On Monday, July 26, 2016, B.C Premier, Christy Clark, announced legislation to introduce a 15 per cent tax on foreigners purchasing residential real estate in metro Vancouver. The move comes in the wake of foreign buyers being tied to the skyrocketing prices in the Vancouver area, with the average price of a home coming in at almost $1 million as of June 2016.
Although, on the surface it is good to see something (anything!) being done about the issue of this runaway housing market, the tax’s effectiveness is questionable. What it does not do is distinguish between three important foreign buyer groups; those looking to stash their money in Vancouver simply as a safe haven from their home government, those looking for legitimate investments in Vancouver real estate, and those looking to the Vancouver area for immigration to become a contributing citizen to the local economy. This distinction is important because those looking to stash their money should be the main focus of any real estate investment measures the government takes, tax or otherwise.
For the wealthy looking for a flight to safety for their money in Vancouver real estate, a 15 per cent tax will likely do little to cool their appetite where homes have been known to sell for up to $1 million over asking. For these same investors looking to avoid the tax, it seems that could be fairly easily skirted by asking friends or family to purchase the property in their name.
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For those foreigners eyeing the Vancouver area for immigration as opposed to buying for investment purposes, it could very well be enough to spread the real estate spending to the outskirts of Vancouver, the Victoria area or even out of B.C entirely. But time will tell, which begs the question; how many of these foreign buyers are staying in the country and earning their income here, how many are buying properties for legitimate investment purposes, and how many are looking for a flight to safety? Or is that what the “working group” set up by the three levels of government is intent on figuring out?
Regardless of whether this tax is effective or not, the move to implement it is a highly political issue. Premier, Christy Clark, (who is facing an election in under a year) had been under fire for her government’s inaction thus far on the issue of housing affordability. The proposed legislation (to take effect August 2nd) could be motivated by increasing public pressure to act, when in the past they have been reluctant to make any moves discouraging foreign investment. Implementing this tax allows them to save political face, by saying that they took action to address the issue. Had the provincial government remained inactive on housing, the political implications due to public opinion could have been insurmountable for Clark.
Clark’s tax regulation also buys her more time. If it proves to be ineffective at stemming the tide of foreign buyers, then the government could look to implement more robust measures like those taken by other governments. Australia for example, has taken measures to tax foreign buyers at both the federal and state levels, as well as limiting foreign buyers to newly constructed homes and condos. Switzerland took things a step further and assigned quotas for each region of the country as to how many properties can be sold to foreign buyers. In an example much closer to home, the Province of Prince Edward Island has imposed strict limitations on land acquisitions by non-residents for years.
It would be fair to assume that the BC government does not feel that these measures are a final solution, but a step that needed to be made before more drastic measures are taken. It seems that until now, both provincial and federal governments have been using the “wait and see” strategy, however this is one that has come at the expense of average Canadians, which over the course of two years have been fairly abruptly priced out of their own cities.
When Premier Clark said “owning a home should be accessible to middle-class families”, she is absolutely right. However the problem is that for middle class families, owning a home has become very out of reach in the Vancouver area, and this new tax won’t make affordability any easier for average, middle-class Canadians. It might be too late to save Vancouver from lack of affordability, but it is not too late to stop the flames from growing even hotter.
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Chris is an editor and writer for Welcome Mat. He is based out of Moncton, New Brunswick, Canada.