If he delivers as advertised, B.C. Finance Minister Mike de Jong's next budget will offer relief for the rapidly increasing cost of real estate – a consuming issue in communities from Vancouver to Kelowna.
Over the past week, politicians on both sides of the legislature have condemned "predatory practises" and "market manipulation" that may be driving the cost of a family home out of reach for new buyers.
But at the heart of the issue, the real estate market is shaped by laws of supply and demand. The federal, provincial and local governments can tinker at the margins, but there are limits to the influence each can wield.
The veteran finance minister has been pressed to adopt a wide variety of tactics in the budget he will introduce on Tuesday: Punish real estate speculators, discourage "dark" homes of absentee owners and reduce taxes – particularly for first-time home buyers. He's also been warned that some of the proposals would benefit the wrong parties, fix problems that really don't exist or make matters worse.
He must achieve a delicate balancing act: Changes engineered to allow more people to purchase a home will create more buyers. Without more supply, that is a recipe for sending prices higher still. Try to cool prices down, though, and existing homeowners will see their equity shrink.
The theme for the budget is "affordability," which includes more than just real estate. However, Mr. de Jong has made no secret that he intends to tackle the high cost of housing in urban centres – especially Metro Vancouver.
The Globe and Mail examines some of the levers available to him.
DARRYL DYCK/For The Globe and Mail
After months of talking about possible measures to help first-time home buyers get into the market, Finance Minister Mike de Jong recently modified his message: You can't increase demand, he cautioned, without ensuring more supply.
An example of the challenge: In a bid to cool the superheated real estate markets in Toronto and Vancouver, the federal government announced changes late in 2015 to make it harder for first-time home buyers to get a mortgage. The changes were expected to prompt a flood of buyers racing into the market to beat the new rules, but the Canadian Real Estate Association noted the futility of tackling the problem from only one side. "An increasingly short supply of listings in Vancouver and Toronto blunted the impact of changes to mortgage regulations announced in December that were aimed at cooling these housing markets," the association's president Pauline Aunger noted in a statement.
On Friday, Premier Christy Clark sketched out what was billed as the single biggest affordable-housing investment in the province's history – a five-year plan to build 2,000 new units around the province at a cost of $355-million. The budget will include $50-million for the coming fiscal year.
Peter Hall, a professor of urban studies at Simon Fraser University, said such investments are needed to address increasingly unaffordable communities.
"This is a really good start, even though the housing needs – a decades-long backlog – are much greater than this," he said. "I hope the details confirm that the province appreciates that the housing-affordability crisis is not just the extremes of vacant west-side homes and homeless shelters."
But the province has also insisted that local governments must shoulder much of the blame for stifling development and limiting supply.
The recent Throne Speech vowed to force municipalities to disclose "hidden" costs, saying local governments are adding tens of thousands of dollars to the cost of a new home.
The approach is supported by the construction industry, and the Fraser Institute has added fuel to the debate with a report last July that found Metro Vancouver municipalities can take up to 18 months on average to approve housing projects while compliance costs can reach as high as $40,000 per home. Reducing the regulatory burden on builders, they suggest, would provide an incentive to build more housing, and would get new housing stock into the market more quickly.
Prof. Hall said the pressure on local governments could prove counterproductive, and said the province would do better to stick with incentives rather than threats. "This is a much better approach."
With its international charm and relatively low property taxes, combined with economic turmoil in other economic jurisdictions, Vancouver's real estate market is a lure for investors who have no plans to live and work here, says real estate economist Tom Davidoff says.
"Vancouver has a target on its back as a place where homes are traded as pure speculative investment," he said. "We have this giant, gold-embossed invitation to please come here, park a bag of cash in a house and leave it vacant."
Most notably in Vancouver and West Vancouver, there is now a push to ensure every house is a home. The concern – although based mostly on anecdotal evidence – is that a growing number of houses are being bought for speculation or secondary residences by foreign investors, exacerbating the tight supply of homes on the market.
The "dark" home issue has been around to varying degrees for decades but Prof. Davidoff of the University of B.C.'s Sauder School of Business says it has taken off in the past year. He is part of a team of academics who have presented Finance Minister Mike de Jong with a possible solution to the empty-house question.
More than 50 economists have now signed off on the proposal for a property-tax surcharge of 1.5 per cent. It would exempt homeowners who live in the property and pay income taxes in British Columbia, and provide incentives to rent the property if the owner doesn't want to live there.
Jurisdictions that choose to adopt the tax could return the revenue as a rebate to homeowners who do live in the community. The tax would encourage investors to at least add to the rental stock. And the province would be able to collect the data to determine, finally, just how much of an issue vacancy really is.
"Everybody knows this is an issue; it's just a question of how big or small it is. [The proposal] is a tremendous win for taxpayers, for affordability and for gathering information," Prof. Davidoff said.
But the province has not flagged this issue as a priority, and it is possible that the only action in the coming budget will be an initiative to collect more data about foreign ownership.
The simplest solution would be to restore a requirement to file a citizenship statement with the land title registry. The obligation was repealed by the NDP government in 1998 in the name of cutting red tape.
The outrage over housing prices in the Vancouver area – and the fact that many people in the region simply will never be able to afford to buy a home – seemed to crystallize one weekend last May.
The Twitter hashtag #DontHave1Million began trending and hundreds of people, many millennials who still find themselves outside the housing market, gathered at an event downtown. Condo marketer Bob Rennie – one of the biggest supporters of Premier Christy Clark's leadership and election campaigns – floated the idea of a tax on real estate speculators who flip properties within six months. And Vancouver Mayor Gregor Robertson soon echoed Mr. Rennie – one of his biggest financial backers – in demanding the provincial government implement luxury and speculation taxes to chill the city's real estate market.
Since then, the province has rejected such taxes, arguing they could reduce prices – and, with them, the equity many British Columbians have built up over the years.
David Ley, a geography professor at the University of British Columbia who studies housing bubbles, said Singapore's 16-per-cent tax on homeowners who sell within the first year of buying has helped – along with other restrictions on foreign buyers – to stop the spiralling speculation in the top end of that market. That effect, in turn, leads to a trickle down in affordability for all buyers, he said.
"The story here is taxes can indeed cool off the market. What you need to do, obviously, is get the right calibration. You don't want to overtax and kill the market," Prof. Ley said.
A flipping tax would need to be incremental in terms of how quickly the flip occurs, he said, "so the faster the flip, the bigger the tax." The profits of such a tax could be used by the municipalities to put into an affordable-housing fund to build new units, he added.
David Eby, MLA for Vancouver's pricey Point Grey riding and the housing critic for the Opposition NDP, said it's difficult to know how long the average speculator takes to flip a property, because neither the real estate industry nor the provincial government will release such data.
"The data out there is very difficult to access and only selectively available and we need to change that," Mr. Eby said. "They simply refuse to provide the data."
He said his party is calling for an inquiry because "there are so many different factors that could be driving this market and so many different policy responses."
Median prices for a detached home sold last November on Vancouver's west side hit $3.1-million and $1.31-million on the city's east side, according to the latest data from the Real Estate Board of Greater Vancouver.
Prof. Ley said setting a luxury tax on those properties above $2-million could cool down Vancouver's west side, where many believe speculators have displaced long-term residents to the city's cheaper east side.
"Anecdotal evidence I have suggests that is happening, but I don't know if investment is also occurring [on the east side]," Prof. Ley said.
Such a tax might slow the eastward flow of residents while the revenue could be used to fund affordable housing, he added. Still, only a comprehensive set of policy measures are going to have any real effects on affordability in the region, he said.
"Our market is so extreme that I think policy makers have simply got to look outside the box," Prof. Ley said. "Incremental shifts are not going to satisfy people and are not going to have an effect."
When the controversial yet legal practice of "shadow flipping" came to light in a Globe and Mail investigation last weekend, the provincial government soon responded by saying that this type of activity is symptomatic of a "high-demand, low-supply market."
But by midweek, as public outcry mounted over agents flipping homes through reselling sales contracts before they closed, Premier Christy Clark was urging the Real Estate Council of B.C. to take action or else her government would step in.
"If they don't fix it, we're going to fix it for them," she told reporters. "And we'll do it in short order, because what is happening in the housing market in the Lower Mainland, and in a lot of communities, it's crazy."
The real estate council, a self-governing body that oversees real estate agents and brokerage firms, now has until April 15 to report back to Finance Minister Mike de Jong with the findings of its independent advisory group looking into the dubious practices of using contract assignments to flip properties.
It's difficult to estimate the effect of shadow flipping on affordability in the Vancouver area's housing market, said Joshua Gottlieb, a professor at the University of B.C.'s Sauder School of Business.
Many of the property flips are done through private deals – so the top prices the end buyers pay for homes aren't reflected in MLS data – which further distorts overall values. That also makes it next to impossible to determine just how common the practice is.
Because contract assignments happen before a property's title changes hands, which is what triggers the province's property-transfer tax, the provincial government could be losing out on hundreds of thousands of dollars that would normally be collected through the levy.
In British Columbia, buyers typically pay 1 per cent for the first $200,000 of a home's sale price and a further 2 per cent of the amount higher than that. That would add up to $48,000 on a $2.5-million sale, the average price for a single-family detached house sold within the City of Vancouver last November.
Still, Prof. Gottlieb said cracking down on shadow flipping would not solve the fundamental problem: "that it's hard to know the true value of a house and that the housing is unaffordable in much of the Lower Mainland."
If the provincial government eliminates the practice, the biggest benefit may lie in restoring the public faith that the industry is being regulated effectively, as Mr. de Jong told the real estate council in a letter last week.
"It is particularly important for regulators to be vigilant in the type of market conditions we are experiencing in certain areas of British Columbia right now," the letter said.
Finance Minister Mike de Jong sometimes can't resist the urge to take a shot at Bill Vander Zalm, referring to the unpopular Property Transfer Tax as "Mr. Vander Zalm's tax."
The former premier introduced it as a luxury-home tax in 1987, but it has been almost unchanged, and today there are few real estate transactions in British Columbia that are not swept up in that 30-year-old definition of luxury.
Cancel the tax and the province could instantly make real estate more affordable. The chances that the province would give up a revenue stream that will deliver more than $1.2-billion to its coffers this year are closer to none than slim.
The tax is, however, the most effective lever that the province can use to temper the high cost of housing, and it is likely going to be overhauled next Tuesday.
For the past six months, Mr. de Jong has mused about his options and has strongly hinted the tax will be restructured, with a higher rate applied to the most expensive homes and the additional revenue funnelled into lessening the burden for first-time home buyers and those in the market for less-expensive properties.
Currently, the tax is set at 1 per cent on the first $200,000 of the market value of a property and 2 per cent on the remainder. First-time home buyers can qualify for an exemption on properties valued at $475,000 or less.
The Canadian Home Builders' Association of B.C. says the tax should be scrapped but that, at the very least, a reduction is overdue.
"Housing affordability needs to be addressed and B.C. home buyers deserve this reduction in tax," CEO Neil Moody said. "It's the one thing the government can do to directly change and make the possibility of home ownership a closer reality for more families, by reducing the tax and increasing the threshold."
In its budget submission to the province, Mr. Moody's association argued that the tax is just out of touch.
"This structure is not congruent with British Columbia's escalating real estate market … and the current rate continues to severely affect housing affordability."
The challenge for government is defining what a luxury home is in 2016 dollars.
The benchmark price for a two-storey single family home in greater Vancouver in the first month of this year hit $1.4-million. In Victoria, that home cost an average of $600,000, according to statistics compiled by the Canadian Real Estate Association.