owner gets to keep the land, free of any heritage concerns or demolition costs. And it creates an atmosphere of terror in those neighbourhoods driving away most families with the means to escape into the suburbs, consequently removing most of the area's political clout, too.

All a few landowners need do is manage a number of neighbourhoods and engineer a cycle of "decay" (slums, abandoned buildings, etc) and "revitalization" (flagship commercial projects and condos). Those who understand the game can purchase properties at the cost of a small house (like many of the buildings on James North a few years ago) then sell them for many times that amount. This system can function knowingly (since most of these developers do in fact associate), or simply because people at a number of unconnected institutions are good at watching trends. Either way, the system becomes more and more efficient and profitable with each cycle (as profits allow landholdings to increase).

This type of thing is going on in every city across North America right now, from Harlem to the Lower East Side of Vancouver. And the effect on the affordable housing situation is equally disastrous.

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By More roads (anonymous) | Posted March 23, 2010 at 19:03:30

Undustrial >> Those who understand the game can purchase properties at the cost of a small house (like many of the buildings on James North a few years ago) then sell them for many times that amount.

Then why doesn't the city do just that? If the city became the greedy land speculator, at least the profits would be dispersed amongst the general public, rather than a few individuals.

If the city declared to the world that it feels that the core is undervalued and it is going to start buying it back until it reached a fair price, what would be the result? Sellers would start expecting a higher price for their own property, be it a home, condo, office or apartment building. If they believed the city would buy their own property for x, why would they sell for less.

Over time, the city might not have to buy and take many properties off the market as first thought, because the speculation that they would act as buyer of last resort would have the same effect as actually doing it. As investors became confident of a price floor on their own investment, the risk associated with investing in Hamilton would decrease considerably.

By not buying up vacant property, the city is telling the market that it believes that Hamilton is a poor place to invest. The phrase, "Put your money where your mouth is" is appropriate in this situation. Until the politicians start to believe in the city they claim to, why should anyone else?

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By Robert D (anonymous) | Posted March 23, 2010 at 21:48:54

It's not draconian to use taxes to influence behaviour. Taxes (and tax breaks) are powerful tools of social engineering that are being used all the time. RRSPs and TFSAs only exist because the government wants to encourage Canadians to save for retirement so they don't have to subsidize you in your old age.

Similarly the "sin" taxes on a wide variety of products are more than a form of revenue, they're also done to engineer social behaviour, discourage overconsumption of certain items the government considers inappropriate.

When we look at the tax break for vacant buildings, it might not necessarily encourage an owner to vacate an existing building (since they'll have a negative net income from that property). However neither does it encourage owners to find a use for a vacant building. Owners may find renting out a building actually costs more than leaving it vacant once repair (some of them are in dire condition as we well know), property management, and higher taxes come into play.

It's similar to the welfare debate: People who start working at a part time job to try and become better off get their welfare clawed back, and never get ahead.

I think the big hurdle for a few of these projects is the capital costs in making the building usable again. The best way to address this is probably a tax holiday for new buildings/uses within the downtown core. This will give them a fixed period of time to recoup the capital outlay of making the building usable before placing a tax burden on them. It will make projects more financially attractive to investors, and at the end of the tax holiday even if that particular business finds it can't sustain itself, at least we have a rennovated usable building that another business can take a shot in, rather than starting the process over from scratch.

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By kevin (registered) | Posted March 23, 2010 at 22:43:22

RTH is great.

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By BH in BC (anonymous) | Posted March 23, 2010 at 23:10:13

John- I think your article reveals the danger of social engineering, as Robert D. puts it. Governments are poor at social engineering, and the outcome can be devastating. Consider that the policy you're criticizing is just an earlier attempt to shape the city through taxation. Wouldn't new tax tactics have their own unintended consequences?

I'm definitely not arguing for keeping the vacant building tax gift. Your argument there makes a lot of sense. I'm arguing, rather, for a level tax playing field, in which property use is neither rewarded nor punished. Let buyers and sellers, not tax law, decide what land is worth and how it is used.

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By BH in BC (anonymous) | Posted March 23, 2010 at 23:10:13

John- I think your article reveals the danger of social engineering, as Robert D. puts it. Governments are poor at social engineering, and the outcome can be devastating. Consider that the policy you're criticizing is just an earlier attempt to shape the city through taxation. Wouldn't new tax tactics have their own unintended consequences?

I'm definitely not arguing for keeping the vacant building tax gift. Your argument there makes a lot of sense. I'm arguing, rather, for a level tax playing field, in which property use is neither rewarded nor punished. Let buyers and sellers, not tax law, decide what land is worth and how it is used.

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By More roads (anonymous) | Posted March 24, 2010 at 02:56:14

Robert D..."The best way to address this is probably a tax holiday for new buildings/uses within the downtown core...It will make projects more financially attractive to investors"

Supply and demand. Right now we have too much floor space and not enough people wanting to fill it up. The result is low prices and vacant buildings.

If the city took some of this supply off the market, prices for existing buildings would rise, as would land and the equity that investors have built up. Over time, as Hamilton got a reputation for being a good place to build real estate equity, the city could slowly unwind some of its land holdings, or lease it out to people to build on.

The benefit to this scenario, is that no government money would be given to private investors as an "incentive" to increase unneeded floor space, as done recently with the Lister Block. The city would simply be buying real estate low and selling it high.

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By Undustrial (registered) - website | Posted March 24, 2010 at 04:05:03

The City of Hamilton has sunk millions upon millions into various buildings and their redevelopment over the years. The Right House has been beautifully restored, and filled to the brim with City offices. And yet, one can virtually always get a crack rock within a few paces of the entrance - even after the welfare office was moved away.

Whether it's our low development charges, our million-dollar gifts to condo developers or the developer-led election finance scandal, is it not clear yet that pandering to landowners isn't producing the expected results?

Want to see Hamilton really thrive? Make some of this ample unused building space available to some of the hordes of enterprising young people around. This doesn't require multi-million dollar loans or grants. How about $500, a 6 month or so tax holiday and the cheap/free use of a storefront? Between out-of-work tradespeople, immigrants and underemployed young people, there is a truly massive population with enormous potential who are virtually shut out of these discussions. Yet at best, as is now being shown with the Skydragon and Reardons, they can hope to improve an area to the point where they get evicted in favour of more profitable tenants.

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By MattJelly (registered) - website | Posted March 24, 2010 at 09:10:33

Here's info straight from the Director of Taxation, in regards to the amounts that the Consortium has been rebated in the time they've owned the Royal Connaught:

In 2005 they applied for the first half of the year and two months for 2004 and the rebate was $33,612.29. They did not apply for the second half of the year. In 2006 they applied for the whole year and received a rebate of $47,514.02. in 2007 they applied for the whole year and received a rebate of $46,301.16. in 2008 they applied for the whole year and received a rebate of $48,250.21. in 2009 they have received a rebate for the first half of the year for $22.623.19. The calculations for the second half of the year are just being done and they would be entitled to a further $22,998.17 for a total of $45,621.36.

The total rebates since they have owned are $221,299.04. The total taxes for those same years are $795,791.92.

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By canbyte (registered) | Posted March 24, 2010 at 10:19:45

Matt. I suppose the city should be happy that they got half a million bucks, net. What money do they get for all the public and religious buildings that pay NO taxes?

More Roads makes an intriguing suggestion (city buys derelict properties) - but he has to work out how much the city will have to invest in his idea. Assume wild guess - $100 million. Where does that come from? I think Hamilton now carries a debt of $400million. Could we really pull it off when what folks really(?) want is stadia, games, waterfronts, best city hall cladding, etc, etc.

Undustrial is onto something too. Rather than punitive taxes, could the city force positive use instead? Much better if it can be done. Any examples?

But again, why is nobody here addressing WHY the city is not conducive to downtown business development? Most here say in effect 1) build it and they will come (=typical left wing) OR 2) if you dont/ can't do something, you get punished (more right wing). Fix the 'why' and the problem goes away, no?

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By A (anonymous) | Posted March 24, 2010 at 11:51:32

Matt, did that include the 250k they received from the city for removing asbestos?

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By MattJelly (registered) - website | Posted March 24, 2010 at 12:03:50

No- this is just the tax rebate info- the Asbestos money is not included in these figures- so in terms of the dollar amount that the Connaught has contributed to the City's coffers, you can subtract that amount.

I know plenty of people doing good projects in the downtown core that do not receive these kinds of subsidies- they keep their nose to the grindstone and don't get this sort of help.

I had a promising meeting with By-Law Staff today, and I'm convinced we've made real progress on the issue- it looks like I may be able to turn my attention to some other issues now, specifically this rebate. Many people (including members of City staff) agree that this policy makes no sense, and I think a very good case can be made to change it.

We should form a group to start lobbying the province to change the policy- I'll be sending a letter to my MPP immediately to see how we can make an impact on this issue.

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By A (anonymous) | Posted March 24, 2010 at 12:28:55

It would be helpful if a form letter could be signed -- as a petition. Have you seen Tony Battaglia's letter he posted this morning in the discussion section of the RC Facebook fan page? I'm interested to know your thoughts.

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By MattJelly (registered) - website | Posted March 24, 2010 at 12:51:19

I just saw that now- I'll respond when I get a chance. At least he's extending some thanks to all the people who have been monitoring the building- I was put off when he said I should be thanking him. He's a human being- and I may have been a little harsh in my communication with him so far- some of which I haven't made public. I've extended an invite to Tony to discuss things in person. I may not agree that his group has done enough to protect and redevelop the building, but I want to understand his true motives and better understand his side of the story, whether I believe it or not. Stay tuned.

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By A (anonymous) | Posted March 24, 2010 at 13:15:54

Good job Matt. Well said. Sometimes it takes to the point of anger, upset and WORDS = action to set something in motion. To provoke a response. The lack of this consortium to communicate effectively with the community is a lost opportunity for them. Now they're on the defensive -- trying to now work on the offensive. You've gone this far, now you must continue. They seemed disorganized to me and are grasping at straws. There is appears to be little true vision and spirit to bring the RC back to it's former glory. It's all fine now to say that's what they want to do, but in essence, I see no action towards this goal. They have deep pockets and run in high roller circles. Come on now, this is a dream investment I'd say to really work with the city. If the city does nothing to push and ignite recovery for downtown -- and the RC as THE historic grand hotel destination -- then I guess we really are closed for business.

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By underscore (anonymous) | Posted March 24, 2010 at 13:30:49

Tick tick tick tick. That's the sound of the Pan-Am Games clock marching towards us. This council is known for being difficult. For not working well with "others". We're gonna be sitting ducks, buffoons in the eye's of the world when the media coverage on the games begin. Where is the vision and $$ budget for downtown? The city wanted the games, but they have no plan. Disorganized inbred bunch of baffoons.

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By Kiely (registered) | Posted March 24, 2010 at 15:35:11

"It's not draconian to use taxes to influence behaviour." - Robert D

If it is, Canada is one of the most draconian countries in the world : )

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By More roads (anonymous) | Posted March 24, 2010 at 16:51:29

canbyte..."Fix the 'why' and the problem goes away, no?"

People are not stupid. As long as the city teaches developers that they will eventually hand out tax payer money (as they did with Lister), why risk hundreds of millions of your own money?

Instead of subsidizing private redevelopment, the city should just tell the world it thinks core real estate is undervalued and that it is going to buy as much as they can. If property owners knew that the city was serious about this, they would start asking more for their own properties. The result is that land values would rise.

According to MLS, there is a piece of land on 180-188 Wilson St that is on the market for $179,900, or $21.83/sq.ft. In Toronto, a similar sized piece of land, just south of College, sells for $1,680,000, or $168/sq.ft. If you were looking to make a large capital investment, would you want to do that in an area where property values have remained stagnant over the decades, or where they are in high demand?

That is the problem the City of Hamilton has had for the past few decades, it has bought into the myth that downtown Hamilton is a bad place to invest. By doing this, they have told other investors that Hamilton isn't just temporarily undervalued, it's actually a bad place to invest.

Ask yourself this, if we believe that downtown Hamilton can be just as great a place to live as downtown Toronto, then doesn't it make sense to buy this downtown land right now. If the city could buy this land, then either sell it back later at a profit, or lease it out for redevelopment, the public will stand to make millions, if not billions in capital gains.

As long as we beg developers to build here, we send a signal that we are desperate. If we buy when everyone else is selling, eventually people will wonder why we have such confidence and they will jump on the bandwagon. Don't discount the power of confidence.

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By It ain't over until she sings... (anonymous) | Posted March 24, 2010 at 17:29:49

@ More Roads. Nice idea. Not too sure if I trust this city council in being able to manage itself owning all this property.

Take a look at Santa Ana did http://www.ocregister.com/news/city-168099-land-eminent.html


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By beesplease (registered) | Posted March 24, 2010 at 20:59:25

A neat idea indeed. They'd have to be pretty sure the property value was going to increase enough just to cover the cost of the money itself. Another idea - would it be possible to restrict further acquisitions by individuals sitting on 'problem properties' beyond a certain time window? Or what about after a given amount of time lapses, that would trigger some kind of functional easement so others could put a space to good use, even if the owner won't?

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By BH in BC (anonymous) | Posted March 24, 2010 at 21:38:29

Having the city buy property to inflate property prices is a poor idea. What qualifies municipal politicians to be land speculators? It's a frightening combination of incompetence and conflict of interest... How do the people of Hamilton benefit from having their money tied up in underused downtown real estate?

Why would any business want to locate in a city with artificially high real estate? How does this solution address the real problem - a dearth of good businesses in the city? As John points out in his letter, the current tax scheme has created an incentive to NOT do business in Hamilton. The city needs to focus on making itself more attractive, which probably means less meddling, not more.

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By More roads (anonymous) | Posted March 25, 2010 at 00:06:36

beesplease, in some ways it's a self fulfilling prophecy. If no one believes that downtown Hamilton is a good place to invest, including the city, why would we expect people who don't live here to do so?

What could be a better signal to people looking to invest in Hamilton, then a government that is committed to increasing, or at least maintaining, the value of people's real estate holdings. For example, if you knew that downtown Hamilton floor space would be free from over supply due to government intervention, how could an investor not love this?

Investors want security and they will trade it off for return. That's why they buy 10 year GIC's returning 2.3%. When risk is introduced, they demand a higher return. In this sense, having the city buy back property when prices fall, or even just promise to, will increase the amount of money they are willing to invest.

As it stands today, the city is telling current property owners that their goal is to increase the supply of floor space. If you own a building that is barely covering expenses, does that make you want to invest more to fix it up, knowing that rents will fall in the near future?

BH, "What qualifies municipal politicians to be land speculators?"

How difficult is it to buy vacant or low vacancy real estate? Remember the goal is not really to try and flip properties, it's to manage supply so that investors can make money over the long term. One of the primary reasons why Hamilton's downtown is as run down as it is, is because investors have lost confidence. By actively managing the supply of land/floor space, the City of Hamilton would bring this back.

..."How do the people of Hamilton benefit from having their money tied up in underused downtown real estate? "

Just telling the world that it plans to reduce the excess supply of floor space would get the ball rolling. If people knew that the government was going to start controlling prices by reducing our current excess supply, sellers would immediately raise their ask price for their own property.

That is what has been lost here in Hamilton, the sense of security that government is supposed to provide. When the government can provide some common sense to the markets, taking away the excesses which tend to result from fear and greed, the result is steady, but still healthy growth.

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By Kiely (registered) | Posted March 25, 2010 at 13:53:22

Uhm??? Plenty of cities own properties in their own city and they are often surplus and a variety of zoning types.

There is nothing new, novel or frankly even debatable about it. Toronto has a real estate section on their website which states:

"The City of Toronto Real Estate Services section provides realty management services to the City, which owns $7.5 billion in assets, 6,000 properties, and 17 million square feet of building space."

Comment edited by Kiely on 2010-03-25 12:54:12

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By canbyte (registered) | Posted March 26, 2010 at 00:18:09

MoreRoads... You certainly got an interesting idea rolling here but does it really have legs? BH has good criticism but let's set that aside for the moment. First, you/ someone has to do more work on the realities involved (money supply, interest rates, debt, experience (ie Santa Ana per post above), etc. You have to get beyond the rhetoric and beyond thinking of the sellers to thinking of the buyers. Why should they raise their offers? Which is why i stress business conditions more than fixes. Also, you imply a reduction of square feet on the market - does this involve demolition too? Isn't it just derelict owned by city? Won't the city have to spend a lot of dough to keep MattJelly and his clipboard happy?

Re your example of the two properties <$200,000 vs $2mil. I heard that a coffee shop on Queen Street a km west of the Beaches (Coxwell) is paying about 6 grand a month in rent. How would your Wilson property compare?

Here's an extension to your idea based on the fact that WE are the city! We can change places with the city. Why don't we just pool our resources and buy these places ourselves? One grand from a few thousands of residents can buy quite a bit. So the question becomes, would you put your grand on the table along with mine? Hmm. Wannabe a developer? Interesting, no?

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By rusty (registered) - website | Posted March 26, 2010 at 11:35:41

If the city owns local properties then it has one more vested interest to inflate property values. Property values are one of the key indicators to a city's success.

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By highwater (registered) | Posted March 26, 2010 at 14:33:44

Canbyte wrote:

Won't the city have to spend a lot of dough to abide by their own property standards bylaws?

Fixed it for ya.

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By More roads (anonymous) | Posted March 26, 2010 at 18:54:37

canbyte, "You have to get beyond the rhetoric and beyond thinking of the sellers to thinking of the buyers. Why should they raise their offers?"

Because they want to make money. Downtown Hamilton property owners would charge 10X as much as they do today, but there are no buyers. That's why the city should step in and act as buyer of last resort.

By buying up vacant and under utilized properties, the city would increase the demand side of the equation. When you increase demand and you hold supply steady, what happens to prices? They increase.

The city wouldn't even have to buy properties cheap, or use eminent domain, because that would actually work against the goal, which is to increase prices. That would appear to be what Santa Ana did, they wanted land and if they could convince people to sell cheap, they were happy.

Santa Ana also appears to want to control development, not something I am advocating. All I want is to create an environment where developers can build and make a profit. If you can create those conditions, in part by controlling the level of supply, developers will seek us out, not the other way around.

..."Isn't it just derelict owned by city?"

Yes, except if the goal is to increase the demand for land and land prices, the city would be sitting on an asset that would increase over time.

..."Why don't we just pool our resources and buy these places ourselves?"

Because that would not decrease the supply of usable floor space. For example, if you bought the Royal Connaught, your goal would be to make money by renting it out. If the city bought it, it could afford to take it off the market and watch as other properties increased in value. As these assessments went up, so would city tax revenue per property, plus the land that they own would not be paying tax.

The best thing about having the city buy back this undervalued land is that it would bring stability to the market. For example, if the city felt that land prices were rising too fast, they could sell some off and bring prices down. By acting as a counter balance to the market, it would reduce the problems associated when fear and greed take over people's minds. Think of the city acting like a parent, encouraging growth, but also imparting wisdom and discipline when necessary.

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By More roads (anonymous) | Posted March 26, 2010 at 18:59:55

Correction : "By buying up vacant and under utilized properties, the city would increase the demand side of the equation. When you increase demand and you hold supply steady, what happens to prices? They increase.

Actually meant to say...

By buying up vacant and under utilized properties, the city would decrease the supply side of the equation. When you decrease supply and demand holds steady, what happens to prices? They increase.

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