Adrienne Tanner is a Vancouver journalist who writes about civic affairs
As land values in Vancouver climb, we’ll see more people mourning the death of a favourite small business forced to close.
For me, it was Wonderbucks on Commercial Drive, a store that sold a combination of kitschy and funky household goods at low prices. It was a place you could wander in with your dog – they had treats behind the counter – and find things like holiday baking tins, candles and picnic supplies. I shopped there until 2017 when owner Bernie Moschenross announced he could no longer turn a profit at the current rent and tax rate. He held one final blowout sale. I bought some dishtowels at deep discount but, knowing it would be my last, the bargain brought me little joy.
Most small business owners don’t own their buildings and their leases require them to pay city property taxes as well as rent. Property taxes are calculated using assessments based on recent sales of nearby properties, which reflect the redevelopment potential for the land. If a neighbourhood suddenly becomes trendy, commercial strips, which may have been relatively unchanged for years, start to gentrify along with the homes. Since assessments are relative, a small business in an underdeveloped old building can face huge tax hikes when properties nearby are redeveloped.
The same thing can happen when a city adopts a new community plan allowing for greater density along commercial streets. The higher a landlord can build, the more the land is worth, and the higher the business taxes will climb, even for businesses in underdeveloped buildings.
Rising business taxes and rent increases drove most independent businesses from Robson Street years ago. And today cries are coming from the craft breweries that brought new life to formerly down-at-the-heels areas of East Vancouver. They complain new developments that followed them into the area have pushed their assessments and taxes too high and may force them to close.
This is not just a Vancouver problem. In Toronto, where land values are similarly high, the same complaints arise every time assessments are done. Small business owners in underdeveloped buildings argue it is unfair to tax for empty airspace in a non-existent new building and have long advocated for a change to assessments based on current use. Their arguments sound reasonable and many councils over the years have looked for ways to help ease the tax burden on the small bakeries, independent clothing boutiques and bookstores we all enjoy.
But the fixes are not simple and most of the talk circles back to the status quo. Cities are required to balance their books, so any reduction in business taxes must be offset by an increase in residential property taxes. Residential property tax increases are not vote-getters and councils that raise them take a political risk.
There is also the question of who exactly deserves help. If the provincial government mandated assessments based on current use, it would not result in a break solely for small, local businesses. It could also encourage landowners to sit on underdeveloped properties, effectively stalling development in areas the city has earmarked for more density. Proposals for tailored solutions to help small, independent businesses are also fraught. Tim Hortons franchises are arguably small businesses, yet the chain itself is huge. Should it get a break?
These are tough questions. So, when councils contemplate change, the default is usually a simple shift from all businesses – large and small – to residential, or vice versa.
Next month, Vancouver council is expecting a staff report examining the effects of shifting 2 per cent of the tax burden from business to residential. It won’t be popular with homeowners who were hit with a 4.5-per-cent increase in council’s inaugural budget in December. Nor will the shift be huge relief for businesses such as the breweries hardest hit by this year’s assessment, some of which are anticipating tax increases of as much as 35 per cent. Because for every business with an assessment that went up, there is another that went down. A 2-per-cent shift offers them an even greater tax holiday.
Come to think of it, the status quo is looking pretty good.