Last month, British Columbia’s new NDP government announced a pair of new tax legislations that were to be implemented in hopes of ‘cooling’ the red-hot real estate markets in both Vancouver and Victoria. The first one was a raising of the foreign buyers’ tax from 15 to 20%, where any non-resident buyer will pay the province a 20% tax on top of the listing value. The second measure, a speculation tax, takes effect this fall and will apply to foreign and domestic investors who don’t pay income tax in the province, starting at 0.5% of the property’s assessed value in 2018 and rising to 2% for following years.
Our online real estate lead generation system has been quite successful for new realtors entering the business, and the vast majority of them have quickly become very knowledgable about real estate in Canada. Those on the West Coast will almost certainly agree that affordable housing concerns are legitimate, but that ‘meddling’ with market economics typically isn’t the way to affect widespread, positive, and long-standing change in any economic sphere.
It’s important for realtors to be vocal about concerns they have about this trend in the Province. It certainly isn’t ‘PC’ to do so right now, but the fact of the matter is that these measures forecast to be largely ineffective for controlling the cost of real estate for BC. Furthermore, and perhaps more troubling, is that they actually also look as though they’ll be punishing certain homeowners who made smart, timely investments in real estate during years previous.
One Side of the Coin
No one will argue the fact that real estate speculation and the many spinoffs – absentee ownership for one – that go along with it are a huge problem in Vancouver. Housing is a human necessity and one that’s by and large been accessible for Canadians for well over a hundred years. However, we’re not just at the beginning of a global economy, we’re at the beginning of a global world and foreign ownership of real estate and an especially moveable global population is the norm now.
Will these taxes work to make housing more affordable for Vancouver residents? Yes, but not to the extent that people envision, and likely only in the short term. First of all, you must keep in mind that a very considerable amount of real estate investment (including speculation) is domestic in nature – meaning its Canadians who are investing in Vancouver real estate, and yes, many of them don’t live in homes in Vancouver. To think that the majority of real estate speculation and absentee ownership is coming from abroad isn’t incorrect, but it’s barely a majority.
These taxes won’t be impeding domestic buyers in the slightest. Yes, if someone from Halifax wants to buy a home here and leave it vacant they’ll have to pay yet another tax for absentee ownership, but they’re perfectly free to do that and the value of the property long term may make it a reasonable cost of doing business or investing.
Factor in the most basic of supply and demand economics and the effectiveness of these new tax measures looks even less promising. There are ever greater numbers of people – both immigrant and Canadian – who are aiming to move to the Lower Mainland. The supply will never meet the demand (or it’s extremely unlikely given the expansion / building / zoning constraints that are unique to Vancouver) and thus homes that are decidedly affordable for an investor will almost certainly increase in value exponentially in a short period of time – making any ‘tax’ on the property something that can be swallowed given the profit margins forecasted in future resale.
It quite simply is what it is. Vancouver’s not unique in this regard big picture; look at London, Sydney, even San Francisco down the coast. Real estate in globally popular locations is ALWAYS going to be super pricey now. The train’s left the station.
The Other Side
So now we need to look at it from the perspective of buyers who bought homes during the ‘peak’ period of some 7 to 10 years ago. Like most smart people, they worked hard and saved to be able to buy homes and then bought them with the aim of having that house, condo, or whatever it may be being both a home AND an investment in their future.
You know, like the same way it’s been being done for decades and generations now.
And again, most of these buyers bought at the time armed with the knowledge that Vancouver’s housing market is increasingly hot every year and they could leverage those market dynamics in their favour for future well being. Particularly appealing for a young family, most notably.
You know, like the same way it’s been being done for decades and generations now…
If you look at it critically, it’s very hard to make a lot of sense of the NDP government’s decision to pander to voters and introduce these taxes as sort of a placation move to appease certain people while
- Being just as aware as all of the economists and real estate industry experts that these measures will be largely ineffective in the big picture / long term, and
- Making it so that homeowners who were judicious and willing to do what it took to buy a home years ago stand to lose on the value of their home when bringing it to market
Keep in mind that no previous generation of young, first-time homebuyers has ever been presented with such a tangible and summarily-imposed impediment to realizing the value of the home they’ve invested in. That’s a fact.
If we’re going to live in a global world and enjoy all the benefits that come with that, we also need to accept the realities that come along with it as well. Real estate in Vancouver, Toronto, L.A., San Francisco and elsewhere is going to continue to be out of reach for most people living on the North American continent, and the factors that make that so are NOT going to be negated by a handful of property tax moves design to placate disgruntled voters.
Remove one set of buyers from the picture (if at all really, however) and you’ll have new unimpeded group set to take up the vacancy left by them. Real Estate investment in Vancouver and elsewhere in Canada has changed forever, and these measures are both misdirected and indirectly punitive to existing homeowners. Particularly first-time homebuyers who’ve worked hard to be where they’re at. It’s wrong to put these people in a disadvantageous situation just because a certain portion of the resident demographic in a city isn’t in a position to adapt to new global realities particularly well.
And again, that’s really what this is – a new global reality.
Realtors, like everyone else, shouldn’t hesitate to speak to their local representation regarding this matter. A house should be a home, but they’re ALWAYS going to be investments as well and reactionary, knee-jerk moves are never helpful.
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