Sticker shock city: Vancouver fights property speculation with sales tax
- Jun 7, 2016 | Gail Cole
It’s getting harder and harder to find affordable housing in and around Vancouver, B.C. Could a luxury sales tax or a special tax on flipping homes rein in the skyrocketing real estate market?
In May 2015, Vancouver City Mayor Gregor Robertson sent a letter to B.C. Premier Christy Clark asking the government to impose a higher transfer tax on “the most expensive properties.” After meeting initial resistance, the idea was embraced; higher property transfer tax rates took effect on February 17, 2016, shortly after Royal LePage announced that “44 per cent of the total number of detached houses that sold in [Vancouver] last year went for at least $2 million.”
Yet it’s not enough. Mayor Robertson is once again urging the British Columbian government “to intervene in [Vancouver’s] housing market,” and this time his call is being echoed by the Bank of Nova Scotia and the National Bank of Canada. Even the Organisation for Economic Co-operation and Development (OECD) is warning that “Vancouver’s economy is at risk due to rising household debt and surging housing prices.”
Overvaluation is rampant in the Vancouver area, particularly with single family homes. According to the Canadian Mortgage and Housing Corporation (CMHC), “Home prices are above the level supported by economic and demographic fundamentals.” CMHC warns, “If the economy underperforms expectations, there is a risk that the imbalances identified in the HMA could unwind and exacerbate the impact of these weaker than expected economic conditions.”
The current real estate crisis has been triggered by numerous factors, from globalization to a lack of regulation to shadow flipping, money laundering, and plain old supply and demand. Of particular concern to some, including the mayor, is the “unregulated, speculative global capital flowing into Metro Vancouver’s real estate,” widening the gap between local income and local property prices.
One proposed solution is a speculation tax “to help create a more level playing field” in the housing market. Another is a luxury sales tax.
“Flipping houses” here is not quite like the house flipping featured on Flip This House, where houses in need of updating are purchased, quickly remodeled, and then resold. “Flipping” here means buying a property and then turning around and reselling it without making improvements, often before the initial sale even closes. With condominiums, which often take years to construct, units can be sold and resold multiple times before they’re even ready for occupancy.
The mayor has been vocal in his support: “We definitely need taxation tools that discourage speculation on real estate. It’s clear that rampant speculation on real estate is driving up prices in Vancouver.” What such a tax would look like is as yet unclear. And it may never come to pass. Many insist that speculation isn’t the problem and that a flipping tax isn’t the answer (CBC News).
Under the luxury tax (property transfer tax) that took effect last February:
- The first $200,000 of a real estate transfer is taxed at 1%
- The amount between $200,000 and $2 million is taxed at 2%
- Any amount over $2 million is taxed at a rate of 3%
As with the flipping tax, Mayor Robertson has yet to provide specifics how the existing luxury tax could be improved. However, he has repeatedly spoken of the negative impact of “unregulated, speculative global capital” in the real estate market, and beginning June 10, 2016, the provincial government is imposing new citizenship disclosure requirements for property transfers.