Taxing demand could hit supply
‘Happy 31st anniversary, propertytransfer tax! We still hate you.” That’s the general theme of submissions from real-estate and housing interests to the legislature finance committee this week.
It wrapped up a round of hearings on what should be in next year’s budget. Committee members got another earful from various organizations on the drawbacks, culminating in a quadruple hit from four key housing interests in the province.
Most of them voiced objections to the property-transfer tax, and added fresh new complaints about the other NDP housing-tax measures — the speculation tax and the increased school tax on high-end properties.
With affordability the dominant issue these days, the annual round of official protests at the hearings is keyed to how taxes affect ownership.
The transfer tax, for example, is $15,000 on the benchmark $846,000 price of a Vancouver townhouse, said the Real Estate Board of Greater Vancouver.
Buyers trying to minimize it would have to go to the cheapest market in the region (Maple Ridge) and pay more than half a million. Even there, the tax would cost $9,300.
Abolition of the tax looks like a long shot, given that eight premiers have turned deaf ears to the pleas. So critics are offering refinements as an alternative.
Increase the first-time buyers’ exemption threshold to $750,000, from $500,000. Change the graduated scale to give buyers a break. Index the threshold for exemptions to inflation.
Similar requests are being made about the speculation tax. There’s more of a chance of those being heard, since that controversial measure is very much a work in progress.
The board recommends an exemption for people who pay Canadian income tax, no matter how many homes they own.
“If they pay taxes in Canada, they’re Canadians, they’re already contributing.”
A question from an MLA crystallized how severe the affordability problem is, because it was keyed to how hopeless the situation has become.
NDP MLA Bob D’Eith, committee chairman, noted the real estate board’s data showed that the annual income need to buy a detached home in Vancouver is $325,000 in take-home pay.
“Quite honestly, is the property transfer tax really going to make a difference when the income is just not there to be able to afford the house in the first place?”
It’s a valid question. Chipping a few thousand dollars off the government’s take from a real estate deal would scarcely make a difference, when the price is still so out of reach for most people. There was no easy answer. There rarely is. The Canadian Home Builders’ Association took a run at the tax issue, urging an exemption for annual taxes on new projects.
Developers who buy land to build on pay existing and new taxes during the lengthy pre-build phase. Exempting them would cut the per-unit price.
But the same problem crops up. It would be a negligible amount, when the all-in price is already so high.
The Urban Development Institute made the same pitch. The luxury property tax and the higher school tax on properties over $3 million, plus the speculation tax in some cases, can all apply to development sites, not just high-end homes.
The institute said it could add $25,000 to a condo price and hundreds to annual rent costs.
The message, which has been delivered publicly and privately for months, is that the government has “to ensure the new tax measures don’t inadvertently increase the cost of housing.”
The NDP’s general line of attack was to curb the market through taxation to drive prices down to improve affordability. The institute is warning that exactly the opposite could happen.
Earlier, Casey Edge of the Victoria Residential Builders Association set the local tone — an $880,000 average price for a house in the Greater Victoria core, with the vast majority of the value in the land.
There were 3,800 homes built in the region last year, twice the average, “but it’s still not enough due to the demographics.” He cited the belief that the tax measures won’t do much, because the numbers aren’t significant. “The demand is demographics.”
Thirteen local governments with different rules is a recipe for restricting supply, he said. “Under these conditions, how could we not have an affordability crisis?”