The lights came back on in the B.C. legislature last week to reveal the government’s sudden decision to impose a 15 per cent tax on foreign property purchases in Metro Vancouver.
This came after months of government refusal to intervene in a heated urban market in ways that might devalue properties for people whose homes represent a large chunk of their life savings.
It remains to be seen whether this large wrench applied to the problem will cool the market, or trigger declining property values as similar efforts have done in other major cities. The extent of the ripple effect on B.C. communities outside Metro Vancouver is also something that will be closely watched.
Premier Christy Clark and Finance Minister Mike de Jong announced the tax with a week’s notice, leaving realtors and developers scrambling to close deals before thousands more in property transfer tax was imposed on foreign buyers.
This dramatic intervention was based on less than five weeks of information on the nationality of buyers. Early results showed foreign buyers represented five per cent of Metro Vancouver real estate sales. Another two weeks of data showed a spike to nearly 10 per cent, and suddenly the big wrench came out.
Housing Minister Rich Coleman acknowledged that the surprise tax left the real estate industry “taken aback and a bit grumpy.” They worried foreign buyers might back out of deals after sellers have bought another home. They also fear that the tax might pop the real estate bubble, causing a rapid reversal of the long sellers’ market that has taken on a life and a psychology of its own.
One thing is certain. The province’s windfall from the property transfer tax can only grow even further as foreign buyers pay up.
The size of this windfall was shown in the government’s audited public accounts for the 2015-16 fiscal year, which de Jong released just days before announcing the new real estate tax.
The property transfer tax has been a cash cow for the province since Bill Vander Zalm introduced it in the 1980s, and by 2015-16 it had reached about $1.5 billion. For comparison purposes, that’s almost twice as much as total provincial revenue from the forest industry.
The current B.C. budget had forecast that property transfer tax revenues would decline this year and next year. The public accounts showed that for 2015-16, the government took in $468 million more than expected, meaning real estate accounted for most of the provincial surplus.
How much more is raked in by the new transfer tax on foreign buyers remains to be seen, but it will be substantial. And Coleman allows that he has been developing “a really cool plan” to use that money to improve the housing situation for lower-income people.
A couple of weeks ago I described the clamour of urban protesters demanding that governments build thousands of units of social housing. Coleman has long rejected the idea of social housing projects that create clusters of poverty, and he assured me last week that isn’t going to change.
B.C. has 20,000 low-income households getting a rent subsidy today, and Coleman suggested that will be increasing. He’ll be announcing new measures in September to stimulate construction of new rental housing.
It remains to be seen how that will work as well. But it gives the B.C. government lots more money to spend in an election year.
This is the latest of a string of Clark’s election-year fixes. I’ll look at some others in a future column.