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Robert Murray Haig.

The exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York online

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A man owning one lot with a house upon it is in reality paying a relatively
light share of the total expenses of the city. Contrasted with him the burden
of the man with vacant property is very heavy ; and the number of persons
who own vacant property, even among the residents, is large. Many work-
men, the trade-union leaders testify, instead of paying off the mortgage on
their property, have invested money in an additional lot which they hold
vacant as a speculation.

(1) Cf. supra, p. 186.



196



The most trustworthy evidence as to the pressure of the taxes is the
statement of arrears. The following table shows the arrears of taxes and
special assessments of Vancouver for a number of years:

ARREARS OF TAXES AND SPECIAL ASSESSMENTS, 1894-1913



Arrears of

Taxes for Arrears of

Previous Taxes for the

Years. Current Year.

1894 $47,690 38 $95,831 29

1895 98,946 99 87,336 75

1896 114,535 79 86,425 96

1897 145,755 03 71,386 33

1898 139,052 56 53,010 56

1899 117,885 15 43,921 50

1900 127,500 38 46,358 60

1901 61,816 61 47,181 21

1902 67,508 73 45,483 61

1903 51,441 71 38,328 36

1904 35,964 28 43,133 31

1905 29,939 72 47,290 09

1906 23,191 86 46,785 62

1907 26,472 09 94,172 75

1908 49,480 35 105,182 85

1909 48,884 65 94,457 30

1910 42,541 40 130,216 65

1911 63,773 35 192,823 24

1912 113,515 53 282.943 71

1913 208,389 60 481,579 59



Total

Arrears

of Taxes.



Total Arrears ;
Arrears of Taxes

Special and Special

Assessments. Assessments.



$143,521 67


$2,793 79


$146,315 46


186,283 74


3,908 29


190,192 03


200,961 75


3,415 33


204,377 08


217,141 36


3,949 49


221,090 85


192,063 12


3,961 71


196,024 83


161,806 65


4,597 85


166,404 50


173,858 98


4,302 91


178,161 89


108,997 82


14,083 24


123,081 06


112,992 34


18,316 99


131,309 33


89,770 07


20,048 45


109,818 52


79,097 59


4,272 14


83,369 73


77,229 81


2,250 65


79,480 46


69,977 48


4,727 62


74,705 10


120,644 84


6,330 38


126,975 22


154,663 20


8,457 92


163,121 12


143,341 95


6,889 25


150,231 20


172,758 05


6,538 69


179,296 74


256,596 59


8,423 31


265,019 90


396,459 24


13,676 88


410,136 12


689,969 19


38,726 03


728,695 22



Payments are considered in arrears after December 31st. It will be
recalled that the gross rate is applied after September 15th. After the first
of the year a penalty of six per cent, is imposed. This penalty, being con-
siderably lower than the interest rate, is obviously too low to serve as an
inducement to the property owner to pay his taxes when they have once
remained unpaid after the 15th of September.

Moreover, the policy of the city in regard to sales of land for taxes has
been very loose. The last sale was held in December, 1909. The sale before
that was in 1905. It was planned to hold a sale in 1913, but the council
decided to postpone it because of the hard times and the distress it was likely
to cause. 1914 found conditions still worse, and even before war was
declared it was decided that no tax sale should be held. By referring to
the table, it will be seen that the total amount of arrears has always been
considerable but that the arrears in 1912 and 1913 show a remarkable in-
crease, the unpaid taxes and assessments in 1912 being $410,136.12, nearly
double the arrears of 1911. The year 1913 shows an addition of over
$200,000 to the total of unpaid taxes. Of a gross tax levy for 1913 of
$3,403,152.55, $481,579.59 or over fourteen per cent, remained unpaid at the
end of the year.

Additional evidence of the difficulty which is being felt by people in
meeting their tax bills, is furnished by the action of the council in 1914 in



197

extending the period during which a reduction from the gross tax rate was
allowed from September 15th to December 1st. From September 15th to
November 1st, a discount of seven and one-half per cent, from the gross rate
was allowed, and from November 1st to December 1st, a discount of five per
cent, was given.

Assessment Commissioner Painter calls attention to a phenomenon in
Vancouver which seems to indicate a tendency to economize in the amount
of land used for building projects, because of the incidence of the taxes.
Persons who own a number of lots lying together seem to be inclined
to subdivide the lots and to place as many houses as possible on a given plot.
Taking the tax maps of the city, Mr. Painter showed that in all sections —
in the good as well as in the poorer districts — this tendency was apparent.
In a number of cases, two lots, twenty-five by one hundred and twenty feet,
had been subdivided into four lots, each thirty by fifty feet. In some cases,
three lots, thirty-three by one hundred and thirty-two, had been divided into
four lots, thirty-three by ninety-nine. Four lots, forty- four by one hundred
and thirty-two had been cut into eight lots, twenty-five by eighty-eight, and
two lots, thirty-two by eighty-eight. In another case, one lot, fifty-three and
one-half by one hundred and thirty-two feet, had been subdivided into three
lots, forty-four by fifty-three and one-half feet. Mr. Painter believes
that he " can see a very clear tendency to restrict the size of building lots,"
and he imputes a causal connection between this phenomenon and the collec-
tion of all taxes from the land. He states, also, that there has been a marked
restriction in the number of people who buy lots for yard and garden
purposes.

Summary

/^ During a period extending over fifteen years Vancouver gradually
/ reduced the assessment on buildings until in 1910 they were entirely exempt
I from taxation. This does not mean, however, that the single tax is in full
\jbrce^ The citizens of Vancouver are still subject to the dominion tariffs
/ on imports, to provincial taxes upon income and personal property and to
munic ipal license ,taxes.

The city government depends for its revenue almost entirely upon the

tax on land values. Special assessments are of growing importance but at

present amount to only approximately six per cent, of the receipts from the

direct land tax. Frontage taxes and special assessments are used for some

Vunusual purposes, as, for instance, street sprinkling and lighting.

Only a very small amount of land is exempt from taxation, even
churches being assessed. The land values assessed for taxation show a
remarkable increase. In 1899, lands were assessed at $15,310,694. In 1914,
they were assessed at $150,456,660. Although there is considerable dif-
ference of opinion as to how closely the assessed values approach real values,
the best testimony seems to indicate that the present assessed value is a fairly
accurate but somewhat conservative estimate of the fair cash value of the
land.



198

The elimination of fifty per cent, of the value of buildings in 1895
resulted in the reduction of the tax base, the change being made in a time
of depression when the assessed values of real estate were steadily falling.
The tax base in 1906 and 1910, the dates of the further reductions in the
taxation of buildings, reveal enormous increases in the tax base. The
upward boom in real estate prices was more than great enough to cover
the loss through the elimination of buildings from the assessment rolls.

The present tax rate in Vancouver is 24.44 mills with a ten per cent,
discount for prompt payment. This rate is a high-water mark and has been
in force only one year. An increase of 2.22 mills was made in the gross
rate at the time of the reduction of the tax on buildings to twenty-five per
cent, in 1906, but no increase was found necessary in 1910 when buildings
were made entirely exempt.

The statistics of unpaid taxes give startling evidence of the heavy
pressure of the tax rate. Arrears from the land tax levy alone amounted
in 1913 to more than two-thirds of a million dollars ($689,969.59). It would
appear that only the liberal policy of the city in regard to selling land for
taxes prevents very acute distress among the tax payers.

DATA FOR GAUGING THE EFFECTS OF THE TAX SYSTEM

Building Operations

The effect most commonly claimed for the exemption of improvements
from taxation is that it stimulates building. Immediately upon the passage
of the ordinance entirely exempting buildings from taxation in 1910, it was
felt that something should be done to control building operations which it
was believed would be greatly encouraged by the new legislation. Alderman
Hepburn fathered the movement. A by-law was passed by the council during
1910 regulating the height of buildings and steps were immediately taken
to make this regulation a part of the city charter. A plebiscite was resorted
to in 1911 and by a small majority the proposal was adopted. It can now
only be altered by provincial legislation. The law reads as follows :

Such buildings (buildings of fireproof construction) shall not
exceed 120 feet in height, and shall not be over ten storeys in height,
not including the basements of said buildings; provided, however,
that where any such building contains a base area of 7,000 square
feet or more the main portion of the building may be surmounted by
a superstructure, the area of the base of which shall not exceed 33
per cent, of the area of the base of such main portion ; and provided
further that such superstructure shall not exceed 200 feet in height,
measured from the sidewalk to the roof of such superstructure, and
that such superstructure shall not contain more than eight storeys
and shall be supported directly from the foundation footing of such
building. ( 1 )

(1) Building By-Law, No. 941, s. 13, sub. 43.



199

Another provision of the by-law stipulates that each separate house
must stand upon a plot containing at least 2,000 square feet area. There is
nothing in the law to prevent the placing of houses very close together except
that, in the case of apartments, tenements and lodging houses two stories or
more in height, four feet, six inches must be left between structures.

There are in Vancouver a number of buildings which exceed one hun-
dred and twenty feet in height. The permits for some of these were taken
out just before the new law went into effect. Others take advantage of
the tower provision. Among the buildings which are higher than the limit
are the following: the World Building, ten stories, plus an eight-story
tower ; the Hotel Vancouver, eighteen stories, including tower ; the Standard
Bank Building, fifteen stories ; the Dominion Building, fourteen stories ; and
the Vancouver Building, twelve stories. The permits for the Standard Bank
Building and the Vancouver Building were issued just before the law went
into effect.

The first records of building operations were made in 1902. The figures
given in the tables which follow include the statistics of removals as well
as of buildings constructed ; but no figures are included for removals which
do not involve a change in the structural condition of the building. The
figures also include the statistics for alterations and repairs, but only when
such alterations or repairs affect the structure of the building. Permits
which were issued and afterwards cancelled are eliminated from the statis-
tics. Fees are charged on the basis of the value given and this results in
serious undervaluation of the work contemplated. The building inspector
estimates this undervaluation at at least thirty per cent. No minimum is
placed on the value of an alteration for which a permit may be issued. Per-
mits are issued for changes which involve a cost as low as five dollars.

NUMBER OF BUILDING PERMITS AND VALUE OF BUILDINGS, 1902-1913 (a)

f

Number. Value. Number. Value.



1902 417 $833,607 00 1908 1,697 $5,950,893 00

1903 580 1,426,148 00 1909 2,054 7,258,565 00

1904 836 1,968,59100 1910 2,260 13,150,365 00

1905 940 2,653,800 00 1911 2,763 17,655,760 00

1906 1,006 4,308,410 00 1912 3,224 19,374,542 00

1907 1,773 5,632,744 00 1913 2,020 10,424,197 00

-A

(a) Thanks are due to Building Inspector S. N. Jarrett for his kindness in granting
access to his records from which these statistics were transcribed.



200



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202

The years of change in the tax system, 1906 and 1910, were years of
unusual building activity.

From the table given above it will be seen that during the past three
years there have been constructed a very large number of apartment and
rooming houses. The movement really began as far back as 1907. By
1910 apartments had become quite numerous. Nineteen hundred and
twelve proved to be the biggest year for this type of construction. The
Vancouver telephone directory lists the names of eighty-one apartment
houses. (1) This figure does not include rooming houses or business blocks
whose upper floors have been converted into apartments. The rooming
houses are even more numerous, one hundred and forty-two addresses being
listed in the telephone book under that heading. The movement toward
the construction of apartments is attributed by Mr. Painter, the assessment
commissioner, largely to the servant problem.

Credit Conditions

No one was found who claimed that the tax system in vogue has had
the effect of making it more difficult to secure loans of money for building
purposes. There seems to have been no discernible effect upon the stream
of loanable capital traceable to this cause. This does not mean, of course,
that there has been no effect, for the motives which have controlled the
action of persons who lend money for building purposes in this region
are doubtless better known to themselves than to the residents of Vancouver.

The great bulk of the loanable funds is furnished by the so-called loan
companies who sell debentures in the eastern part of the country, in England,
and on the Continent, and use the proceeds for making loans at a higher
rate of interest to persons in Vancouver who desire capital for building
purposes. The remaining funds are supplied by the life insurance com-
panies and by private brokers in about equal proportions. The money
coming from life insurance companies and from loan companies for building
purposes would likely be much less directly affected by such factors as the
tax system than those funds which come from private sources.

However, it is interesting to note that, whatever the source of loanable
funds, great care is exercised that an adequate margin be kept between the
sum borrowed and the value of the underlying security. In the first place,
it is almost impossible to secure a loan upon unimproved real estate. The
money loaned must be for the purpose of improving the land if this is not
already on an income-producing basis. Usually it is required that the
person who desires a loan for a building shall be the owner of a piece of
land which is entirely paid for, although in some cases land which is some-
what encumbered is used as security for loans. The general policy of
those who lend money for building purposes is to restrict the loan to about

(1) The inaccuracy of accepting the number of telephones as a test of the number
of apartments is self-evident. The use of telephones in Vancouver, however, is ex-
tremely general and this method was suggested by the building inspector as being the
most accurate available.



203

forty per cent, of their own conservative valuation of the value of the
land and the building which is to be erected. In some cases the loan
goes above this, but sixty per cent, is an upper limit which is reached very
seldom. The average is much nearer forty than sixty per cent. The
valuations placed upon the property by the person who is seeking to secure
a loan are, of course, very large compared with the valuation which is
placed upon the property by the agency which is lending the money. One
case was cited in which the applicant's valuation of the property was
$30,000, while the loan company's was $12,000. The interest rate which
is charged is very generally eight per cent. There are some cases, however,
of money being loaned upon the security of downtown real estate at a slightly
•lower rate.

Rents

The rental situation in Vancouver is today, and has been for some
years, highly abnormal. Rents have not and do not represent a proper and
normal return upon the investment. Until recently, the returns received
were abnormally large; now they are abnormally small. Persons who
owned rentable houses could, until two years ago, exact a " monopoly price "
for their property. Mr. Painter, assessment commissioner, describes the
rentals which were received before 1913 as " outrageous." Alderman S. J.
Crowe, a large owner of real estate, testifies that owners " could get
anything they asked for their property." He cites an example of a piece
of property which rented for $125 a month. At one step the rent was
raised to $675 a month. The competition among tenants for buildings was
so keen that they bid their rents up by leaps and bounds. Those who had
rented their quarters on long-term leases found themselves in a position
to sublet upon very favorable terms, and this practice became quite wide-
spread. Mr. J. P. NicoUs pointed out that in boom times people did not
care particularly what prices they paid, and ascribed the exorbitant rents
as much to this willingness to spend freely as to the limitation of supply.

If all agree that the rents before 1913 were exorbitantly high, they all
agree that the rents now are ruinously low. A piece of property which
rented for $675 a month is now yielding $200 a month. Another piece
of property which formerly yielded $125 a month now brings in only $40
a month. Alderman Crowe estimates that on an average the rents have
dropped twenty-five per cent. Mr. Nicolls estimates that the average
reduction has been considerably greater than this ; between thirty-three and
fifty per cent. Alderman Crowe states that not one of the down-town
buildings is paying four per cent, on the investment. He believes that at
least 2,500 offices in the down-town section are vacant. " If the single tax
was the cause of this over-building, it was the cause of a financial disaster,"
he says.

Assessment Commissioner Painter states that less than half the houses
which are ordinarily rented now have tenants. The general impression
one receives from his observation during a few days' stay in the city



204

tends to bear out these estimates. A beautiful, tall, new office building,
completed several months ago by a banking company, the Credit Fonder,
stands entirely vacant, except for the top and the ground floors.

Mr. F. C. Wade, the leading opponent of the single tax, made an
investigation of the number of office buildings and apartment houses, in
order to ascertain the extent to which they were occupied. His investiga-
tion yielded the following results :

OFFICE BUILDINGS

Percentage
Building and Address. Occupied.

North West Trust, 609 Richards 45

Wetson, 588 Homer 10

J. Borland, 185 Hastings 5

Birk, 550 Granville 75

Merchant's Bank, Hastings, W 10

Dominion Trust, Homer Street 50

Loo, Abbott Street 50

Metropolitan, Hastings Street 45

Crown, Pender Street 50

London, Pender Street 30

, Rogers, Granville Street 100

APARTMENT HOUSES

Percentage

Building and Address. Occupied.

Rowlish, 1204 Albert Street 75

Allen, 816 Granville Street 60

Elliott, 2224 Alberta 60

Abell, 1121 Nelson 75

A. Wallace, 767 Hastings Street, E 15

Kerr, 1346 Robson 80

Farrar, 504 Hastings 100

Hutchmann, 1607 Comox 50

Millicrof t, 605 Dunsmuir 45

There seems to be no doubt at all that Vancouver is badly over-built.
This situation is, of course, operating to the temporary advantage of the
tenants, and will continue so to operate until the population and business
of Vancouver increase to such an extent that they will need the facilities
which are already provided. How soon that will be is a difficult question
to answer. It may be said that the real estate dealers are not optimistic
on the question of the approach of that condition in the near future.

Congestion

Some data which throws a light upon the possible tendency of the tax
to relieve congestion is quoted above. (1)

The tendency on the part of the property owners to economize in
the use of land for building purposes, and the opinions quoted in some
of the interviews to the effect that particular individuals have found it
difficult to pay taxes on large residence lots and have been compelled to
divide them up would, of course, indicate a tendency toward increased
congestion per acre and decreased congestion per room.

(1) Cf. supra, p. 197.



205

With an area of 16.48 square miles (land) and a population of 106,110,
the density of population per acre is ten persons. This statement must be
considered in connection with the suburb situation, however, if wrong infer-
ences are to be avoided. ( 1 )

Home Ownership

The statement is commonly made in Vancouver that a larger propor-
tion of the citizens own their own homes than in any other city in Canada.
Statistical data on which to base any such claim have been entirely lacking ;
but the general impression undoubtedly has prevailed that the proportion
of home owners as compared with tenants is extremely large. The only
material available which throws light upon the subject, aside from the
opinions of the real estate men and other citizens of the town, is the list
of voters. The laws governing suffrage in Vancouver are so drawn as



Online LibraryRobert Murray HaigThe exemption of improvements from taxation in Canada and the United States [electronic resource] : a report prepared for the Committee on Taxation of the City of New York → online text (page 21 of 31)