B.C. Finance Minister Carole James says she hopes housing prices will be more affordable by next year as a result of her government's new tax measures, but she can't say if the changes will simply slow the rate of escalating prices, or actually reduce the value of homes.
British Columbia introduced a new property tax largely targeting out-of-province owners and increased its tax on foreign property buyers in an effort to address skyrocketing prices in parts of the province. The measures, which will apply to anyone from outside the province, including other Canadians, were part of a 30-point housing plan and are unprecedented in the country.
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"Prices may be lower than they are currently," she said on Wednesday. "I hope to see a moderation in the market. We need to make sure that people who work in communities can live in the communities that they work in, that their children go to school in."
Changes to B.C.'s real estate markets can have a significant impact on the province's overall economy, and economists are suggesting the changes will cause some uncertainty before the ultimate effect becomes clear.
The plan's new, higher and broader taxes on real estate are designed to curb speculation and slow the market. Once fully implemented, the measures will bring in more than half a billion dollars annually to the treasury.
The province is expanding the foreign-buyers tax to areas outside Metro Vancouver, and increasing the rate from 15 per cent to 20 per cent. Taxes on homes worth more than $3-million are climbing. As well, the new levy, which the government calls a speculation tax, will impose a fee on out-of-province owners who buy property here but do not claim any income in the province. Those owners may be exempted from the tax if they rent out their homes to long-term tenants.
The new tax is expected to apply to about 15,000 residential properties in Metro Vancouver, the Fraser Valley, the regions of Victoria and Nanaimo on Vancouver Island, and Kelowna in the province's interior. The annual tax rate, charged on a property's assessed value, will be 0.5 per cent in 2018, and then 2 per cent in the following years.
The sweeping package is unprecedented, and the details are still months away from completion, making it difficult to predict the impact.
"We're taking some bold steps," Ms. James told reporters. "We're the first province in Canada that is bringing in a speculation tax. … These are 'firsts' here, and we'll track it carefully."
Jock Finlayson of the Business Council of British Columbia estimates that the real estate sector has accounted for at least one-third of economic growth in the province over the past three years.
He said the new measures may slow sales of high-end homes. "But for the rest of the market, the picture is less clear. The fundamental drivers of housing demand – demographic growth, the job market and borrowing costs – have not changed, so there may be no effect on the larger market beyond a perhaps a few months of uncertainty and reduced transactions."
Andrey Pavlov, who specializes in real estate finance at Simon Fraser University, was part of a group of B.C. economists and business professors who jointly called in 2016 for a tax targeting speculators. But he said on Wednesday the B.C. government has only followed half of the prescription they recommended.
"This tax needs to be revenue neutral," he said in an interview. "They were meant to use the revenue to reduce taxes on the locals. Without that, this doesn't improve affordability."
Although the government housing package includes funds for social housing, Prof. Pavlov said it stops well short of the measures needed to improve the supply of housing.
"Prices may be lower a year from now, but people are facing higher taxes in this budget. So at the end of the day, I can't imagine many people are going to keep the same level of disposable income. Everyone is going to be poorer. The key is to increase income and keep the prices the same or lower at the same time."
Sébastien Lavoie, chief economist for Laurentian Bank Securities, said B.C. has made the most significant move in the country to date to tackle escalating housing costs.
"It's a very ambitious plan," he said. "Let's be honest, this is kind of an experiment."
He noted that B.C.'s foreign-buyers tax, introduced in 2016, was ripe for an increase because it was not high enough to thwart speculation. "Fifteen per cent was just the cost of doing business, because the expectation has been that prices would escalate faster."
It's not clear what impact the foreign-buyers tax had on the housing market, although prices in Vancouver, which had been climbing steadily for years, appeared to level off and even decrease after the tax was announced. Prices for detached homes have largely returned to where they were before the tax.
Mr. Lavoie said the risk is that the measures introduced this week by B.C., combined with the the federal government's steps to tighten mortgage requirements, could result in a notable decline in prices that would hurt homeowners who are already in the market.
"It could be a very tough year in the housing market in B.C."