In defence of B.C. speculation tax

Among the housing measures announced in B.C. Budget 2018, the new speculation tax has caused the most uproar. Some of this stems from a lack of clarity on how the tax will be applied. Details are being worked out by the Ministry of Finance.

The term “speculation tax” is also a misnomer. A true speculation tax would heavily tax the capital gains from rapidly rising property values, especially those resold (or “flipped”) quickly or from owning multiple properties.

The B.C. speculation tax is more like an empty homes tax similar to the one introduced by the City of Vancouver last year. Such a tax is important because real estate has become a means for wealthy households – domestic and foreign – to park and grow their capital. Doing this while leaving a property empty compounds negative effects, driving up home prices while reducing rental stock.

According to the Ministry of Finance the speculation tax targets “homeowners who have removed their units from B.C.’s long-term housing stock – meaning they are not owner-occupied or a qualifying long-term rental property.” This applies almost exclusively to owners of multiple properties who live outside of B.C. because “a non-refundable income tax credit will help offset the tax for B.C. residents.”

This is appropriate in markets like Metro Vancouver and Victoria where vacancy rates are extremely low and in areas where absentee landlords have pushed up prices for locals.

The small number of homeowners affected by the tax have four options: pay the tax, make the property their principal residence, rent it or sell it. The policy seeks to encourage more long-term rentals, which would be exempt from the tax altogether.

Post-budget polling suggests high levels of public support for the new housing taxes, but some media coverage included anecdotes of allegedly harddone-by households trying to paint the tax as unfair.

Some of these anecdotes are not worth considering. A family in Alberta that hardly uses its B.C. vacation property is precisely the type of household that should be captured by the new tax. Ditto for someone living on Vancouver Island who uses a condo in Vancouver a few weekends a year. We desperately need these properties added to the rental stock.

In other cases, there is room for adjustment. Rural areas with high vacancy rates need not be included in the geographic zone captured by this tax. It would be fairly straightforward to exempt small Gulf islands not connected by BC Ferries service, for example.

However, the Sunshine Coast and Whistler area, where prices have exploded and local people struggle to find affordable rental housing, should arguably be included in the tax.

The key point is that this new speculation tax creates strong incentives to put vacant properties on the rental market. Those who don’t will contribute tax dollars that can and should be used to build new social and co-op housing.

Letting investors, whether domestic or foreign, sit on low-taxed empty properties is wrong and makes life less affordable for everyone else.

Marc Lee is a senior economist with the Canadian Centre for Policy Alternatives and tracks federal and provincial budgets and economic trends. Alex Hemingway is a public finance policy analyst for the CCPA.