On July 25 British Columbia took a step into the unknown. The government introduced a bill to impose a 15 per cent additional tax on sales of residential property — but only within Metro Vancouver, and only “where the transferee or purchaser is a foreign national, as well as certain corporations or trusts that involve foreign nationals.”
In calling a rare summer meeting of the Legislature to approve this measure, the BC Liberal government was responding to rising public anxiety around the housing market. One-year price increases for detached homes were approaching 50 per cent in parts of Metro Vancouver. The Liberals had linked this price inflation to a shortage of housing supply; this site predicted in March 2016 that they would not take dramatic action to restrain demand. The opposition New Democrats called this special legislative session “the flip-flop session.”
The government turned aside the opposition’s amendment proposals, and the bill passed in its original form on July 28, after three brief days of debate. Liberals, New Democrats and the sole Independent member, Vicki Huntingdon of Delta, all voted in favour. Nineteen of 85 members were absent, including Andrew Weaver of the Green Party.
The record of the voting, the text of the bill and a transcription of the debate are available on the Legislative Assembly website. Some notes:
- The bill has four outcomes. First, it replaces real estate industry self-regulation with regulation by a government supervisor. Second, it enables the City of Vancouver to set up its own tax on vacant residential properties. Third, it loads a a new 15 per cent provincial tax on to foreign purchases of residential property, on top of the existing 1 to 3 per cent property transfer tax. This money is payable to the Province at the time of purchase. And fourth, revenues from the new tax will go into a new “Housing Priority Initiatives Account.”
- Finance Minister Mike de Jong introduced the bill and managed it through committee. He said the 15 per cent tax rate is identical to foreign investment tax rates in Hong Kong and Singapore. He declined to make any predictions on how much money will flow in.
In debate, New Democrat housing critic David Eby expressed some of the same skepticism that was shown in the results of an opinion poll released in the same week. The Angus Reid poll showed 90 per cent support for the new tax among respondents, but also a high expectation that foreign buyers would find their way around the tax.
Eby noted that foreign investors can still speculate in real estate assets through Canadian agents. “If a Canadian sets up a company that is 100 percent financed with foreign capital and buys up residential housing in Metro Vancouver, that person is exempt from the tax.”
- The New Democrats proposed, unsuccessfully, that any municipality should be able to collect a vacancy tax, and not just Vancouver. That concept got a high level of support in the Reid poll. They also proposed, unsuccessfully, that foreign nationals with work permits should be exempt from the tax, arguing that people who are providing value to employers should not be treated as offshore speculators.
- The government has kept one foot on the housing supply side with the creation of the new housing account, although its priorities are unclear. Minister’s de Jong said the account “has the authority to fund operating expenditures, capital investments, loans and loan guarantees related to the supply of housing and rental housing or other shelter access and support programs and initiatives.”
The implementation of the tax on August 2 triggered a turnaround in media coverage of the real estate issue. Prior to July 27, a typical story would feature a young couple in distress over the cost of housing. After August 2, reports focused on the “unfairness” of the tax for foreign buyers, and on reports that foreign and domestic customers have backed away from the B.C. real estate market.
Some observers suggest it will take three months or more to determine how the tax is going to influence the market, and to see how much money it can generate for the government’s housing account.