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One of B.C.'s most lucrative sources of revenue, the property transfer tax, is showing signs of weakening just as the province prepares its pre-election budget, reports Justine Hunter

Condo towers are shrouded in dense fog in downtown Vancouver. B.C.’s finances have been supported by skyrocketing real estate prices – and the associated property transfer tax – but there are signs the windfall may not last.

B.C. Premier Christy Clark promises the budget her government will introduce on Tuesday will include a financial gift to the province's taxpayers.

Her Liberal government is expected to introduce its fifth consecutive surplus and, with an election just three months away, this is a budget plan aimed at giving voters something to cheer about.

The province is flush with cash, having consistently collected more revenue than it has spent on its citizens for the past four years. But a large part of that happy circumstance is a result of the real estate frenzy that has emerged as a huge force in the British Columbia economy.

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Some of the higher-than-forecast income to the province is coming from rising corporate and personal income taxes, but a significant share was paid by people who bought real estate over the past five years in a superheated market.

The property transfer tax alone is set to net the provincial treasury $2-billion in the fiscal year that is just ending.

"I think government should find ways, when we are running a surplus, to give some of that money back to you," she said to appreciative applause from well-heeled supporters at a packed party fundraiser Tuesday night. "It is your money."

But that steadily rising revenue stream appears to have crested. Finance Minister Mike de Jong must now meet expectations of an everything-to-everyone budget just as his cash cow is ready to take a little rest.

In that ballroom with 850 party donors, Ms. Clark had no trouble selling the notion that taxpayers are entitled to a reward for suffering through years of austerity measures to eliminate the provincial deficit.

Having raised expectations for tax cuts, the Premier is counting on her Finance Minister to find the money – on top of promised spending increases for health, education, housing and social services.

Mr. de Jong knows he cannot count on a repeat of the projected $2.2-billion surplus that the government enjoyed in the 2016-17 fiscal year. It is not just the property transfer tax revenue that is poised to decline, but all the associated economic activity, from construction to finance, that will likely cool.

The B.C. Real Estate Association says the province's housing market has tumbled from record highs posted in 2016. It is not a collapse, but a return to historic, long-term averages.

It all looked so much nicer last fall. In September, Mr. de Jong held his regular quarterly financial update for reporters, where he revealed that revenue from the property transfer tax for the year was $1-billion above the budget forecast.

It brought to light a remarkable shift in the provincial economy: British Columbia is set to haul in more tax revenue from the real estate industry in the current year than the combined direct revenues from the province's historical economic foundation of mining, energy, forestry, Crown-land tenures and natural gas.

Working from those figures, the Business Council of B.C. calculated that the real estate sector – including construction, renovations and other spinoffs – accounted for 35 to 40 per cent of the province's economic activity.

"It has played a big role in B.C.'s growth story," said Jock Finlayson, economist and chief policy officer for the Business Council. "It's not the only thing, but it has made an outsized contribution. And the government's stronger-than-expected revenues are due in part to the strength of the housing industry – which of course is now diminishing."

Since 2012, growth in the province's real estate sector outpaced the rest of the economy. Each year, it expanded at a rate of between four and six per cent, while the rest of the economy was averaging two-per-cent growth. It means the overall economic growth that B.C. has enjoyed has been pulled up by real estate.

But now that sector is diminishing – in part because the government was under pressure to tackle the rising cost of housing, so it moved to cool the market with a foreign buyers tax on property purchases.

On Friday, Central 1 Credit Union released its latest economic update for B.C., and the highlights offered little encouragement for Mr. de Jong. Home sales have edged down, and the average price of a home in B.C. in January of this year was 17 per cent lower than in January, 2016.

However, Central 1's senior economist, Bryan Yu, said it's not all bad news. The 15-per-cent foreign buyers tax did help temper the market in the Lower Mainland, but in other communities where the tax was not applied, sales are still strong.

"In terms of the cooling of real estate, 2016 was a blockbuster year and we are coming off of that," he said in an interview. "But overall sales levels will be high. It won't be as high as 2016, but we are still seeing higher prices in markets like Victoria and Kelowna."

Still, the finance ministry has downgraded its revenue expectations from its property transfer tax since last September. And in an interview last week, Mr. de Jong said he isn't counting on real estate to keep the books awash in black ink in the coming year.

"You have to be cautious about assuming that a $2-billion surplus will repeat itself year after year," he said.

"The landscape is littered with the carcasses of governments past and the deficits that they incurred because assumptions were made that a present set of circumstances would repeat in perpetuity."

His independent forecast council is predicting the economy to grow at a slower pace in the coming year, from 2.9 per cent in 2016, to 2.3 per cent in 2017.

"We are in a position where we can and we will look at the challenges our most disadvantaged citizens are facing," Mr. de Jong said, "and we are in a better position to address that, to try to make life a little easier for them."

It will be a trick for the opposition New Democrats to argue against making life a little easier for the needy. But NDP finance critic Carole James says that kind of assistance should not have been withheld until now.

"They have built their economic plan on a speculative real estate market," she said. Now, just when they plan to cash in, there is uncertainty – and a whole lot of needs to be met.

"This Premier has the approach that you starve the system for years, and then at election time, you put the money back in. It's a terrible approach. When you take it apart and then put it back together, it costs more than if you had supported the system all along," she said.

The New Democrats have not yet produced a simple campaign slogan that says tax cuts are a bad thing, but Ms. James says she doesn't think voters will accept this sudden desire to share the surplus.

Whether it is the lack of affordable housing or the chronic shortfalls in providing care for vulnerable children, citizens have felt the B.C. Liberals' budget squeeze for years, she said.

"Now, going into the election, the government says 'we are going to give it back.' I found that insulting."