Tax-based policies intended to ease British Columbia’s housing crisis will generate significant new revenue for the provincial government while having little effect on home prices, according to a new report that says B.C. should instead address regulatory barriers to creating more housing supply.
Report author James Tansey, executive director of the Centre for Social Innovation and Impact Investing and an associate professor at the University of B.C.’s Sauder School of Business, said the government’s own projections suggest increases in the property-transfer and foreign-buyers taxes, and the new taxes on vacant and expensive homes, will not reduce housing prices.
“If you look at the foreign-buyers tax, which has been raised to 20 per cent [from 5 per cent], if that policy was expected to be effective, the assumption is that [government] would have reduced their revenue over the next three years,” Dr. Tansey said of the projections. “Instead, it grows by 21 per cent [by 2021].”
The property-transfer tax, which has been increased to 5 per cent on homes that cost more than $3-million, is projected to generate $81-million each year from 2018 to 2021. The taxes on empty homes and homes assessed at more than $3-million, meanwhile, are expected to bring in about $200-million each annually.
The report says the government “appears to view housing stock as the asset base for raising revenue for social programmes including affordable and social housing, by taxing the value tied up in private property.”
A different approach to reducing the cost of housing would be to focus on supply by removing regulatory barriers to creating more housing stock, the report says. This includes increasing the pace of rezoning and permitting, and reducing development fees to allow higher-density housing in areas dominated by single-family homes.
The report cites a C.D. Howe study that suggested regulations can add up to $600,000 to the cost of a new detached home in the Metro Vancouver region.
“If you imagine reducing those costs by half, or a quarter, you’re taking $300,000 to $400,000 off the cost of a new home,” Dr. Tansey said.
Premier John Horgan defended the housing-related taxes, but said his government is also working on increasing housing stock.
“We are working with municipalities to streamline decision-making,” he told reporters in Victoria on Thursday. “We are working with not-for-profits through what we call our Housing Hub … to get more supply brought into the market as quickly as possible.”
The Premier said revenues from the taxes are “going right back into building more housing,” but that will take some time.
“The challenges didn’t arrive in July, 2017,” he said. “They were building over a number of years, and it is going to take us some time to delicately manage the free market in this instance.”
Some British Columbians say the taxes target them unfairly. Last weekend, homeowners packed a gymnasium on Vancouver’s west side to voice concerns about the tax on luxury homes, which will create new tiers of the school tax paid on properties assessed at more than $3-million and $4-million.
Those who have seen property values soar on homes bought decades ago are suddenly on the hook for thousands of dollars more per year, which some – such as seniors on fixed incomes – say they cannot afford.
(Supporters note such owners can defer paying the tax and that they or their heirs would still come out ahead financially if and when the property is sold and the deferred taxes came due.)
And in March, the B.C. government tweaked its so-called speculation tax on vacant properties after outcry from British Columbians with vacation homes in the province and communities that rely on part-time residents.
With a report from Justine Hunter in Victoria