The next few months will almost certainly test the resolve of Christy Clark's government.
Numbers released last week showed the dramatic impact her 15-per-cent foreign surtax on real estate transactions is having; the total value of purchases by foreigners dropped to $17-million for the month of August – down from $2.1-billion from the previous six weeks.
Some economists are already talking about equity declines of 20 per cent, with the prospect of further price erosion on the horizon.
This is precisely the worrisome phenomenon Ms. Clark cited when she was defending her government's inaction on the housing file; she didn't want to introduce policy that might cause people to lose equity in their most important asset. She had an epiphany, however, when polls indicated her re-election chances were being severely compromised by the widespread public outrage incited by the outlandish rise in house prices, and the role foreigners were playing in it.
It was a move by the Premier that appears to have paid off handsomely. Her latest approval numbers jumped seven points since the foreign real estate charge was introduced. This goes to show that not all new taxes are non-starters for politicians about to hit the campaign trail.
I would urge Premier Clark to hold strong against the inevitable pressure and backlash these post-foreign-surtax real estate figures are going to create. That this coercion will come from the real estate industry is a given. That some economists will issue dire warnings of economic doom is also a fact.
But Ms. Clark needs to remember that the tax is having precisely the effect she, and a broader public, hoped it would.
If prices have come down by 20 per cent, I have lost a few hundred thousand dollars on my home. This does not make me upset. Because I think of all the young families out there who have dreamed of owning a home and who now might be able to imagine for real. A 20-per-cent drop in prices would allow thousands of young Canadian families back in the market.
Even if declines hit 30 per cent, which I doubt they will, most homeowners in Metro Vancouver who have seen the values of their abodes rise dramatically in the past five years are still going to be in good shape in terms of the appreciation of their most prized asset. And we also know that real estate prices, long term, are not going to continue going down; they will rise again, as they always do.
Also, we need to remind ourselves that the focus on this foreign-tax debate has been around single-family dwellings. Meantime, thousands of condos are being built in Metro Vancouver every year and there has been zero impact on their sales. Presales of many of these buildings are sold out within hours.
The biggest losers in terms of the impact the foreign sales tax is having could be, ironically enough, the government itself. Real estate transactions have become a huge cash cow for Ms. Clark's government, bringing in billions from the land-transfer tax. It has allowed her to funnel that money toward housing initiatives, among other areas. It has put her government on an enviable financial footing, especially heading into an election in the spring.
Also, the lull we have seen in housing activity since Aug. 2, the day the foreign tax became operational, may be temporary, perhaps partly driven by the stall in real estate activity we see every summer. We know, too, that many deals that might have closed in August were rushed to close before the tax was in place.
There is some speculation that foreigners, many from mainland China, have been put off by the tax and are upset by the broader dialogue that has been taking place in Vancouver about their presence in the marketplace. But that hasn't stopped Chinese investors from continuing to put their money into other cities and countries that have introduced a similar tax, such as Australia.
My guess is that there will continue to be offshore investment from China in the Vancouver real estate market because of the heavily Asian influence of the city and surrounding environs. Simply put, the Chinese feel comfortable here and consequently will continue to buy property here.
If the pace of those acquisitions slows, and the rapid rise in prices flattens off or descends as a result of government action, this can only be a good thing. And Ms. Clark knows this. That is why she continues to smile as others suggest her tax is killing the market.