VANCOUVER FIX WON’T WORK
Economist trashes new property tax
Moody’s Analytics says British Columbia’s new tax on foreigners in the Metro Vancouver area will do little to improve affordability for the middle class.
In a research note out Friday, economist Adam Goldin poked fun at the provincial government’s new law, which took effect Aug. 2 and has led to reports of deal cancellations because of the additional property transfer tax of 15 per cent being charged to foreign buyers.
“The indefatigable law of unintended consequences has travelled to Vancouver,” wrote Goldin, noting the reports of widespread deal cancellations. Buyers had also pushed forward deals after the July 25 announcement to beat the tax, wreaking havoc on the province’s online land registry system.
“British Columbia’s new 15 per cent tax on foreign buyers of residential real estate is designed to rein in galloping house price inflation to make housing more af- fordable for middle-class buyers,” wrote the economist. “Foreign demand, particularly from Chinese citizens, has been blamed for fuelling Vancouver’s rapid house price gains. The tax was meant to siphon demand to ease price pressures. Unfortunately, the poorly designed law has invited the law of unintended consequences to feature prominently in this tale, with the tax spurring a torrent of cancelled deals.”
Goldin said there are two reasons the policy won’t have its intended consequences, adding that the tax change addresses the “wrong end” of Vancouver’s supply imbalance.
“Inadequate supply, rather than inflated demand, is driving prices higher. The single-family housing stock has been relatively unchanged since 1991, although multi-family stock has more than doubled over the same period,” he said, adding that, to make housing affordable, the average price of a single-family detached home would need to be cut in half to $700,000. He doesn’t believe B.C. Premier Christy Clark and her government are looking for that type of price decline.
Goldin also took aim at something the real estate industry has complained about, namely that deals negotiated before July 25 but closing after Aug. 2 will face the tax, adding a huge unexpected bill for foreign purchasers.
“Because the new tax law did not grandfather in deals that were already under contract, anecdotal evidence of foreign buyers cancelling their transactions is pouring in, leaving sellers alone at the altar. What’s more, many resident buyers have pulled offers because they expect prices to decline,” he said. “These cancellations have knockon effects because many abandoned sellers then have to cancel their own purchase. It may take several months to see how this plays out, but the law’s designers likely did not mean to cause such havoc.”