When B.C. Green Leader Andrew Weaver stood up in the legislature on March 8, it wasn’t to speak about any of his signature issues. This speech didn’t concern the Kinder Morgan pipeline, the Site C dam, or government delays in bringing ride-hailing to B.C.
Instead, Weaver wanted to talk about NDP government tax policies, particularly the housing-speculation tax that won’t be legislated until the fall.
The member for Oak Bay–Gordon Head said he initially thought that the speculation tax was only going to apply to out-of-province residents. This was based on comments made by Premier John Horgan and Carole James in scrums with the media.
But after examining an interpretive bulletin from the government, Weaver came to the conclusion that there was no blanket exemption for British Columbians.
Instead, they would have to claim a tax credit, which he said is of little use to many seniors.
That’s because they don’t have enough income to apply a tax credit against; therefore, they wouldn’t be able to get their money back.
“You tell that to the constituents of mine or of other colleagues across who aren’t earning any income but happen to own a family cottage on a lake that happens to be in the boundary of Nanaimo Regional District or on one of the Gulf Islands,” Weaver said. “Now that person is going to be charged $12,000 a year as a speculation tax [for property assessed at $600,000].”
It’s one of four new housing-tax measures announced in the recent provincial budget. There is also an increase in the property-transfer tax and the school-tax rate on the value of homes in excess of $3 million.
In addition, the foreign-buyers tax has been increased from 15 percent to 20 percent and extended to the Capital Regional District, the Fraser Valley, the Central Okanagan, and the Nanaimo Regional District.
According to a recent analysis by TD Economics, the new regulations will cause “peak-to-trough declines of 5-10% for resales and 5% for prices”.
However, the bank’s economics report acknowledged that there is “considerable uncertainty surrounding the outlook for housing” because the changes are coming at the same time that interest rates are rising and tighter mortgage rules are taking effect.
The market was already slowing before the B.C. government’s changes were unveiled, even though prices remain at record highs. West Side of Vancouver realtor Andrew Hasman’s website noted on March 5 that there were only 33 houses sold in that part of town in the first two months of 2018. Over the same period in 2017, there were 94 houses sold.
The number of West Side condo sales fell from 436 in the first two months of 2017 to 294 for the same period in 2018.
Finance Minister Carole James has forecast that increasing the property-transfer tax on homes worth more than $3 million will generate an additional $243 million over three years.
But that assumes enough $3-million homes will be sold to create this windfall—and that’s no guarantee in a slowing market.
In addition, James expects the higher school tax on expensive residential properties will generate $450 million over three years. The hike and expansion of the foreign-buyers tax is slated to rake in an extra $105 million over three years.
And the Ministry of Finance says the speculation tax with the corresponding income-tax credit is going to bring in $487 million over three years.
These are big figures, adding up to nearly $1.3 billion over three years from just four tax increases on homes.
It’s coming as the NDP government is promising a crackdown on money-laundering, which Attorney General David Eby has linked to rising housing prices. Presumably, new regulations would lower demand if there were indeed any connection between casino gamblers and housing prices.
If the province falls short on achieving its forecasts for property-purchase-tax, speculation-tax, and school-tax revenue, expect opposition politicians to question the NDP government’s ability to fulfill its promise to invest $6.6 billion over 10 years in housing-affordability measures.
The stakes are high for Premier John Horgan as he hangs on to a narrow majority in the legislature with the support of the three Green MLAs.
B.C. Liberals say taxes undermine affordability
On March 8, the same day that Weaver spoke about taxes, B.C. Liberal MLA Michelle Stilwell said her office has been “flooded with concerns” about the speculation tax.
“Yesterday we learned that a $30-million project by Sunrise Resort Parksville is in jeopardy as a direct result of the NDP tax,” the Parksville-Qualicum MLA said.
She asked James what advice she had received from staff about the consequences of this tax.
James responded that the affordability crisis was caused by the B.C. Liberals refusing to acknowledge the problem when they controlled the government.
“We have been looking at all of the issues that are there,” the finance minister added. “We have been listening to the concerns that have been coming forward, and details will be coming out.”
On March 14, B.C. Liberal Leader Andrew Wilkinson wrote an open letter insisting that the increased property-transfer tax and school tax will “negatively impact housing affordability”.
“As noted by industry, the multiple tax measures introduced by this government will increase the costs of building residential homes, and those costs will be passed on to property purchasers and their tenants,” he stated.
Housing and Municipal Affairs Minister Selina Robinson responded that only the most expensive two percent of B.C. homes will be subject to the higher property-purchase tax and higher school levy.
“After years of B.C. Liberal giveaways to people at the top, I’m proud that our government is working for the other 98 percent of British Columbians,” she said.
In the meantime, those who own expensive homes are feeling unfairly targeted by the NDP government’s revenue grab. Retired economics professor David Tha told Postmedia reporter Rob Shaw that he’s being “taxed to death” on his Point Grey home, which he bought for $370,000 more than 30 years ago and is now worth $6.5 million.
Tha said that the school-tax hike alone is a $12,000 annual hit.
Defenders of the tax say that seniors can defer payments with a modest interest rate. But that’s little consolation to their families, who might be looking at these homes as nest eggs for their future in an increasingly expensive city.
Speculation tax called a "vacancy tax"
Andrew Ramlo is vice president of market intelligence with Rennie Marketing Systems. In a phone interview with the Georgia Straight, he expressed concern over news reports that James’s ministry did not do any modelling to measure the impact of the new housing taxes.
“Real estate, broadly speaking, has a pretty big impact on the provincial economy,” he said. “There’s a bunch of stuff that certainly needs to be sorted out in the short term. I would just hope for the market’s sake that they do this relatively quickly.”
According to the government, once legislation is passed in the fall, the speculation tax will impose a $5 levy on every $1,000 of assessed value this year and $20 per $1,000 of assessed value next year for those who leave homes vacant.
“I call it more of a ‘vacancy tax’, just given how they’ve structured it,” Ramlo said. “It doesn’t really deal with the market context of what people would see as speculation, which is the rapid flipping and turnover of units.”
It may also not do much at the low end of the market, which is where first-time buyers are more likely to gain a foothold.
This week, Kelowna city council asked staff to report back with wording on how it could oppose the speculation tax. West Kelowna council has also raised objections, noting that 600 homes could be subject to this levy in that municipality. And the Regional District of Nanaimo also doesn’t want the tax, in part because of a relatively high number of part-time residents in the Parksville area.
“I don’t know if it’s going to be done from a geographic perspective or whether it’s going to be done from a type-of-use perspective,” Ramlo said. “They could segment it off to say it’s just residential properties rather than residential-recreational properties.”
Tsur Somerville, a real-estate expert in UBC’s Sauder School of Business, called it an “occupancy tax” rather than a speculation tax.
He told the Straight that because the public thinks speculators are evil, speculation is the government’s preferred term.
Generally speaking, Somerville said, he approves of the broad thrust of the NDP’s demand-management approach, saying it’s introducing more progressivity into the property-tax system. But he acknowledged that at this stage, it’s hard to comment on precise details.
“You would want to see the government do a certain set of things and see how they work,” he added. “Tighten or loosen [regulations] after a period of analysis rather than coming in with a huge cleaver and completely slicing off a huge part of demand in one stroke.”
Ramlo, however, is concerned that the government’s emphasis on curbing demand for housing could have unforeseen economic consequences. He said he would have preferred more emphasis on creating more housing.
“The Gen X and the millennial generations are larger than the post–World War II boom generation,” he noted.
According to Ramlo, that likely adds up to more households forming, though he still hasn’t completed his analysis of Statistics Canada’s latest data in this regard.
Ramlo also emphasized that the massive amount of mortgage-free equity held in residential real estate in this region is propelling demand. According to Rennie Marketing Systems, that figure has reached $355 billion.
This provides parents and grandparents with the financial freedom to give young people vast sums of money, maybe $100,000 or more, to get them into the housing market and out of their basements.
“The kid can take that $100,000 and buy the same unit that they would have previously done and reduce their mortgage by $100,000,” Ramlo said. “Or rather than spending $349,000, they can now go spend $449,000. It ratchets the price up.”
He added that if the government wants to keep its promise to work with partners to create 114,000 housing units over a decade, it’s going to have to do more to address the labour market for construction workers.
“We’ve got the lowest unemployment rate in B.C. that we’ve had in the recent past,” he said. “So there are challenges on that side as well.”
Wilkinson’s open letter pointed out that the construction industry contributes $23 billion to the provincial gross domestic product, yet he accused the NDP of “doing what they can to unfairly target builders and drastically shrink housing supply”.
The B.C. government, however, is advising people to be patient.
“Home prices didn’t spike overnight, and our housing problems can’t be fixed in a single budget,” Robinson declares in the preamble to the government’s 30-point plan for addressing this issue. “It will take years of sustained action to bring housing affordability home.”More