It’s been a year since British Columbia’s 15 per cent surtax on foreign homebuyers in Metro Vancouver took effect. The measure came into effect on Aug. 2, 2016, as the government of then-Liberal Premier Christy Clark pledged to tackle the city’s affordability crisis ahead of the 2017 provincial election.
Fast-forward to today and you’ll find a different provincial government, a slew of additional housing measures and proposals, and, reportedly, fewer foreign buyers in Vancouver.
Home prices, though, barely budged.
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Little impact on affordability
Indeed, the benchmark price of a home in Metro Vancouver stood at $998,700 in June, up nearly 8 per cent since the same month in 2016 and nearly 2 per cent since May.
Though prices dipped for a while after the introduction of the tax, they started bouncing back in early 2017. For those who couldn’t afford a home in 2016, they never came within reach.
The tax had “zero impact” on affordability, said Elton Ash, regional executive vice-president at RE/MAX of Western Canada.
The way he sees it, all the tax accomplished was to “get people confused and mixed up.”
Economists generally offer a more positive view of the tax, noting that it helped cool off the housing market – albeit temporarily.
“There is little doubt that it slowed things down,” said Benjamin Reitzes of BMO Capital Markets.
The impact might have been more psychological than material, but it was real, he noted.
Well-heeled foreign homebuyers – the ones who can snap-up multi-million dollar homes with cash purchases – are entirely capable of shouldering a 15 per cent tax, said Reitzes.
However, the introduction of the tax created some uncertainty, and these investors may have pushed the pause button on their Vancouver home purchases for a while.
But the measure had “at least as big an impact if not a bigger one” on domestic home buyers, said Reitzes.
Even though it didn’t affect them, the measure telegraphed the message that the government was now ready to take steps to rein in housing activity. As a result, many B.C. residents adopted a wait-and-see attitude.
But that only lasted a few months.
Prices were back on the rise in the spring, with the condo market, in particular, heating up. The benchmark price of an apartment in Greater Vancouver now stands at $600,700, a whopping 17.6 per cent above year-ago levels.
Domestic homebuyers appear to have given up on trying to purchase a detached house (benchmark price: $1,587,900) and are now piling into the condo market, said Reitzes.
Bidding wars have become common for townhouses and apartments, the Canada Mortgage and Housing Corporation (CMHC) noted in a recent report.
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What Canada can learn from Vancouver
What are the lessons Canadians can draw from Vancouver’s foreign homebuyers tax experiment, then?
- Housing taxes can have spillover effects. Shortly after Vancouver’s foreign homebuyers tax came into effect, prices in Toronto started skyrocketing. The city recorded a 33 per cent year-over-year price increase in March, which likely prompted Ontario to adopt its own version of the tax in April. It’s hard to say whether the price spike was the result of foreign real estate investors taking their money from Vancouver to Toronto, since data indicates the latter has a smaller presence of non-resident homebuyers, said Reitzes. But it seems clear that Vancouver’s tax did have the effect of boosting demand in Toronto, he added.
- Housing affordability is a “tough nut to crack.” That’s how Reitzes puts it. Although a tax on foreign buyers slowed down housing activity for a while, it didn’t do much for residents who couldn’t afford to buy a home. The solution, according to Ash, is to for the municipal government to speed up housing permits, so builders can add a much needed supply of new homes. The provincial and federal government should also chip in with tax incentives aimed at boosting the supply of affordable housing, he added. But addressing the housing crisis from the supply side isn’t a cure-all either. “The vast majority of new supply coming online is nowhere near what anyone would consider affordable,” Eric Swanson, of Generation Squeeze, an advocacy group for young Canadians, recently wrote in a Vancouver Sun op-ed.
- Maybe we need a whole new approach to housing. Swanson argues that making housing affordable in places like Vancouver requires a “wholesale rethink of how we tax housing wealth.” The B.C. government and the federal government should team up to devise a taxing strategy that takes from the housing “haves,” who have enjoyed record wealth gains, and helps the housing have-nots buy their first home. “Windfall real estate profits and affordability are mutually exclusive, whether the person making the windfall is a foreign investor or mom and dad.”