Home Ownership and Public Policy
Posted by John Vernon & Associates on
This was the result of a combination of factors: population growth, a prolonged period of low mortgage rates, an expanding economy and a declining unemployment rate. Given growing concerns with the indebtedness of Canadians, there has been a tightening of mortgage lending rules in recent years. The latest being more stringent qualification rules for conventional mortgages (i.e., the stress test). This was to cushion the impact of any financial shock to new buyers and to cool the “over-heated” markets. Whether the result of tighter mortgage policies and/or increasing sales prices, the rate of
home ownership decreased between 2011 and 2016. In Victoria, the rate dropped from 65.1% in 2011 to 62.6% in 2016. The BC government’s 2018 budget sets a new course, purportedly to make housing fairer and more affordable. Some of the key elements of the plan include the following: (i) an increase to the “Foreign Buyers’ Tax” from 15% to 20% and extending it from metro Vancouver to also include the Fraser Valley, Nanaimo, the Capital and Central Okanagan Regional Districts; (ii) the introduction of a “Speculation Tax” ranging from 0.5% to 2% generally in those areas covered by the Foreign
Buyers’ Tax, excluding exempted areas, on property owners who leave the property vacant. (The application of this tax is complex, details are
available at the Ministry of Finance BC website, search “speculation tax”); (iii) the elimination of the loan program for first-time buyers; (iv)
an increase to the property transfer tax on homes worth $3 million or more from 3% to 5% and an increase to the school taxes on these properties; (v) the introduction of a series of measures to provide greater transparency and to close loopholes regarding real estate transactions and ownership with the goal of eliminating tax fraud and evasion; and (vi) the implementation of a 10-year plan to create 114,000 new rental units. In the near term, the focus will be on rental units for students, the homeless and families fleeing domestic violence as well as increased subsidies for low-income earners and seniors.
There are aspects to this initiative, those supporting more affordable rental housing, that can be lauded. What remains to be seen is if this policy results in the objectives of lower sale prices and more affordable housing, and if it does, what are the possible consequences. As one
Victoria journalist warns: “Easing the price spiral without taxing the market into a sharp correction is a tightrope walk for the
government.” In this connection, it should be noted: that the real estate industry accounted for 18.4% of BC’s GDP in 2016; that residential construction has been a key driver in the BC economy in recent years; and that these measures could negatively impact the net worth of the 68% of British Columbians who own their own home.