A local real estate leader questions the effectiveness of new provincial measures designed to cool the housing market.
The provincial government last month announced introduction of two new measures: the expansion of the foreign home buyers tax and the introduction of a new speculation tax.
Concerning the first, the provincial government has hiked the buyers’ tax to 20 per cent from 15 per cent, and extended it into the Capital Regional District, including Saanich, along with other areas (Nanaimo, the Fraser Valley and Central Okanagan).
“I don’t think it is too big of a surprise,” said Kyle Kerr, president of the Victoria Real Estate Board (VREB). “I don’t think it’s going to have a significant impact on our market.”
Foreign buyers account for only five per cent of buyers, and Kerr questions whether the higher tax will help increase the supply of affordable housing. “How does less than five per cent of the market drive the other 95 per cent?” he asked.
Concerning the second, the government plans to introduce a tax on empty properties.
The tax starts at 0.5 per cent of the property assessment this spring, eventually hitting two per cent by the end of 2019.
It applies to individuals (foreign citizens and out-of-province Canadians), who own property in British Columbia but do not pay income tax in the province.
“If you pay income tax in British Columbia you are not captured,” Finance Minister Carole James said last month. “If you’re from outside the province, and you leave your home vacant, you will be taxed.”
(It is not quite as simple. Ministry documents say the “majority of B.C. homeowners” – not all – would receive exemptions from the tax.)
The government has also promised to “help offset” the tax for B.C. residents. This would leave “the bulk” – but not all – “of the tax levied on vacant and short-term rental properties” owned by individuals who do not live in British Columbia.
Some details about the tax remain outstanding.
The provincial government has also not yet defined “vacant” as it applies to holiday properties, which out-of-province owners may use only a few times each year. Finance officials have said that out-of-province owners can avoid the tax if they rent out their properties on a long-term basis rather than through short-term services such as AirBnB.
“If you want to ensure that you don’t pay the tax, you put your house on the rental market and you encourage people to rent it,” James told reporters after a post-budget speech to business owners in Victoria.
The provincial speculation tax has already caused ripples elsewhere, especially in the Okanagan Valley, where Kelowna Mayor Colin Basran has openly criticized the provincial government.
Kerr, citing this criticism, said the province should have consulted with the industry.
While it is not clear how many residences in Greater Victoria would be subject to the speculation tax, the region is attractive with future retirees, who currently live out of town but have already purchased a second home. “There will be a spectrum of the local market that will be affected,” said Kerr.
So what should the province have done?
Kerr said the key to dealing with the current affordability crisis lies on the supply side and he praises some of the other housing measures and adds the speculation tax could generate revenue towards housing measures. This said, it will take time, and the provincial budget lacks measures to help groups who are struggling to find affordable housing right now.
For example, the province could have worked with municipalities to cut red tape, thereby speeding up housing developments, he said. It could have also instituted measures that would have given groups a break on their property transfer tax.
The province, for example, reduces or eliminates the property transfer tax for first-time buyers, with the full exemption kicking in for properties with a fair market value of less than $500,000. Kerr said the provincial government could have adjusted this exemption threshold by region.
“The government can tax specific regions of the province, why not give them a regional tax break?” he said.