BC's new 15% non-resident Property Transfer Tax another political fail

BC Government Stumbles Again with New Tax

The new residential Property Transfer Tax, which slaps an additional 15% fee on non-resident buyers, is yet another  misstep by the Clark administration. The idea is for the tax to limit foreign investment. In reality, it will fail to have any significant impact on foreign demand, meaning it can do nothing to improve affordability, but will instead end up hurting the innocent public in the process. This lame-duck legislation, which is intended only to affect Metro Vancouver real estate, once again demonstrates the provincial government’s inability (or unwillingness) to address the real root causes of BC’s housing affordability crisis, and their readiness to use the situation to enrich their own bottom line instead. I truly believe that this new tax is nothing more than a ruse to appease public concern over the problem of affordable housing, and to garner popularity prior to the next provincial election. Let me explain.

Recently, the provincial government released its own data showing that ONLY 5% of the residential property transactions in Metro Vancouver were purchased by foreign nationals, meaning that, by the government’s own admission, 95% of transactions would not be affected by the new tax. It’s important to realize, that 5% represents the full number of foreign national purchases counted prior to there being any effort to avoid the tax. It is very easy –– and perfectly legal –– for a non-resident purchaser to conduct a transaction under the name of a family member or business with resident status; it’s also plausible to assume some of that 5% will still make purchases despite the tax, therefore, post-implementation, we can expect the percentage of affected transactions to drop even lower than 5%.

The new tax is also supposed to help reduce Vancouver’s vacancy rates, another scapegoat touted as a significant contributor to skyrocketing prices. Yet, when we look at the recently released data, Vancouver’s vacancy rate of 7.2% is completely in-line with the overall average of Canadian metropolises which stands at 7%. Not only is there nothing unusual about Vancouver, but the vacancy of the city’s single-family homes, duplexes, and row houses specifically have remained static since 2002. The facts do not bear out the hype!

The government’s new measures are intended to make it look like they’re taking action to protect the public and address affordability, yet it’s nothing but smoke and mirrors. Take for example the numerous times over the last 10 years that REALTORS® have lobbied the government to make changes to the the Real Estate Services and Marketing Act in the interest of better protecting the public. Specifically, we asked for the power to charge stiffer fines and penalties for those agents contravening the act. Our requests were ignored; the government was apparently unconcerned. Now, when it’s politically advantageous for them to respond, suddenly they’re interested in doing something.

Another serious issue that causes me to question the government’s motives is the fact that when they rolled out this tax they failed to exempt current transactions on the books that have been confirmed (making them legally binding) but have not yet closed. I shudder to think of all the non-residents who did their due diligence and were approved for the purchase of their homes in Metro Vancouver according to all of the information available at the time, only to be slapped with a 15% tax that they didn’t budget for. Some serious questions have been raised about whether it is even ethical under NAFTA (North American Free Trade Agreement) and Canada’s Charter of Rights and Freedoms.

But this is not just tragic and enormously inconvenient for the non-resident Buyer. If they are put in a position to have to renege on their purchase due to a lack of necessary ready funds, causing them to lose their deposit in addition to their deal, it will also cause a disastrous chain of events for all contingent transactions. And most property sales are connected to contingent transactions. The effects could ripple out beyond the borders of Metro Vancouver and will end up punishing many innocent, law-abiding, tax paying citizens who did their legal due diligence and who may stand to face losing everything!! The effects are already being felt.

Writing in a provision to exempt current firm and binding contracts is a simple step the Clark administration could easily have taken, but they didn’t. This incredible oversight goes to show that they are not primarily motivated by a desire to protect the public.

I want to emphasize again, like I did in my critique of the similarly misguided response to the IAG report, that the two most important things that drive prices are SUPPLY and DEMAND. All that these new taxes will do is potentially curb minimal demand-- we’re talking about fewer than 5% of all residential transactions and only in the Metro Vancouver area. The law will not deter those non-resident purchasers who can take the legal steps to avoid the tax or those who can afford it. More importantly, the government has completely failed to address the lack of supply.

Nothing has been done to address the imbalance between our suppressed supply and our ever-increasing demand. Between 3,000-4,000 people move into the province every month and we simply don’t have places for them to go. There are a number of measures that could ease this problem in a meaningful way. For example, the government could release some land out of the ALR (Agricultural Land Reserve). Areas like Abbotsford, Chilliwack, and Langley are greatly restricted in the areas that they can develop because of the enormous tracts of land protected by the ALR. Also, they should create measures to fast-track construction permit approvals. Municipal offices are overwhelmed with permit applications and currently there aren’t any set deadlines for processing, meaning that they can take a prohibitively long time to process. There are plenty of other options the government could easily implement that could ease the pressure on prices, such as providing development incentives, improving transit to encourage the population to spread out, and increasing the density of existing residential areas. All of these measures would address the supply shortage, which is the central factor in our housing cost inflation. But no, all the Clark administration is capable of is tax, tax, tax! Can you see why I’m cynical?

Do you know anyone tragically impacted by these new measures? Tell us in the comments below!