In tackling the crisis in the province's housing market, B.C.'s NDP government showed Tuesday that the most vexing of problems can sometimes have a silver lining.
In this case, the initiatives rolled out by the government to address a runaway real estate market also provide a not-insignificant source of revenue that, in turn, is being used to help fund other, more populist measures. And to help balance its books.
What impact the moves ultimately have on cooling the market, or bringing prices down, remains to be seen. But nothing in the budget is going to immediately make housing more affordable for the vast swath of prospective first-time home buyers looking to purchase anything in the province's major urban centres.
Almost certainly, the strategy outlined by Finance Minister Carole James in her government's first full budget since assuming power last spring will be criticized for not being radical enough. The government did not ban foreigners from buying property – something other jurisdictions have done with mixed results. And the New Democrats did nothing to stop developers from continuing to market their condominium projects offshore, at higher prices, and in the process shutting out locals from getting a foot in the housing door.
But they did move on an array of other fronts that will constitute a vast improvement over current realities, most of them tax measures aimed at thwarting offshore entities from parking money in the local housing market and driving up prices.
For instance, the government has introduced a speculation tax (effectively a tax on vacant homes owned by foreign buyers or anyone who doesn't pay income tax in B.C.) and also raised the foreign buyers' tax to 20 per cent, from 15 per cent, which will now be applied to urban areas outside of Metro Vancouver. It's also hiking a property-transfer tax on homes over $3-million.
Loopholes in current laws that allow foreign buyers to hide their identities through trusts will be closed and changes made to stop practices such as shadow flipping, where ownership of a property changes hands multiple times, at a higher and higher price each time, before it is finally registered with the province.
The government is also tapping into the new wealth that the precipitous rise in real estate prices has created for many, raising school taxes on homes assessed at more than $3-million.
In total, the tax measures are forecast to bring in $253-million this fiscal year, increasing to $521-million in each of the two years after. In other words, in trying to fix the housing problem in B.C., the NDP has come upon a remedy anticipated to provide nearly $1.3-billion in tax revenue over the next three years.
Funding it is going to depend on.
You would think that if a government was confident the tax instruments it was introducing to curb foreign investment were going to work, then the revenue derived from the measures would decline over time. Yet, budget documents indicate that the speculation tax, for instance, is estimated to bring in $87-million this year, and $200-million in each of the two that follow. When I asked Ms. James about this, she said it had something to do with an increase in housing starts. And yet, the budget documents show housing starts are expected to go down over the next couple of years, not go up.
Don't get me wrong. I applaud the NDP for what's it's done here – many of the moves are ones that should have been introduced by the previous government. But that Liberal regime didn't want to upset the development community which it counted on to donate generously to party coffers.
Which helped create the mess B.C. is in today.
So it took some political courage for the NDP to take on the housing file in a serious way. It took some courage for Ms. James to say, as she did, that she hoped the plan helped drive down housing prices – which will erode some of the equity gains people have seen over the past few years.
But I doubt we will see any dramatic changes. If the NDP's housing plan slows price growth to 1 per cent or 2 per cent annually, that would be a huge victory. If the plan helps eventually stop global gangsters from using the housing market to clean their dirty money, that, too, will be a huge win.
But the market, in many ways, is set. The new mileposts are established, ones that will continue to prompt many young people to leave the province for somewhere else.