So… slow news month, eh?
At least for the moment I’m going to steer clear of writing about terrorist attacks, police shootings, shootings targeting police, and the rise of Donald Drumpf. Suffice it to say I think these are all terrible things.
What about recent attention to housing issues in Vancouver?
As it happens, there’s been a lot of news there too. The BC Liberals* announced a surprise 15% property transfer tax bump for foreign buyers of residential properties, here defined as non-citizen, non-permanent residents. That’s a big deal, amounting to an extra $90,000 on a $600,000 condo, or an extra $300,000 on a $2 million house (and if those prices seem ridiculously high to you, welcome to Vancouver!) This right before they rolled out new data suggesting that about one in ten residential property purchases in Metro Vancouver are made by foreign buyers.
The Liberals were responding to a potentially powerful political issue and a lot of pressure regarding specific policy alternatives from academics, think-tanks, and their political rivals in the NDP. I’ve liked a lot of these policies, but I’ve questioned the xenophobia that often characterizes the sales pitch. So what to make of the BC Liberal response?
Well, they’ve gone their own way – never accept someone else’s proposal, I suppose – and in the process they’ve doubled down on the xenophobia, targeting foreigners directly (rather than, as some critics note, foreign money, though usually by way of suggesting they aren’t going to get all the foreign money). They’ve also gone for an immediate big bang in focusing on the property transfer tax, and imposing the change on August 3rd without exempting deals in process.
By contrast, the wind down approach implied by property tax adjustments would likely have been less disruptive. But in most versions it also would’ve meant requiring current residents to deal with new administrative requirements reporting their income taxes paid as a means of receiving property tax exemptions. (The basic idea involved a re-balancing of income taxes and property taxes so that everyone, including real estate investors, was contributing to supporting the government and you wouldn’t have to pay twice, both through income tax and property tax. But really our property taxes are quite low, so there is a lot of room there to play around!)
So what kind of disruptions are we in for? For the market as a whole, it’s hard to say. I think Tom Davidoff and David Ley are right, that this will cool down the market. Especially in conjunction with other moves to tighten control over real estate practices (for both realtors and banks) and enable municipalities to levy taxes on vacant homes as businesses. Will the market crash hard? That’s not clear. Nor is it clear just how easy it will be for foreign investors to get around regulations. For investors right here at home, of course, it’s pretty easy. But can they rely upon continuing to attract funds and buyers from elsewhere to pump up properties given the new regulatory landscape? I tend to doubt it. I think we’re in for a cooling market, which is probably a good thing for stability, but could potentially turn very cold very quickly.
What kind of disruptions are others in for? For immigrants in the middle of moving to Vancouver and closing a purchase, I’m actually pretty sympathetic. This is a big hit with little warning. It’s going to hurt a lot of immigrants who don’t yet have their permanent residency worked out. It may also hurt international recruiting for many positions, including with my own employer (Full Disclosure: I worked for a couple of years at UBC on a work permit before establishing permanent residency – and I can attest that this isn’t an uncommon situation). This is another trade-off in going with the property transfer tax instead of the property tax offset by income tax payments. It doesn’t matter if foreigners earn their money and pay taxes locally under the BC Liberals new policy, they’re still considered foreign with respect to penalizing their purchase of housing.
It’s also worth noting that many immigrants work in real estate, as realtors, investors, and through developing their own “sweat equity” as upgraders and flippers, and this is in part because they encounter real difficulties in other professions. They’re often invited as skilled laborers without being given a chance to demonstrate their skill. Real estate has been one sector where immigrants could potentially thrive because of their transnational connections rather than in spite of them.
It’s probably a good thing to shift more people away from work in the real estate sector in Vancouver, but it will definitely be disruptive, and often to people who haven’t yet made much (or any) money. To be clear, it may also be a good thing in the long run to impose a tax on residential purchases by those who have not yet made a commitment to Canada as a permanent resident or citizen. I can see good reasons for that. But in the short term, this is also a disruptive move, and too in-line with a broader turn toward xenophobia for my comfort.
Will this make housing more affordable? Maybe. But it depends upon the type of housing we’re talking about. By the standard of rental affordability, Vancouver isn’t doing great, but in comparative perspective, it’s also not doing disastrously. Hard to say what effects this will have on rentals. By the standard of being able to afford a decent condo, prices will probably come down a bit, which hits current owners, but helps new buyers – a group sorely in need of consolation. By the standards of being able to afford a single-family house on a middle-class income, I feel pretty comfortable predicting that we’re never going to be there again. Knock a million dollars off the price of most single-family houses on my side of town and they’re still going to be well out of reach. That’s not an immigrant question, that’s a land use question.
*-For non-locals, the BC Liberals are a centre-right party perhaps better generally described as neoliberal in ideology