Stewart Beck is president and CEO of the Asia Pacific Foundation of Canada.
Moving day in West Vancouver – after two years of leasing and realizing the market wasn't going to plateau, we bought a home in North Vancouver. Our soon to be old "hood" is busy: Down the street, a home is being demolished, the third in the two years we've lived here. The dump trucks and the construction are an aggravation but you can rationalize this with the employment generated by the new builds. However, the two houses already built have been empty since their construction was finished. Not the best for the neighbourhood.
Vancouver's real estate market has captured the attention of the world. Thanks to The Globe and Mail and The Wall Street Journal, among other media, everyone knows that the value of the city's real estate has grown at an unrealistic and unaffordable rate. Local residents are being crowded out, both geographically and financially.
And, no matter who you are and how you describe it, the out-of-proportion escalation in the cost of real estate is being blamed on the movement of Chinese money, legal and/or illegal (those who are politically correct use the term "foreign investors") into the Vancouver and Toronto markets.
The staggering growth in China's middle class, the current Chinese political environment, the Chinese investor's penchant to speculate, and Vancouver's reputation as among the most liveable cities in the world have contributed to these rising prices. Something needed to be done and Premier Christy Clark's announcement Monday of a 15-per-cent tax on non-Canadians buying residential real estate was one way to deal with this politically volatile issue.
The new tax will likely achieve what it sets out to do. It should cool the market and reduce the discriminatory effects of foreign investment. Foreign speculators will be given a framework in which to operate, and will pay their fair share to the province's treasury. Meanwhile, legitimate investors will build the new costs into their decision models. The tax is likely to help keep home ownership within the realm of possibility for middle-class families living in Metro Vancouver. This will level the playing field for citizens, creating a more balanced environment between citizen and foreign buyers.
This announcement has been a long time coming. The reality of a self-regulated market is that foreign speculators are going to use the regulatory framework to their advantage. It is not up to foreign governments to control how their citizens invest; rather, it is the responsibility of Canadian leaders.
The new tax is unlikely to come as a surprise to the Chinese government or Chinese investors. Indeed, China's consul-general in Vancouver addressed the matter last year, saying that B.C. regulators, not Chinese investors, should be blamed for rising prices. She suggested a number of policy options, including improved oversight of the real estate development community and a luxury tax on overseas investors. Essentially, she was saying that if we provide the environment for speculators from Mainland China or other countries to operate, they will do so.
No one likes tax increases, though, and an argument can be made that a 15-per-cent tax will create a disincentive to investment. However, with an election looming next year, a policy that has the potential to improve the domestic political environment will be welcomed.
That said, the new tax will only be effective if it's properly enforced. The province will need to ensure that foreign investors are not using resident family and friends to bypass the tax, and will need to verify that buyers are truthfully disclosing their citizenship. If the government can address these concerns, and work out the wrinkles along the way, then this new policy will succeed in its mission.
By addressing the issue directly and creating a fair playing field, the province will also cool the rhetoric around Chinese investment and economic relations, paving the way for closer economic ties in the future, backed by public opinion unaffected by a real estate dilemma.