By now, I’m sure you’ve read the headlines about #BCBudget2018, so I won’t go to pains to explain what the newly announced taxes are, but I will say that the more time I have to absorb the news and consider the implication of these clumsy, poorly thought out measures, the more I feel the need to rant. Here we go.
First, the “speculation tax,” actually a new, extra, annual, provincial property tax on property owners who don’t reside in the property they own. What? It’s good optics for the NDP to appear to be doing something to curb real estate speculation since most people believe speculation is causing prices to rise, however, a true speculation tax would be better designed to hit actual speculators. Case in point: anyone flipping a property within a short period of time won’t face a heavy tax burden from the new “speculation tax,” right? Conversely, someone who holds a property for years will pay tens of thousands, year after year - but that person doesn’t strike me as a speculator. What about those who speculate on pre-construction condo assignments? They’re selling agreements, not property, so …? The budget announcement suggested the government intends to put measures in place to track pre-construction projects, but it’s a hard market to track, with vast amounts of time between initial deals, contract flips, and property titles being registered. The bottom line? I’m not against the idea of implementing taxation to curb property speculation, however, this tax misses the mark big time, and many Canadians and British Columbians with second homes here will be unfairly affected.
Further on that point: it’s no surprise to be told that left-of-centre governments tend to favour progressive taxation, where higher earners are taxed at a higher rate. But what surprises me is seeing this government make the leap from taxing citizens’ incomes to taxing their equity and property assets. British Columbians didn’t sign on to having their provincial government expropriate funds from their privately held assets. Or to having the provincial government force them to rent out their private assets through measures like this as if those private assets were public housing stock. The finance minister suggests that there will be a tax credit in place to lessen the burden on BC residents - details are scant at this point - and she hasn’t indicated that anyone would be exempt on a second home used part-time, like a cottage, or small pied-à-terre in another city. Residents who have worked hard enough and made the sacrifices to enjoy the use of a second personal property have surely already been taxed through the income they earned - and are we forgetting that they’re already paying annual taxes on both of those properties?
Secondly, the expanded Foreign Buyer Tax. Expanding the FBT outside of Vancouver simply isn’t supported by the numbers we have at hand. We haven’t seen vast sums of foreign capital driving up the market in Victoria; in fact, VREB’s figures suggest that about three quarters of the market activity here is just amongst locals, with only around three percent selling to buyers who reside outside of Canada. In Vancouver, the reported numbers are higher, but still, the initial introduction of the tax had little effect aside from a brief stall in the market while everyone took their foot off the gas for a moment to see what was going to happen, followed by a rapid return to rising prices.
Questionable foreign money does seem to be a serious issue in the lower mainland, which is a large enough market to consistently skew province-wide figures. There is no shortage of anecdotal chatter amongst Vancouver real estate industry folk, and a number of more prominent voices stating publicly that it’s a bigger problem than the statistics produced by the real estate industry or various levels of government suggest. The excellent report recently released by Transparency International Canada (read it here) about the various anonymous models of property ownership available to speculators and foreign purchasers is, frankly, eye opening. I’d bet most people have no idea. To that end, a much more meaningful move would be for the government to start pursuing enhanced disclosure around property ownership. The problem with this, of course, is that it costs money up front, rather than generating new tax revenues. Ugh, sounds like work. The real light about all of this goes on when one considers that all this new taxation announced in the budget is expected to raise $5.5B more for government coffers - which should neatly cover the $5.2B in new spending that was announced in the budget.
And the cherry on top? The finance minister’s own admission that the government specifically designed these measures to push down the real estate market, a statement that in itself suggests that the government is willing to risk putting thousands of homeowners underwater on their properties, owing more money than they’re even worth. Even more appalling, that the government openly admits that it didn’t thoroughly consider or predict at the impacts these manipulations would have on the housing market before putting them in to place. That is beyond irresponsible.
I’m already turning a few of the points from this rant into a strongly worded letter to the finance minister expressing just how galled I am at their short-sighted, tax-and-spend approach, opportunistically targeted at real estate as it’s an eye-catching source of news headlines. I encourage you to do the same. Not to be forgotten: real estate and construction are among the largest contributors to BC’s economy as a whole. I hope for my clients’ sake and yours that all the worst case scenarios I imagine don’t unfold as we deal with the as-yet unforeseen consequences of Budget 2018. Stay tuned.
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