Government expects sagging Metro real estate market to impact tax revenue
JOANNE LEE-YOUNG
The B.C. government is cutting its revenue estimates because of Vancouver’s slumping real estate market.
This time last year, Victoria counted in its coffers a record amount in home sale taxes, $260 million more than it had been expecting, thanks to a red hot real estate market.
In mid-February when it releases its 2019 budget, it’ll be a different story. Vancouver homes are languishing on the market for much longer and sales in January were down almost 40 per cent compared the same month in 2018. Prices, especially for higher end homes, have been falling, and in some cases, by significant amounts.
In November, Finance Minister Carole James said the drop in home sales and losses at the Insurance Corp. of B.C. could together mean a $250 million drop in government revenues. To offset this risk, she was increasing a fund to cushion volatile changes by $600 million.
On Wednesday, the Ministry of Finance said it has “been carefully monitoring (Metro) housing prices to see how the market respond to our housing actions. In the first and second quarterly reports (April 1 though Sept. 30 of 2018), we lowered our estimate for property tax revenues to reflect the moderation we’re seeing.”
The province “made a conscious choice” and “it wanted to throw everything it had at the real estate market to have an impact on prices and sales,” said Steeve Mongrain, professor of economics at Simon Fraser University, adding housing taxes account for about nine per cent of B.C. government revenues.
He said government revenues will be harder hit by the drop in the number of home sales that can be taxed than by the drop in the sale prices.
There have also been measures by municipal and federal governments to cool hot housing markets.
Each, Mongrain said, “had the same goal, so it’s hard to avoid the problem of overshooting with everyone running toward the fire with water to put it out. Once it’s gone, it’s hard to tell the impact of each.”
Many in the real estate, construction, mortgage broking and banking industries, however, point to the national banking regulator’s stress testing as having the biggest drag on home sales.
On Wednesday, the Toronto Real Estate Board, which represents 53,000 real estate agents, called on Ottawa to rethink whether strict mortgage stress testing started in January 2018 is still needed as the market there drags.
In Vancouver, Phil Moore, president of the Real Estate Board of Greater Vancouver, said it supports the call by Toronto board.
“We certainly agree with them,” said Moore. “There is a lot of activity at open houses, but we have so many (sales) that are collapsing because of stress testing.”
Stress testing requires borrowers to show they can still afford monthly payments if rates move two percentage points higher than their bank’s mortgage offer or a five-year Bank of Canada benchmark rate, whichever is higher.
In public remarks this week, Carolyn Rogers, assistant superintendent of the Office of the Superintendent of Financial Institutions, and Evan Siddall, president and CEO of the Canada Mortgage and Housing Corporation, both shot back at critics. They defended the need for stress testing, arguing more debt, especially consumer debt “fuelled by lower underwriting standards” is not the answer to the cost of home ownership in Canada.