Decisive action on housing market long overdue
About six months ago, I received a call from a polling firm which was clearly working for the BC Liberals. The caller asked a number of very specific questions, and one was what issues I was most concerned about.
The first thing I mentioned was the high cost of housing, and how soaring real estate prices have a devastating effect on people who are not in the marketplace. That includes people who want to buy, people moving into the area from elsewhere and renters. At that time, the provincial government had done absolutely nothing on that particular file, and in fact was all but asking investors to bring their money to B.C. and keep the real estate boom going.
Not long after that call, The Globe and Mail published several crucial stories about what was actually happening in the real estate market. One was about how many realtors were involved in contract assignment, where some houses on Vancouver's west side and in Richmond actually sold for far more than what the sellers received. These realtors were making additional commissions, but the property purchase tax was being assessed on the original selling price, and the sellers were being stiffed by the realtors who were supposedly there to help them get their best price. The province was also being deprived of tax revenue, and sellers were being lied to.
Another story was on New Coast Realty, and its owner, Ze Yu Wu. Some New Coast realtors had been mentioned in the first story on contract assignment. New Coast was regularly sending flyers into my neighbourhood trolling for potential sellers, a practice which seems to have stopped in the past few weeks.
Wu did not have an agent's or realtor's licence, but he was telling salespeople how to conduct their business. That prompted a quick response from the Real Estate Council, which said that practice must stop.
The two Globe stories and many other media reports prompted the striking of a independent advisory panel, and Premier Christy Clark not only agreed with its recommendations, but went one further on June 29 and took away the Real Estate Council's ability to self-regulate the industry. It had done very little about any of the shady practices reported, and fines for misbehaviour were minimal, especially when compared to the ever-fatter commissions realtors receive as prices soar.
The real estate boards, which are private corporations living primarily on fat revenues from the Multiple Listing Service (which they own), would not even acknowledge to complainants if any disciplinary actions may or may not have been taken against their members.
I want to point out that the vast majority of realtors are honest and ethical people. However, when there are fat profits to be made, greedy people will try to get their mitts on some money, and a number of those people have managed to get into real estate. They have made money, and at the same time, blackened the industry and, by association, many decent and honourable people.
Clark's decisive actions on the task force report should have foreshadowed what came down Monday, July 25 - a 15 percent property purchase tax to be applied to all foreign buyers of residential property in the Lower Mainland, including trusts and corporations. This will go into effect on Aug. 2.
This is long overdue. A drastic cooling off of the market is necessary, and a tax of this size (the province will bring in legislation that could allow it to go as high as 20 per cent) will be noticed by those from other countries who want to park their money in a jurisdiction they see as safe.
Unlike a proposal from academics that a new tax be levied based on income tax returns, this is a tax the province can implement swiftly, because it is totally within its jurisdiction.
Last week, the province revealed a much higher budget surplus for 2015-16, mainly due to much higher returns from the property purchase tax. It has now pledged to set aside $75 million from that windfall for affordable housing - a drop in the bucket.
What it could also do is to take a close look at what's happening in places like Burnaby, where affordable rental apartments in the Metrotown area are being bought up, demolished and replaced by high-rise condos that are unaffordable for most people. It has jurisdiction over municipalities. Burnaby's blind eye to the development industry's desire to tear down affordable housing needs to be looked at more carefully.
Instead of setting a paltry amount aside for new affordable housing, provincial action to keep existing affordable housing in place would be of far more value. By the way, the owners of these rental apartment blocks make very comfortable returns. My son rented two separate apartments in that area up until 2013, and the rents were not cheap.
Much more will come out on the province's housing actions. The NDP, particularly housing critic David Eby (who has been very effective), will poke holes in anything the province does.
The bottom line is this: If there is not some fairly quick relief for people who've been dramatically affected by skyrocketing prices, the BC Liberals could suffer some significant losses in next May's provincial election. They could even lose the election.
Update: I was asked on the Facebook post relating to this post if this tax will apply to foreign citizens who are relocating to Vancouver for work purposes. This is my response to that.
I've checked the press release for further details. This is what it says about the 15 per cent property purchase tax: "Effective Aug. 2, 2016, foreign nationals, taxable trustees and foreign-controlled corporations registering their purchase of residential property in Metro Vancouver will pay an additional 15% tax on the residential component of the foreign interest in a property." The press release also promises that the province will be looking closely for tax cheaters: "The amendments include anti-avoidance rules designed to capture transactions that are specifically structured to avoid the tax. For example, a transferee who would otherwise be taxable cannot hide behind a local trustee. The legislation is structured to look through Canadian trustees to beneficiaries of the trust as an anti-avoidance mechanism. If the trustee is foreign, the transaction is taxable even if the beneficiaries are not foreign." Buyers will have to record their social insurance number on the property transfer tax return form. The press release seems to indicate that anyone who is not a Canadian citizen, even if they have a SIN, will pay the additional tax.
In addition, at present this tax will only apply within thew bounds of Metro Vancouver, so it does not apply to Abbotsford, Mission or Chilliwack, or to Vancouver Island. The legislation will give the government the power to boost the property purchase tax in other areas if it deems it necessary to do so. The whole aim of the legislation seems to be to reduce demand by foreigners for residential real estate. Note it does not apply to Whistler, where many Americans like to buy vacation property. It will apply to American citizens who buy condos in downtown Vancouver, though.
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