Vancouver BC is experiencing a housing frenzy that even homeowners want to end. Is a package of tax measures aimed at foreign buyers the solution? Read more…
In Vancouver, a Housing Frenzy That Even Owners Want to End
Facing a crisis of affordability, officials are trying to reduce real estate demand through a package of tax measures, some aimed at foreign buyers.
By Conor Dougherty
New York Times
June 2, 2018
Excerpts:
VANCOUVER, British Columbia — Between multimillion-dollar tear-downs, blocks full of backyard cottages and towering condominiums that are sold and resold several times before they are even built, there is no shortage of anecdotes about this city’s housing frenzy.
Here is a new one: Vancouver is so expensive that politicians want to tax its real estate market into submission, and many homeowners — who will lose money if home prices fall — think it’s the best idea they’ve heard in years.
“I would like to see a correction to sober up this whole place,” said Rob Welsh, a retired airplane mechanic who lives in a Vancouver suburb. Mr. Welsh bought his house in 2000 and has become a paper millionaire based on its appreciation. It makes him more anxious than happy. “If I got to lose 200 or 300 grand to keep the kids and the future of this place, so be it,” he said.
Two-thirds of Canadians own their homes, roughly the same share as in the United States. And Canadians, like Americans, expect to make money from the investment. Yet a number of polls, and interviews with homeowners like Mr. Welsh, suggest that Vancouverites are so shocked at the price levels that even homeowners want the market to cool.
Like many cities around the world, Vancouver is grappling with punishing housing costs that have pushed out large swaths of residents — and are causing distress among young adults who can’t afford rent today and take it for granted that they will never own a home.
Many places, in both Canada and the United States, have tried remedies to the squeeze: tenant protections, housing subsidies and steps to enable developers to build higher and faster so that more housing will come online. But few have gone as far as British Columbia.
Last year, in a provincial election almost entirely about housing costs, citizens voted out the center-right B.C. Liberal Party, which had run British Columbia for 16 years, and brought in a government led by the left-of-center B.C. New Democratic Party. Since then, the New Democrats have not only tried to increase the housing supply, but have also proposed a slew of measures that aim to curb housing demand and chase away overseas buyers.
The New Democrats raised British Columbia’s foreign-buyer tax to 20 percent of a home’s purchase price, from 15 percent. In addition, the party plans to impose higher property taxes on second homes, on families whose primary breadwinner’s earnings come from money abroad and on homes valued at more than 3 million Canadian dollars. Vancouver has passed a number of local measures, including a tax on empty homes.
“There’s no question that many of the measures we are bringing in are bold, but we felt they were critical if we were really going to address this crisis,” Carole James, British Columbia’s finance minister, said in an interview.
So far, people like what they see from the new government’s attempts to rein in the market: In an Angus Reid poll this year, large majorities of British Columbians supported the housing measures proposed by the New Democratic government.
“We have plenty of jobs, but you might need two or three of them to be able to afford a place to live,” said Andy Yan, director of the City Program at Simon Fraser.
The real estate industry contends that the issue is not an influx of [foreign buyers], who have been coming to Vancouver for decades, but zoning restrictions that prioritize low-density living, outside of a few high-rise areas.
Tom Davidoff, an economist at the University of British Columbia, says Vancouver is popular with foreign buyers, yes. But it also has strict zoning laws that reserve most of the city’s land for single-family homes, as well as high-income taxes but low property taxes of about a quarter of a percent of the property value.
While the new government’s housing measures are popular with many voters, richer homeowners are fuming. A recent stroll through Vancouver’s wealthier West Side turned up bright red signs protesting the tax on $3 million homes. A group of wealthy homeowners also petitioned to get Mr. Davidoff, the economist, fired. His sin: talking favorably about increased property taxes.
Comment:
How does a single-family home come to reach a price tag of $3 million? This is the result of land values soaring at the rate of 12 and 15 percent annually. Rather than chasing after a slew of measures that aim to curb housing demand and chase away overseas buyers, why not address the source of the problem directly? Professor Davidoff is essentially correct, property taxes are too low, but… not the tax on building assessments. Keep that low – it will help increase the affordable supply (if zoning changes release more sites for multi-family housing). Rather, change the property tax to a LAND VALUE TAX. The split-rate tax taxes land assessments at a high rate and building assessments at a low rate. That will help drive down the rate of land value inflation, the real driver of the affordability crisis.
