The NDP’s first budget in 18 years included a 30-point action plan to make housing more affordable, but the budget document itself seems to indicate even the government does not expect much movement on housing prices any time soon.
There is a new speculation tax on empty homes, a big boost on taxes on expensive (i.e. in excess of three million) homes, and higher taxes for foreign buyers.
The government is also planning to build thousands of social housing units and more student housing over the next few years.
But even with all this, the government still expects to make $100 million more on property transfer tax transactions in the coming year and another $22 million the following year, which suggest high prices will still be around for a while.
In addition, like the B.C. Liberals before them, the NDP government will rely on a strong housing market for huge revenues ($520 million from the new taxes over a full year, plus $2.2 billion from the transfer tax in the coming year).
In other words, it remains in the government’s financial interests for the housing market to remain red hot. Any noticeable decline could rob the budget of hundreds of millions of dollars of revenue.
Moreover, buried in a table in the budget that includes more than a dozen economic indicators lies this intriguing statistic: housing starts are forecast to decline almost 27 per cent in the coming year followed by a further reduction of six per cent the following year (that’s right: “decline”).
Even with the government’s significant investment in public housing, a decline in housing starts will not address the supply side of the house price equation. And much more supply is needed than simply government-built social housing.
All of which brings us to the idea of what, exactly, is meant by “affordability.”
Finance Minister Carole James says she hopes housing prices decline because of the measures she has introduced, telling reporters “we need to see a moderation.”
However, what constitutes “moderation”?
The average cost of a detached home in Metro Vancouver currently hovers around $1.7 million. A drop of, say, 25 per cent in prices (this would constitute a major downturn) would turn that home into a $1.3 million property. I am not sure that puts it any closer towards being affordable for most people.
A 25 per cent decline in condominium prices would have them average out to $500,000, still out of the reach of many people.
Even a 10 per cent reduction in the price of the average home in Metro Vancouver would still mean average prices would be around $1 million, a price tag that simply isn’t in the conversation for most people (particularly the Millennial generation and most Gen Xers).
This illustrates the tricky challenging facing James and the NDP. The party was elected because it championed the issue of affordability during last spring’s election, but delivering on that issue is going to be a challenge, at least when it comes to housing prices.
Of course, on the flip side, the NDP has to take care their package of housing measures do not cause a real, prolonged and steep decline in prices. The Bank of Canada has estimated that a 25 per cent price drop would put one-in-four homeowners in Metro Vancouver “underwater”, which means their property would be worth less than the mortgage they hold on it.
Such a scenario could lead to economic havoc, perhaps even causing a recession.
Aside from housing, James’ budget tackled the affordability issue in other areas: eventually eliminating MSP premiums, making childcare cheaper and easier to obtain, increasing seniors’ health care, and boosting social services.
All these measures will no doubt prove popular (and needed) for many people. However, all that is low-hanging fruit compared to the complex and challenging issue of housing affordability.
James is no doubt hoping her budget measures, over the next several years, will help bring housing prices down to a “sweet spot” – lower, but not catastrophically low.
In the meantime, however, it does not look like she thinks that is going to happen any time soon. Her own budget document seems to reflect that view.
Keith Baldrey is chief political reporter for Global BC. This is reprinted from his weekly column with Glacier Media.