Flipping tax long time coming, late arriving
You have to go back more than 30 years to find the origin story for a flipping tax, and at the start it was a non-starter.
A tax on real estate speculators who buy properties in order to ride runaway price rises and quickly sell them for a quick buck was promised in the 1991 election campaign, which Mike Harcourt won for the NDP. But over the five-term of his government, it never materialized.
A quick scan of provincial media shows scant mention of the idea in following years. But by 2016, as the term “red hot” was routinely being applied to the Vancouver real estate market, then-mayor Gregor Robertson cited an economist’s support for the idea and said he would aggressively advocate for one.
Vancouver house prices were jumping 25 per cent a year at that point. The idea of a flipping tax started appearing in various real estate analyses and was included as an ask in the city’s long-range housing plan.
After the NDP took power in 2017, the speculation tax was imposed, mostly on absentee owners. But they held off on a specific flipping tax. Municipal leaders wanted one, but then-finance minister Carole James told the Times Colonist in 2018 it wouldn’t have encouraged owners to put units up for long-term rentals, a key goal of the speculation tax.
In the 2021 federal election campaign, the Liberals promised an anti-flipping tax, and followed through with capital gains tax changes that now apply to principal residence sales after short-term ownership.
(That campaign briefly featured a federal Liberal candidate who had sold dozens of properties in quick turnovers and made a fortune in the flipping racket.)
When David Eby announced his run to succeed outgoing premier John Horgan in 2022, he committed the party to a flipping tax to chase speculators out of the market. The promise is essentially what is being enacted today; a new surtax (20 per cent) on profits from sales of properties held for less than two years. It reduces over that time frame and includes exemptions for life changes such as job loss, divorce or death.
In provincial politics, it should be one of the easiest new taxes to establish because it’s aimed at a group everybody hates — greedy speculators who make fortunes and drive housing prices up for everyone.
But it has taken more than a year to get the point where it is ready to enact (the legislation is pending). And it may well be a few years late.
Flipping windfalls only happen when housing prices are surging, and interest rate hikes have curbed prices lately. Prices are holding or dropping slightly. Very modest rises are forecast in the medium term. There’s not much money to be made in flipping, except in specific circumstances.
So the flipping fire truck will be arriving in January 2025, but the blaze looks to be under control.
If a flipping tax had been in place seven or eight years ago, the government would have made a quick fortune at the outset and the tax would likely have sharply curbed the practice.
Premier David Eby and Housing Minister Ravi Kahlon held another news conference Monday to highlight the upcoming tax. Eby said he’d be happy to see it make zero dollars, as long as it curbs the practice. His wish may come close to true.
Housing analysts say only a small fraction of owners sell before two years at the best of times and the market trends work against the practice.
BC United housing critic Karin Kirkpatrick said it is primarily a political show rather than a measure to effectively lower prices. “It looks like there might be about 400 units a year that would have this tax imposed … which is negligible.”
She said it will be hard to administer since length of ownership will have to be calculated on all sales and case by case determinations have to be made on applications for exemptions.
It will still be good to have on the books, as a warning to flippers. It could have an effect when the next spiral starts.
But even Eby and Kahlon are emphasizing that it is only one small part in their multi-pronged attack.
— The chief economist of the British Columbia Real Estate Association says the incoming provincial flipping tax could end up reducing the overall number of homes on the market while only applying to a small number of properties.
Brendon Ogmundson said the new law may not generate the kind of overall revenue the government is predicting — in part because it runs the risk of discouraging people from putting their homes on the market, resulting in lost property transfer taxes.
“I think that the cost of this policy, and the unintended consequences of it on the supply side of things, are more trouble than it’s worth in terms of its effect on affordability, which is very minimal,” he said.
As of Jan. 1, 2025, homes in British Columbia sold within the first year after being purchased will face a tax rate of 20 per cent of the profit, while that tax rate drops gradually to zero after two years.
Ogmundson said about 10 per cent of real estate transactions in Metro Vancouver take place within two years of a purchase, and many of those would qualify under a long list of exemptions including divorce or job relocation. He said would-be sellers who don’t qualify for an exemption but are near the end of the two-year window may be tempted to wait it out.
“It’s a very real risk that because of the way this policy is written, how it discourages potential listings, that you could end up with prices higher than they would have been otherwise,” he said.
The provincial budget estimates the tax will generate $43 million in its first full fiscal year, but the association predicts B.C. could lose out on $20 million in property transfer taxes as people put off their sales.
Ogmundson said there will likely be additional costs related to administering the various exemptions.
Premier David Eby told a news conference Monday that the flipping tax, announced in last week’s budget, is “not a silver bullet” and is only one of a series of actions the government is taking related to housing.
He said anything the government can do to reduce the number of people competing for housing in the market is welcome.
“It’s not going to work for everybody, but it’s going to work for some people, and it’s going to restrict speculators and investors from competing with families for a place to live,” he said.
“We actually want the revenue from this tax to be zero. We just don’t want people to be flipping homes in this way.”
The premier announced the idea of a flipping tax last year and Finance Minister Katrine Conroy released details of the pledge in last week’s budget speech.