IMPACT OF PROPERTY TAX UNCLEAR
It’s not clear exactly when the B.C. Liberal government recognized what most of its constituents knew to be true — that foreign money, mainly from Chinese nationals, was driving up real estate prices far beyond the reach of most British Columbians and making the Lower Mainland, particularly Vancouver, one of the most unaffordable housing markets in the world.
But when that time finally came, after months of defensiveness and denial, Christy Clark’s Liberals moved quickly and decisively to deter the unrestricted flood of cash pouring into residential real estate in Metro Vancouver.
The latest sales figures disclosed by Finance Minister Mike de Jong Monday no doubt helped speed the decision to impose a 15 per cent tax on top of the existing property transfer tax for foreign buyers of residential property starting Aug. 2. In just five weeks between June 10 and July 14, foreign buyers snapped up $885 million worth of residential property, most of it in the Lower Mainland, accounting for one in every 10 home sales.
Given those numbers, and with an eye on the next election in May, and sensing the electorate wanted the government to act, there was more political upside to doing something than doing nothing. And besides, the people who would pay the tax don’t have the vote.
Some observers were surprised that the government’s starting rate was 15 per cent, the rate levied in Singapore (where 84 per cent of residents live in some form of public housing), but the legislation provides wiggle room for the rate to move between 10 and 20 per cent as the market requires.
Still, there are questions. To what extent will disclosure rely on self-reporting? Will transactions done but not closed before Aug. 2 be subject to the tax? Will foreign buyers be able to assign permanent residents (family members, for example) in Canada to avoid the tax? How will the government prevent a spillover into other parts of B.C. where the tax does not apply? Could the tax cool the market too much and precipitate a crash?
The legislation that brought in the tax also gave the City of Vancouver the power to levy a tax on vacant homes and it ended self-regulation of the real estate profession. None of these measures directly address the fundamental problem of a lack of housing supply, although revenue from the new tax is supposed to go into a special affordable housing fund. Government interventions of this sort often give rise to unintended consequences. It’s possible the new tax may drive up housing prices in nearby cities, make it more difficult to recruit foreign workers, increase tax avoidance, erode homeowners’ property values or cause other negative effects. But the Clark government has probably read the public mood correctly. And British Columbians got what they asked for.