The province's decision to charge a steep 15 per cent property transfer tax when foreigners buy Metro Vancouver homes may help cool the region's "bubbly and overpriced" housing market, one B.C. economist says.
Jock Finlayson, executive vice-president of the Business Council of B.C., said it should have "some effect in dampening the demand" for real estate, particularly the single-family houses that have shot up much faster in price than townhomes and condos.
He said there's some evidence the housing market is cooling already and that cooling may accelerate after the extra tax kicks in Aug. 2 on purchases by foreign nationals or companies they control.
He also noted the province's decision to apply the new tax only in Metro, at least for now, could shift the foreign appetite for B.C. real estate to neighbouring regions.
"It may in fact lead to greater foreign demand for housing in areas like the Fraser Valley, Squamish, Greater Victoria and the central Okanagan," Finlayson said.
Finance Minister Mike de Jong indicated the new tax could be extended to other parts of B.C. if needed.
Finlayson said he hopes the province uses the revenue, which will go into a Housing Priority Initiatives Fund, mainly to assist renters, who face steeply rising rents in some urban areas.
That should be a priority, he said, because home ownership, particularly detached house ownership, is "just not going to be the future" for many area residents.
Delta Mayor Lois Jackson said she hopes the new tax helps cool the market by deterring foreign purchases.
"We have to slow the market down somehow," she said. "People who work here can't keep up with the cost and we're putting all of these young people totally out of the market."
But Canadian Taxpayers Federation B.C. director Jordan Bateman suggested the 15 per cent tax – $300,000 on a $2-million house – may be viewed by foreign investors as merely a cost of doing business.
"If you're spending 10, 15 or 20 per cent over asking, what's 15 per cent going to do? It's not going to discourage you."
Bateman said the province must also close a long-standing loophole that allows the shares of a real estate holding company to be sold to new owners without triggering any property transfer tax because the registered owner – the company – didn't change.
He called the province's move a reversal.
"There is nothing more popular than a tax on somebody else," Bateman observed.
Applying a tax on foreign buyers is a one-time cost on purchase.
The province has not yet pursued more aggressive options to block or deter foreign buying.
Australia has also seen strong investment flows from China and restricts foreign buyers to purchasing new homes only, not participating in the resale market.
West Vancouver Mayor Mike Smith in late July proposed allowing municipalities to charge an additional property tax on homes that are not principal residences owned by Canadian citizens.
That would have the effect of extracting more tax for the local city every year from foreign owners, as well as vacation home owners and investors.
The province recently released new data showing 5.1 per cent of homes sold in Metro Vancouver in three weeks of June went to foreign nationals, mostly from China.
Economists such as Finlayson and Central 1 Credit Union's Helmut Pastrick both say more can be done to increase the supply of housing units in the market, through speedier municipal approvals.
But both also acknowledged that more rapid redevelopment and densification of single-family neighbourhoods would result in even fewer detached houses available, likely widening the price gap between multifamily units and detached houses.
Finlayson also suggested parts of the Agricultural Land Reserve that have never been productively farmed could be opened up to development.
White Rock Mayor Wayne Baldwin said while foreign buyers may be having some effect on house prices in his city, he's more concerned at the potential for loss of existing rental apartment buildings if developers seek to turn them into condos.
Real estate board critical
The Real Estate Board of Greater Vancouver said the new foreign buyers tax "needlessly injects uncertainty into the market" because of the province's decision to impose it with eight days notice and no industry consultation.
"Government has had a long time to take action on the affordability issue, yet they decide to bring this new tax in over a long weekend, with no notice, and no time to prepare," said board president Dan Morrison. "To minimize short-term volatility in the market, we’re calling on government to exempt real estate transactions that are in the process of closing from this new tax."