Premier Christy Clark has issued a warning that demands for new taxes to rein in rising real estate prices could have serious undesired effects and are largely rooted in mistaken perceptions.
She was responding to a call from Vancouver Mayor Gregor Robertson for the province to charge a higher Property Transfer Tax on the most expensive properties, create a speculation tax on short-term flippers, and give cities more power to track ownership and discourage the practice of leaving investment homes vacant.
“It’s important that we consider any actions carefully to make sure we are helping first-time homebuyers get into the market while protecting the equity of existing homeowners – not just simply raising more taxes for government,” Clark said in a letter to Robertson.
Driving down home prices 10 per cent would mean an $800,000 home losing $80,000 in equity and Clark said that could put some residents with large mortgages underwater.
Clark noted local buyers, not foreigners, are responsible for most real estate activity in the region.
“For many individuals and small businesses, this is a source of investment income.”
The premier said the province is actively looking at what it can do.
But she suggested the City of Vancouver can do more itself to address affordability by reducing civic fees and levies that add up to more than $76,000 of the price of a new $450,000 condo.
“Beyond any new taxes to curb demand, there is also the option of increasing supply through better land-use planning,” Clark added.
The B.C. Real Estate Association estimates foreigners account for no more than five per cent of home ownership and real estate activity in the region.
A finance ministry analysis of the issue said Metro Vancouver detached house prices are being driven up largely because of rising demand and shrinking supply, as older houses are knocked down to build townhouses or condos, which have seen much slower appreciation.
B.C. could follow other jurisdictions like Singapore, London and Australia that charge foreigners stiffer property transfer taxes or other taxes. Foreigners also need approval to buy houses in Australia and Singapore, where prices have stabilized but still aren’t considered affordable.
If foreign home buying was sharply pared from the estimated five per cent of Metro home sales now to one per cent, it said, the improvement in first-time buyer affordability would not be significant because of the concentration of offshore buying in high-end homes.
But it estimates such policies would wipe out $1 billion a year in residential real estate sales, causing a 1,400-unit plunge in home building and the loss of 3,800 jobs in the construction and real estate sectors.
“Roughly $350 million in nominal GDP would be lost. This translates into about 0.2 per cent of B.C.’s economy.”
And the ministry warned foreign home buying restrictions could “send mixed messages” to potential business partners and compromise government efforts to welcome foreign investment in other industries, such as LNG.
Even that might not actually reduce home prices, the analysis said, suggesting “drastic measures” targeting both residents and non-residents would be needed to achieve a 10 per cent cut in home prices.
Success would mean erasing $60 billion in home equity across Metro Vancouver, or an average of $85,000 per property, it said.
In addition to more densification, the finance ministry said the federal government could do more to discourage property speculators by taxing their profits as income instead of capital gains in some cases, ensuring capital gains are correctly reported and that flipped investment homes aren’t falsely claimed as primary residences.
The real estate association recommended against any curb on foreign investment in housing but suggested government monitor it by requiring a residency declaration on land transfer forms. B.C. doesn’t track foreign ownership and critics say a lack of data hinders debate on reform.