HOMES FOR ‘FERRARI’ SET
It’s the top concern among voters, but delivering results will be a massive undertaking for the next provincial government
Andy Yan, city program director at SFU, says B.C.’s real estate sector is building “too many Ferraris, and not enough Hondas,” and the result is “a systemic failure” of Metro’s housing market to meet local incomes. We look at how the Greens, Liberals and NDP plan to address this problem
B.C. residents say affordable housing is the top election issue, according to several polls. And the governing B.C. Liberals and their main challenger, B.C.’s NDP, say they have plans to increase the supply of affordable homes.
But there’s a big difference between having a plan and delivering results.
The average price for a detached house in the city of Vancouver is $2.6 million. Across Metro Vancouver, the average single-family home costs $1.5 million. Home prices and incomes in Metro Vancouver have become so wildly detached, B.C. real estate economists and experts say, that improving affordability in a meaningful way will be difficult and require profound changes.
“What we have is a systemic failure of the housing market here in Metro Vancouver to meet local incomes,” Simon Fraser University city program director Andy Yan said.
THE NEW DEMOCRAT APPROACH
NDP housing critic David Eby says B.C.’s next government must get directly involved in building large projects that would produce an “expansion of affordable housing not just for the very poor, but for the middle class in Metro Vancouver.”
Eby points to Asian city-states Singapore and Hong Kong that have faced greater affordability problems than Vancouver, and have responded by building homes only meant for workers.
“It’s not very sexy, but we really need to be building workforce housing,” Eby said. “We desperately need housing for families that live, work and pay taxes in Metro Vancouver. And the best way to pay for it, we think, is taxes on the speculators who have been driving up home prices and not paying taxes in B.C.”
In addition to large rental housing and co-op housing projects, Eby said the NDP is considering expanding small experimental housing projects in Vancouver, in which sales of condos were limited to people who work in the immediate area of the development. There are also developments that limit how much purchased condos can rise in value (thus limiting a resale price), and require that residents use their unit as their primary residence.
In order to scale these small projects up to thousands of units, “what is needed is money, and land,” Eby said. “If you are talking about the cost of housing, it is really expensive land in Metro Vancouver. And you are talking about buildings that are built for maximum profit, which generally means units are built for investors.”
In order to raise money for such plans, Eby said the NDP will levy an annual two per cent tax on the assessed value of B.C. homes owned by people who don’t pay taxes in Canada on their worldwide income. The tax would be implemented first in Metro Vancouver.
“Currently you can be paying income tax anywhere in the world,” Eby said. “And we don’t know where the money is coming from that is driving these astronomical gains, because there is no requirement of declaration that you are a tax resident of B.C., or anywhere else.”
Eby says the NDP would keep the 15 per cent foreign buyers tax that was introduced by the Liberal government, but alter it.
Eby and other critics say foreign speculators have apparently adjusted to the offshore buyers tax by increasingly flipping “presales,” contracts to buy condos, usually signed before or during construction. Such sales are often not completed for years, but the foreign buyers tax is not applied until the sale finally closes and a land title registration takes place. Vancouver realtors including Steve Saretsky say speculators are playing hot potato with presales now, meaning by the time a local buyer eventually purchases the completed unit to live in, the price will have been driven higher by multiple sales of the pre-sale contract. Eby says the NDP would require pre-sales to be taxed at the time of their signing, not the time of occupancy.
“We would also close the loophole that allows you to transfer a trust that holds a commercial property, so that the wealthiest investors in the world aren’t paying property transfer tax in B.C.,” Eby said.
Eby acknowledged that the real estate industry is both a powerful economic and political force in B.C., and developers might line up against the NDP’s housing plans.
“I think that our housing policy has been dictated for far too long by a group of developers whose primary market has been offshore and absentee investors,” Eby said, “and its time for priorities to be dictated by the people that live and work here.”
The NDP has also promised to relieve the burden of rising rents in the province, with a $400 rebate for each renter household. The party estimates the annual cost of the rebate will be $200 million.
THE GREEN APPROACH
Green Leader Andrew Weaver last week promised a number of tax increases to limit what he considers rampant real estate speculation enabled by the B.C. Liberals.
Weaver said his party would double the current foreign buyers tax, to 30 per cent, provincewide.
The Greens would also eliminate property transfer taxes for sales on housing units that cost less than $200,000, but for others increase the tax on a sliding scale to a high of 12 per cent. For example, the sale of a $3.5-million home would net $83,000 in transfer taxes today but the tax would rise to $236,000 under the Green plan.
The Greens would also apply provincial income tax to lifetime capital gains on principal residences in excess of $750,000.
THE LIBERAL PLAN
In stark contrast with the Greens’ and NDP’s plans to overhaul housing policy, the B.C. Liberal plans for affordability rely on promises to create high-paying jobs in technology, and to streamline building regulations so that developers can build more multi-family dwellings faster.
Unveiling the B.C. Liberal campaign platform last week, Liberal Leader Christy Clark left affordability out of her headline priorities, saying: “This election is about which party has a plan to do three things: create jobs, control government spending and cut taxes for the middle class.”
The government has promised $920 million to build affordable rental housing. But Clark’s party proposes to raise incomes in B.C. with “Silicon Valley” type technology jobs as a way to make housing more affordable for workers.
The government said that ministers responsible for housing and regulation of housing, Rich Coleman and Mike de Jong, were not available to answer questions for this story.
Ministry of Finance spokesman Jamie Edwardson explained some of the government’s plans.
Edwardson did not answer Postmedia’s question about whether the government plans to reduce or eliminate the 15 per cent foreign buyers tax if re-elected. He noted the government has already announced that foreign buyers that are certified to work in B.C. are now exempt from the 15 per cent tax.
“The (foreign buyers tax) has helped moderate prices and create the conditions that will allow housing supply to catch up to demand,” Edwardson said.
Generally, B.C. Liberal politicians speak positively of the “free market” and its power to regulate B.C.’s economy and housing market through supply and demand. In line with this philosophy, the current government wants to make it easier for developers to build homes.
Edwardson said that the majority of residential land in Metro Vancouver is zoned for single-family homes, and this is an impediment to the plans of developers.
“It is up to local governments to do their part to increase supply of housing and reduce housing prices through changes to zoning and the development approvals process,” Edwardson said.
“We are currently discussing various options where the province could help municipalities streamline their application approval processes.”
ISSUES TO CONSIDER
Some housing economists, though, suggest that simply producing more homes in B.C. may not improve affordability.
“I don’t think rents have risen that much, so when you don’t have rising rents but you have rising prices, that tells you this is not demand for roofs over heads,” said Tom Davidoff, a real estate economist at the UBC School of Business.
“If there is a supply problem, you ought to see rents rising. So then you have to start to think this is a capital market driving the home prices higher.”
Simon Fraser University city program director Andy Yan, who has studied the problem of empty units in Metro Vancouver, has concluded B.C.’s housing woes are a result of the type of homes being built, and the speculative behaviour of some home buyers.
As Yan puts it, B.C.’s real estate industry is building “too many Ferraris, and not enough Hondas.”
“I think housing policy has to get back to, who are we trying to house? Is it the working family, or is it to house money and facilitate a piece of land for flipping?”
For example, Yan’s recent research shows that in areas such as Burnaby’s Metrotown, where many condos are being built, the increased supply is resulting in high vacancy rates, yet home prices continue to rise. Yan says there are still questions about his study results, as some buyers may plan to occupy these units but haven’t done so yet, or buyers might be keeping units empty for investment purposes.
Yan says that in order to really increase affordable housing, a provincial government must “modernize our property transaction regulations and taxes” in order to discourage speculative types of investments such as flipping homes or leaving residential and commercial units empty.
Yan says B.C. could adopt a tough speculation tax. And he points out that investors are taking advantage of regulations that allow only half of the profit made from non-principal-residency home sales to be taxed as capital gains.
“We need to reboot our capital gains tax as it applies to housing,” Yan said.
Yan doesn’t consider it realistic for B.C.’s economy to add enough high-paying jobs to make homes affordable again.
“Now you are in dire straits if you make about $80,000 per year income, where you are now in need of social housing in Metro Vancouver,” Yan said. “So that is 80 per cent of the population. So you either increase income — and you can’t increase it fast enough to meet the current market — or you increase the supply of homes. But that is problematic, because developers will build the most profitable types of homes. So why would I build for any local income, when I could target global incomes or flippers?”
I think housing policy has to get back to, who are we trying to house? Is it the working family, or is it to house money and facilitate a piece of land for flipping?