Kelowna developers say that B.C.’s proposed speculation tax is already hitting their market hard and turning off the important Albertan recreational-property buyer. They’ve formed a coalition with other jurisdictions against the tax, claiming it will impact them far harder than it will those in the Lower Mainland, where speculation has had a direct effect on housing affordability.
The dampening effect, they say, is particularly grating because the Kelowna market was just starting to take off again after years of decline.
“It’s considered Kelowna is the epicentre of the fight against the speculation tax,” Kelowna Urban Development Institute chairman Kevin Edgecombe said.
“It’s because Kelowna has tons of people from Alberta who spend time here, and they bring huge tax revenue, but more importantly, they are also spending money in our community all year long – not just in the summer. We are very, very tourist-dependent, and we feel strongly that we have been unfairly pulled in to the Vancouver/Lower Mainland market. The developers in Vancouver, they don’t have the same level of disdain for this speculation tax that we do. They don’t like it, but they don’t think it will affect them like it’s affecting us. I know countless projects that have been either postponed or cancelled.”
The tax, which is expected to become law some time in October, applies to urban areas including Metro Vancouver, the Capital Regional District (excluding the Gulf Islands), Kelowna, West Kelowna, Nanaimo, Abbotsford, Chilliwack and Mission. It affects homeowners in those regions who leave their properties empty for six months of the year, but does not apply to homes valued at less than $400,000. On top of the usual property tax, the speculation-tax rate for British Columbians, if it applies, is 0.5 per cent of property value, while Canadians from other provinces will pay 1 per cent.
Kelowna industry representatives are feeling unfairly penalized because they say the Lower Mainland’s housing crisis doesn’t apply to them. Because the region is traditionally a Liberal stronghold, they’re feeling that, politically, their situation might be hopeless.
“That’s my renegade view,” said Mr. Edgecombe, who says he’s been working relentlessly on the issue. “We are falling on deaf ears in a lot of ways,” he said, although he also concedes “there is a good chance that we might see a compromise position taken by the government, and that would be a good thing.
“I believe this tax is a form of domestic piracy. That’s a bit bold of me, but frankly, you are penalizing fellow Canadians … and many are cash-poor and property-rich, because they bought 25 years ago a piece of land in Kelowna that has obviously grown in value. And in many cases, the tax will exceed their annual income if they are retired people.
“At the UDI, we don’t have any issue with a true speculation tax – if someone buys 10 units and sells nine of the contracts a week before a condo building finishes, we believe they should be taxed for that, because that’s true speculation.”
A website called Scrap the Speculation Tax includes a coalition of developers, chambers of commerce, real estate boards and home builders associations from Vancouver Island and the B.C. Interior. However, Kelowna stands out because a significant share of their market is people from Alberta, Saskatchewan and other provinces, by buyers attracted to the climate. Many of them keep vacation properties in the Kelowna region, and many ultimately retire there. Critics of the tax argue that long-term homeowners are not speculators. For example, the long-time owner of a secondary lakefront property now worth $2-million or $3-million is now looking at an annual tax that they hadn’t counted on when they purchased many years ago, which makes it more of a wealth tax than a speculation tax, they argue.
West Kelowna Mayor Doug Findlater wrote a letter to Premier John Horgan, asking his city be made exempt from the tax, citing concerns the 10-year-old municipality hasn’t got the tax reserves to cover infrastructure costs.
“The city relies on development cost charges and residential growth to keep our yearly property tax increase at an affordable level,” Mr. Findlater wrote in the letter, dated June 21.
Former Saskatchewan premier Brad Wall has also criticized the tax.
As a result of the tax, out-of-province buyers, developers say, are selling off their properties and new buyers are opting to buy elsewhere. A major luxury waterfront development such as McKinley Beach is directly affected, says Andrew Gaucher, vice-president of sales.
He says sales had already been declining since oil prices slumped and he’s still selling to Albertans who are purchasing to live in the homes. But it’s the buyers who were going to hold the homes as recreational properties until retiring down the road who have gone away.
“We’re probably off by at least 20 per cent for sales for the year.”
Justin O’Connor, president of the Canadian Home Builders' Association for the Central Okanagan, says buyers from the Lower Mainland help offset some of the Albertan loss; however, the Okanagan is in the unique position of being more dependent on tourism than other urban areas. Lower Mainland buyers account for about 20 per cent of the Kelowna market, he says. And while everybody is still busy, the effects of the tax will be felt in a couple of years.
“I have talked to prominent builders and the contracts they are signing now, going forward, are down over 30 per cent for single family residential, and that is a big part of their business. We are going to feel that,” said Mr. O’Connor, who is also senior vice-president of sales for Sotheby’s in Kelowna.
“It doesn’t make any sense at all, because our buyers are not speculating. The people they are hitting are people who bought here years ago and contribute to the economy. This tax isn’t getting the true speculators. It’s punitive – they are punishing Canadians.”
Because developer Randy Trapp has projects well outside the new taxation areas, he’s seeing an uptick in business from Albertans. Mr. Trapp has a townhouse resort community in B.C.’s Radium Hot Springs, near Banff, and another on Vancouver Island, in Parksville. Parksville and Qualicum were exempted from the tax shortly after it was announced, but Nanaimo-Lantzville still faces the tax because of increased property prices and a low rental-vacancy rate. He’s enjoying the benefit of buyers who are seeking locations where the tax does not apply.
“I will tell you, quite frankly, that a good portion of our new business this year is coming from people who were looking for a second home in areas like the Okanagan or the southern tip of Vancouver Island, and now they are looking in areas not subject to the tax,” said Mr. Trapp, president of Luxury Resorts West. “My only fear right now is I won’t be able to build them fast enough.”
Mr. Trapp says the tax needs a rethink, however. He says it would have been more effective to charge a hefty tax on homes held for short periods of time, thereby catching true speculators who are driving up prices.
Gail Temple is an Edmonton developer who spends half her time in Kelowna, where her company, Westcorp, is building a 33-storey tower. The residential tower was approved by city council the same day as the tax was announced. Ms. Temple, who is vice-president of operations, says the project sales were postponed until the spring because of the tax.
“Our information that came back was that people were not willing to step forward at that time,” she said. “It’s put a bad taste in everybody’s mouth.
“It’s hard for us to believe that it’s even happening, because we just don’t think it’s very democratic, and we also don’t think it’s going to provide affordable housing, if that’s the intention.
“What we’ve done right now with speculation tax, and with all the speculation around it, is we’ve essentially slowed things down.”
Brad Pelletier, senior vice-president of Wesbild Okanagan, says the massive, multiphase community of Predator Ridge, in Vernon, is feeling the impact of the tax even though it’s exempt from it. Since development started in 2000, it is more than a third of the way through the 2,100 homes it’s zoned for. Mr. Pelletier says 35 per cent of his market is from Albertans. Those buyers are now angry at B.C. and worried the tax could expand into Vernon, which has meant sales have dropped.
“We have always had lots of activity, and we didn’t even have a prospect or a deal out of Alberta until I would say June of this year – they just disappeared,” Mr. Pelletier said. “It’s still less than half the activity we would generate out of Alberta.
“It’s too bad. The impacts of the coast are so different than here, where we’ve really alienated our good friends and neighbours. This is not a matter of foreign investors.”
An additional 1 per cent on top of all the other carrying costs is significant, he says. That amount represents a “glorious” rental instead of having to own a place.
If they don’t win their battle to scrap the tax, Mr. Pelletier said his company will have to aggressively market the project as being outside the taxation area.
“We’ve gone through our fair of issues and this may be the biggest,” he says.
It’s not all doom and gloom, at least not for the presale market. It’s the presale market that has attracted a lot of speculation in Vancouver. Randy Shier, president of Mission Group, expects his new Brooklyn condo project in downtown Kelowna to do well. And he rarely sees people flipping his units, he says.
“We have over 4,000 registrants for 178 homes, so even though the market is down, we are going to do well there,” Mr. Shier said. “We start selling in early September. Right now, we are previewing. And many of our registrants – which was the same with our other [Kelowna] building Ella – many are from Vancouver.”
A lot of the upset over the tax is due to the fact that Kelowna’s enjoyed a rebound in sales in the past couple of years. Sales aren’t as low as they were three years ago, but they’ve definitely dropped since 2017, he notes. Mr. Shier also says it’s essentially a vacancy tax.
The number of active listings has increased by 36 per cent in the Okanagan while total sales year to date are down 19 per cent, he says. When the tax was announced, he says his Edmonton neighbours put their home on the market immediately and decided to buy in Arizona instead.
“Albertans, primarily, are saying, ‘I’m going to pull my money out. I’m done with B.C.’”