While the B.C. government may have been hoping appeal to a public exasperated by unaffordable housing with its housing plan announced last week, some brokers say the measures will do little to improve the situation.
B.C. Finance Minister Carole James unveiled a 30-point Homes for B.C. plan as part of the province’s latest budget. Some of the key measures include:
- Raising the foreign buyers tax to 20% from 15% and expanding the geographic area it covers
- A “speculation tax” on B.C. non-resident owners of residential property
- Increasing the property transfer tax and school tax rate on homes valued over $3 million
- Promising to crack down on condo pre-sales and real estate owned by numbered companies
- Investing $6 billion over 1 -years towards affordable housing projects
- Ending the interest-free loans to first-time homebuyers
But some key figures in the mortgage industry see the measures as having little impact on improving affordability.
“Not in any meaningful way,” said Nick Douce, Vice President and Managing Broker of Paragon Mortgage Group.
He noted that the international community was invited to the province during Expo ’86 and again for the 2010 Olympics, and that investors liked what they saw.
“In combination with global events over the last 10 years, they decided that this was a good place to bring in capital, predicating an ‘asset re-evaluation’ in real estate of all types, and thus aligning our prices with other major global destinations,” he said. “Canadians are having to adjust to this reality and governments can do little to alter that.”
Concerning the increase to the foreign buyers tax and its expanded geographic area, Douce said that will only serve to push investment to neighbouring markets, driving up prices in other regions and resulting in no net gain on affordability. “The budget also leaves farm and commercial properties exempt, which are other areas that foreign buyers look to,” he said.
Others were more blunt.
“All totally ineffective, for obvious reasons,” said Dustan Woodhouse, a DLC Mortgage Experts broker based outside of Coquitlam, B.C.
“First off, the foreign buyers tax increase is not going to do anything about lowering home prices. It feeds into the public misconception—that has largely been built out by mainstream media—that this imbalance in prices and incomes is a reflection of foreign buyers, when we have the stats that show foreign buyers represent a very small part of the market,” he said. “Foreign investors are not putting their money into Canadian real estate because they want a return on their capital. They’re putting it into Canadian real estate because they’re counting on a return of their capital.”
Woodhouse suggested that if the provincial government was truly concerned about laundered or “dirty” money entering the real estate market from foreign investors, rather than taking a 20% cut of it in the form of a tax, a more effective measure would be limiting investors to one property. Such a rule would be easy to track and enforce, Woodhouse says, given the comprehensive land title registry in Canada.
Secondly, Woodhouse says the B.C. government has effectively told Americans and Canadians from other provinces that their investment in second/recreational houses in the province is no longer welcome.
The “speculation tax” introduced by the government will rise to 2% by 2019, and be applied to the assessed value of homes whose owners don’t pay taxes in the province and who leave the homes empty for most of the year. It will impact properties throughout the Lower Mainland, Victoria, Nanaimo and Kelowna.
Data from the Okanagan Real Estate Board shows Albertans made up 10.2% of buyers in that region last year.
“We basically just said all that Alberta oil money, all that revenue, don’t come here. Go somewhere else,” Woodhouse said.
Paul Taylor, President and CEO of Mortgage Professionals Canada, said there were a couple of encouraging items in the plan, such as the 114,000 affordable housing units promised over the next 10 years. Although he admits that number still falls short of what is ultimately needed: around 20,000 to 25,000 new units annually in the Greater Vancouver Area alone.
“I don’t think that will make a tremendous difference, but it’s encouraging to see supply acknowledged as the most significant part of the problem,” he said.
He added that the initiatives to end hidden ownership will help bring transparency to the homebuying process, but echoed Woodhouse’s comments about the relative impact of foreign buyers. “The data collected so far on foreign buyers suggests they aren’t really impacting the marketplace to the degree that everyone thinks,” he said, citing two recent reports that pegged foreign ownership at 2.4% and 4.8%, respectively.
Given the short-sightedness of the measures, Woodhouse said it’s clear there was no industry consultation. “The government does not ask anyone in the industry for any input on this stuff, they just make these changes and then find out what the unintended consequences will be the hard way. These are some big steps, and they’re concerning.”
Had they consulted industry professionals, Woodhouse says the government would have been told that the key issue driving B.C. home prices sky high is not foreign investors, and not necessarily a supply problem, but rather a “delivery of supply” problem. He said new condo projects can now take up to seven years to come to completion—three years of which he says is consumed by government red tape.
“Until the government starts actually addressing how to deliver supply, the situation is not going to get any better, it’s only going to get worse.”
All eyes will now be on today’s federal budget to see what, if any, new national housing measures may be added to the mix.