New real es­tate taxes only cre­ated new prob­lems

The Province - - EDITORIAL - Gor­don Clark Gor­don Clark is a colum­nist and ed­i­to­rial pages edi­tor for The Prov­ince. Let­ters to the edi­tor can be sent to provlet­ters@the­p­rovince.com. gclark@post­media.com

I’m not gen­er­ally in­clined to say “I told you so,” but the last few days have been quite val­i­dat­ing for those of us who cau­tioned against gov­ern­ment in­ter­ven­tion through tax­a­tion in the Van­cou­ver hous­ing mar­ket. As most peo­ple know, the pro­vin­cial gov­ern­ment in­tro­duced a 15-per-cent prop­erty trans­fer tax on foreign buy­ers in Au­gust and Van­cou­ver city coun­cil passed the empty homes tax, which also tar­gets a lot of foreign buy­ers.

The taxes were de­signed to di­rectly and in­di­rectly im­prove hous­ing af­ford­abil­ity in Metro Van­cou­ver, which suf­fers from the high­est house prices and rents in the coun­try. At first, the foreign buy­ers tax ap­peared to work in re­mov­ing non-lo­cal money from Metro’s real-es­tate mar­ket and cool­ing prices.

But re­cent re­ports show that what­ever ef­fect it had has al­most dis­ap­peared, with Sta­tis­tics Canada re­port­ing this week that Van­cou­ver prices are ris­ing again, and the Cana­dian Real Es­tate As­so­ci­a­tion say­ing that prices are back above where they were in Au­gust. While we don’t know for cer­tain where the mar­ket would be with­out the new taxes, prices are al­most back to where they were when they were in­tro­duced. The Van­cou­ver mar­ket is no more af­ford­able than it was last sum­mer, in fact ris­ing 11.4 per cent from a year ago, ac­cord­ing to an RBC Eco­nomics re­port.

Worse, RBC says, “the cool­ing ef­fect of hous­ing mea­sures im­ple­mented last year may be wear­ing off in Metro Van­cou­ver” and prices will con­tinue to rise this sum­mer. RBC said “re­sales rose strongly by 15.6 per cent month-over-month” in April, the third month that has hap­pened and a sign that the mar­ket is pick­ing up.

And the foreign buy­ers tax had other con­se­quences.

The tax — which only ap­plied to Metro Van­cou­ver, stretch­ing from Lions Bay to the Lan­g­leys — caused home prices to soar in the Fraser Val­ley, the one re­gion where peo­ple with nor­mal in­comes had a fight­ing chance of own­ing a home.

Ac­cord­ing to the Fraser Val­ley Real Es­tate Board, sales in the re­gion last month were the high­est in 10 months, with the bench­mark price for de­tached homes up 14.5 per cent in April from a year ago to $776,500, while the num­bers had risen 26.2 per cent to $353,300 for town­homes and up 29.8 per cent to $219,900 for apart­ments. Those sound like the rise in prices in Van­cou­ver a year ago, sug­gest­ing that the tax has only moved the af­ford­abil­ity cri­sis, rather than solved it.

If the tax was sup­posed to help young fam­i­lies just start­ing out, its im­pact in the Fraser Val­ley has been dev­as­tat­ing.

Other un­in­tended con­se­quences of the tax have also be­come clear. For one, the tax spooked sell­ers, with Metro Van­cou­ver home­own­ers pulling their prop­er­ties off the mar­ket, fear­ing lower prices. That led to pent-up de­mand — more buy­ers chas­ing fewer list­ing, driv­ing up prices.

It also pushed in­vestors and their money to other mar­kets beyond the Fraser Val­ley. Toronto and Vic­to­ria placed first and sec­ond on a list of the world’s “hottest” lux­ury mar­kets re­leased last week by Christie’s In­ter­na­tional Real Es­tate and Chest­nut Park Real Es­tate of Toronto.

Vic­to­ria “saw sig­nif­i­cant growth from af­flu­ent in­ter­na­tional buy­ers who were de­terred by Van­cou­ver’s new 15-per-cent foreign buy­ers tax,” the re­port noted, mean­ing the tax just hurt peo­ple try­ing to buy homes there.

House prices in Toronto are up 32 per cent year over year, ac­cord­ing to the Cana­dian Real Es­tate As­so­ci­a­tion. And Seattle has had the “hottest real-es­tate mar­ket” in the U.S. for six months, with median home prices in King County last month climb­ing above US$600,000 for the first time, 15.7 per cent higher than a year ago, ac­cord­ing to Seattle Times re­ports.

Some of the money from out­side the re­gion be­ing in­vested in Van­cou­ver, where it would also bring peo­ple who would con­trib­ute to the econ­omy in other ways, has shifted else­where as a re­sult of the tax.

These un­in­tended con­se­quences are typ­i­cal of ham-fisted gov­ern­ment in­ter­ven­tions in mar­kets. With house prices head­ing to new heights again in Metro Van­cou­ver and in for­merly more af­ford­able ar­eas like the Fraser Val­ley and Vic­to­ria, it’s hard to ar­gue that the tax has been a suc­cess. It has just cre­ated dif­fer­ent win­ners and losers than if the mar­ket were left alone.

With the NDP and Greens push­ing for more real es­tate taxes, more of these prob­lems are guar­an­teed.

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