Raise the Hammer
The purported benefit of vacancy tax breaks for businesses is a mirage, but the harms to residents, homeowners, and legitimate businesses are very real.
By John Neary
Published May 11, 2017
The City of Hamilton is considering potential changes to the Vacant Unit Tax Rebate Program and the Vacant/Excess Land Discount Rate, as described in this consultation document [PDF]. I note that the City has solicited feedback from business owners but not from residents or homeowners, although the latter groups are impacted by this tax rebate program in important ways.
As a resident and homeowner in the Beasley neighbourhood in Ward 2, I respectfully submit that continuing these rebates and discounts will be injurious to Hamilton residents, homeowners, and operators of legitimate businesses. The only interest group that benefits from these rebates is property speculators. There is no legitimate interest in continuing these harmful programs.
By definition, if a building is empty, then it houses no business; if a piece of land is vacant, then no business operates upon it. It is therefore a logical fallacy to hold that a vacancy rebate could be "good for business".
The only business that can benefit from a vacancy rebate is one that does not actually use land or buildings, but simply purchases them and keeps them vacant in the hope of a return on capital down the road. While citizens and businesses have every right to purchase property, the City does not owe them a discounted tax rate as a reward for property speculation.
The City requires a certain amount of property tax revenue each year, along with other revenue streams, in order to cover the cost of the services it provides. Discounts on property taxes for one set of landowners must necessarily be balanced by higher property taxes for other landowners.
This phenomenon is hidden, but it is nevertheless real. The $5-6 million dollars discounted to owners of vacant buildings and empty land represents a hidden $5-6 million surtax on other property owners in our community. This differential taxation is profoundly unjust.
Many others have made the point that vacant buildings have a negative impact on the neighbourhoods around them. Having lived across from the empty Cannon Knitting Mills building for the past eight years, I entirely agree.
What is often overlooked is that vacancy tax breaks do not just reward owners of vacant buildings and empty land, they actively encourage vacancy.
The owner of an underused property, in deciding whether to redevelop it, lease it to a tenant, or keep it vacant, will compare the costs of vacancy (maintenance and taxes) to the opportunity costs of redeveloping or leasing the space. By lowering the carrying cost of vacant properties, tax breaks for vacancy provide a direct incentive for landowners to keep their properties unused.
The most stark example of this, as I have argued before, is that when North Carolina offered Siemens a tax discount to move their operation from Hamilton, we implicitly held out a tax discount for Siemens to vacate their property in our city. The same argument holds for the unused Stelco lands.
Many will argue that increasing property taxes on empty properties is unfair, because these properties are empty as a result of poor market conditions. This argument would have been superficially plausible in the late 20th century, when land values were falling and businesses were closing across the lower city. Even then, a closer analysis would reveal that the tax rebates simply acted to further encourage vacancy.
Moreover, when discussing the owners of vacant commercial and industrial properties, we should be clear that we are not talking about a group of people who are economically marginal.
Anyone who is affluent enough to not only own commercial or industrial property but to keep it empty as a form of land speculation is not a person who needs a bailout from the municipal government.
Finally, with land prices rising rapidly across the City of Hamilton, the owners of vacant properties have already seen substantial growth in the value of their assets. They do not need a further handout from the City in the form of an unjustifiable tax break.
Landowners who genuinely cannot see a way to develop their properties can simply sell them to other people who do want to develop them, and the sellers will reap substantial capital gains by so doing.
The purported benefit of vacancy tax breaks for businesses is a mirage, but the harms to residents, homeowners, and legitimate businesses are very real. There is no argument for continuing these tax breaks as they are, or for tweaking them as described in the consultation document. These tax breaks should simply be eliminated.
By VivSaunders (registered) | Posted May 11, 2017 at 07:31:32
How ironic that this article would appear just after I finished reading my Councillor's Community Update in the SC News. Maria Pearson's update in the SC News, for those that don't know, is her ONLY form of communication with constituents. No meetings are held, no website, no eblasts and no mail outs. And what does she choose to write about this week? A reminder to owners of vacant buildings that they can get 30% rebate and the process to apply! Why am I angry about this? Because she choose to write about a benefit to vacant property owners, which we know is a harmful program instead of letting her constituents know about the compassionate grant program for the recent floodings. I advised Maria that there are at least 8 of my neighbours who were affected on April 20th. She's chosen to be the gatekeeper of this grant and is not returning calls from those affected leaving them in the dark as to the process. Clearly, our Ward 10 Councillor has more compassion for vacant property owners. Shameful!
By Connie (registered) | Posted May 11, 2017 at 07:47:07
I agree with the writer. It is unacceptable that Hamilton taxpayers are expected to subsidize prpoerty speculators with empty units/buildings. It's also unacceptable that only businesses are asked for input on this issue. I hope this article will result in a broader consultation.
By greenfingers (registered) | Posted May 11, 2017 at 08:07:16
In a recent discussion with Rachel Braithwaite of the Barton Village BIA we talked about this rebate and how it affected empty stores along Barton St. E. We agreed that elimination of the rebate was a great idea. I suggested that if it is axed that the increased tax revenue be passed on to the BIA for use in fixing up the street in general or even the facades of the actual empty buildings. The city would be getting the same revenue and the neighbourhood affected by the vacant spaces would still be able to improve its appearance. It is important to note that some of the so-called empty commercial rental units actually have people living in them so the landlord is double dipping. If the rebate continues then at the very least we need an inspection process to ensure that they are indeed empty.
By RobF (registered) | Posted May 12, 2017 at 10:14:01
Great article and a timely reminder of this policy and its consequences. The problem has definitely changed somewhat with increased land speculation in Hamilton.
I certainly don't want to see our tax structure further reward speculators seeking what Sir Winston Churchill referred to as the unearned increment in a speech on land monopolies in 1909: http://digital.slv.vic.gov.au/view/actio...
By Deleted User (anonymous) | Posted May 12, 2017 at 17:34:39
We're courting real estate speculators constantly and building them a free LRT. So why stop now?
City loaned Darko $5 million because I guess he's hard up for cash?:
https://www.reddit.com/r/Hamilton/comments/4jz43h/hamilton_loaning_megadeveloper_darko_vranich_48/
And then Ryan praises him as an LRT angel:
https://www.raisethehammer.org/article/2980/vranich:_light_rail_uncertainty_extremely_concerning_to_developers
Tyler Pearson isn't rich enough and needs taxpayers to subsidize intensification so he can make a few extra bucks:
http://www.thespec.com/news-story/7247562-what-s-in-it-for-me-digging-up-development-along-the-lrt-line/
Meanwhile, the City can't wait to have developers directly inform policy that will affect the public good: "The Rapid Transit office organized a workshop with developers [PDF link] this year to discuss what policy changes are necessary to make transit oriented development successful, and are discussing LRT with outside developers."
http://www.raisethehammer.org/blog/2232/?view=nested
By John Neary (registered) | Posted May 13, 2017 at 19:40:03 in reply to Comment 121514
I agree that there's a lot about the city's relationship with developers that badly needs to be fixed. But at least one can conceive of circumstances in which it might make sense for the city to provide a financial incentive for development. There is no circumstance in which the city ought to provide a financial incentive for vacancy.
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