The new speculation and vacancy tax strikes one more blow
As expected, the B.C. government forged ahead with its speculation and vacancy tax, which took effect on January 1. This politically controversial yet publicly supported levy will penalize foreigners who don’t pay income taxes and leave a home empty for more than six months of the year with a 2-percent tax on the property’s assessed value. After some blowback, the government lowered that rate to 0.5 percent for Canadian citizens and permanent residents.
In late November, Finance Minister Carole James took to social media to announce the passing of the tax. “This is an important step forward that will curb foreign ownership, tackle speculation and return empty homes to the housing market for British Columbians to actually live in,” James said. “The last government looked the other way as the housing crisis spiralled out of control and an entire generation was priced out of the housing market. Today marks a change in direction.”
The NDP’s effort to drive home prices down is unconventional, given that governments typically aim to raise prices because they’re hooked on the associated tax revenue. That makes it all the more fascinating and perhaps highlights the fragile state not just of B.C. but much of the world. As the rich-poor divide grows, the rise of populism is spawning radical leaders and government policies, from Donald Trump to foreign buyer taxes.
The B.C. move also comes at a time when the province’s property market has already slowed to a crawl. Residential sales through the first 10 months of 2018 fell 22.8 percent year-over-year, the British Columbia Real Estate Association reports, while dollar volumes slipped by 22.1 percent, to $49.7 billion. To put that in context, sales on a per-adult basis dropped to 2.59 percent in the third quarter of 2018, according to New Westminster–based Landcor Data Corp., 23 percent below the longterm average.
Tighter lending—thanks to a federally regulated mortgage stress test and higher interest rates—has much to do with the slowdown. But it looks like foreign buyers have pulled back, too. Last January through October, they accounted for $2.2 billion worth of residential home purchases, B.C. land transfer figures show, a 28.5-percent plunge from the same period in 2017.
Foreign buyers could retreat further with the debut of the speculation and vacancy tax, plus provincial measures to stem tax-free profits from the presale condo market by launching a mandatory registry to track property flippers.
The desire to rein in an out-of-control property market is understandable, but it will come with major fallout. The economic boom that B.C. has been enjoying largely flows from housing construction.
As a share of total B.C. employment, construction sat at a near-record 27 percent of provincial GDP at the end of 2017, estimates Ben Rabidoux, president of Ontario-based research firm North Cove Advisors. Meanwhile, much of the province’s recent population and wage growth has come from the building sector, which created 71 percent of all new jobs that year.
At the risk of speculating, B.C.’s property and labour markets will face serious headwinds in 2019.