Why the new Vancouver real estate tax may be a good or bad move — depending on who you ask
A month ago our editorial team published a public statement on how Loanerr took the news of the Vancouver real estate board’s controversial decision to enact a foreign real estate investor tax.
Upon examining recent trends and sentiments of how the new tax is impacting the Vancouver housing market, we’ve decided to take our stance in retrospect and follow the progress of how the tax is realizing and navigating its presence in the market.
By writing a developing four-week long series of reports on this new tax, we’ll be investigating who it affects, what it has come to mean economically for Vancouver as a city, and what aspects of the tax other provinces might take away from Vancouver’s example.
Understanding what the new tax is and who it affects
When final deliberations about the property transfer tax and its implementation were officially published in late July by the Government of British Columbia of this year, the precision of detail sent shockwaves to Vancouverites and Canadians nationally.
The new property transfer tax, geared towards all foreign commercial and residential investors in British Columbia, is cited to tax prospective buyers an additional 15% on the fair value of their real estate purchase.
Not many people expected the imposing value to be as high as 15% in a province where property taxes are calculated by factors between 1–3% based on the fair value of the property being sold, mostly charged and running concurrently.
Such an addition means that foreign investors are paying property transfer tax values between 16% and 21% for their homes, with most purchases reaching into the 18–21% bracket. This value does not include sales and property taxes which are still applied.
Local buyers, by contrast, pay only the provincial standard 1–3% along with sales and property taxes.
Is this disparity fair? Well, it depends on whose perspective is sought — even industry professionals are at odds.
Insights into Vancouver’s housing market and its buyers
A dynamic range of anecdotal opinions were posed concerning the practicality of the 15% levy, with some leading industry names, such as Jeremy Kronick, a senior policy analyst with the C.D. Howe Institute, stating that knowing the absolute impact of the tax to Vancouver’s market so soon would be impossible because there are many market scenarios that could result.
While this open-minded perspective might be true, other industry professionals, like fellow colleague Ben Dachis, are keen to argue in straightforward opposition to Kronick’s view and state that the new tax leaves domestic homebuyers at more of a loss than foreign ones.
This “loss” that Dachis refers to is both financial and material in reality: as the additional tax places a pricey burden on foreign investors wishing to buy luxury real estate, there may be an unintentional effect of these investors purchasing more modest homes, which will leave a shortage of affordable, low-cost housing and a surplus of unaffordable luxury homes.
Being that Vancouver was already facing this struggle pre-taxation, homebuyers who are finding no relief in a market that is shrinking in its lack of affordability are justified in asking what could tacking on a 15% additional tax to those who could potentially afford it, but may not pay it on pricier property, possibly serve?
The foreign investor real estate tax — one month later
In a July report by PricewaterhouseCoopers, the purpose of the additional property tax was posed to the public as a way to “make homeownership more affordable for Canadians”.
A month later, many Canadians and foreign nationals are asking if affordability by such taxation is the key to getting people into the homes they desire, which has brought the policy under much-needed scrutiny and review.
Vancouverites may not see any immediate changes to the market correction in the next few years due to the (1) area’s high demand for single-family homes, and, (2) price growth as a continuing and upward factor in sustaining the demand.
However, there is a silver lining.
TD Economics predicts that the tax will result in a reduction within the Vancouver market for the latter half of the year, leading to a tight, yet rebalanced and slightly lower market for more local buyers to access.
Housing prices are still in Vancouver’s favour for the foreseeable future
What effect could Vancouver’s market reduction have on other provinces’ policy analysts and bank groups examining metrics on British Columbia’s navigation of the new tax on speculators?
Ontario (and Toronto as an analogous market to Vancouver) may already be receiving the windfall as investors flock to the city in pursuit of making less-costly investments there, where there is not a foreign property transfer tax (yet).
Average housing prices, as gleaned from the TD report, show that between Toronto and Vancouver, even with a market reduction slump affecting BC in 2017, buying a house in Vancouver will still be $219,400 more expensive than one in Toronto[i].
While speculators may not be very picky about where they buy real estate, much like local buyers, they seek to purchase property that serves to finance what their money can buy.
Whether or not Vancouver’s still-in-infancy measure will cause harm or good to its economy and real estate needs more time to incubate.
In the meantime, economists and brokerage firms will continue sleuthing and watching trends closely.
[i] TD Economics Regional Housing Report: All Eyes on Toronto and Vancouver (August 30, 2016), Table 2.
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