Why the “Speculation Tax” Isn’t Really a Tax At All

Back in February, the new NDP government released its 2018 budget, and it included a myriad of new taxes. As expected, there was a ‘speculation tax’ in the package, as the party was elected largely on its promise to crack down on the foreign investors who most believe are artificially inflating our housing market.

But when those who work in the real estate industry, including developers like ENM, took a look at the details, they were surprised to find that the tax isn’t really a ‘speculation tax’ at all – it’s more like a non-resident owner tax that will seemingly do little to curb the practices that voters most fear.
 

The tax will require B.C. property owners who don’t pay B.C. income tax to pay 2% of the property value annually starting in 2019, provided they don’t live in or rent out the home. This means that long-term, non-resident owners – i.e., people who aren’t speculators – will have to pay this tax year after year, whereas actual speculators will pay it only once. So this makes it another B.C.-wide empty-home tax that will hit homeowners ON TOP OF the empty-home tax that already exists.

Many voters will say, well, that’s exactly what we wanted when we voted in the NDPs – more taxes on empty homes, to de-incentivize the speculators. But the fact is, these taxes will not do much to stop the practice of buying and flipping homes. A tax on the sale of a home within a year of purchasing might make a dent, but that’s not what this tax is. It’s a speculation tax in name only.
 

Daniel Greenhalgh, ENM’s co-founder, points out that the rich condo-flipping foreign investors that Vancouverites see in their nightmares simply don’t have much of an impact on our home prices. About 5-7% of homes sit empty, but many of these are owned by permanent residents who need to maintain their status. They’ll own for at least five years until they can apply for citizenship. In this view, the problem is an exploitation of the immigration system, not a distortion of the housing market.

“If the NDP really wanted to tackle home prices,” Daniel Greenhalgh says, “the simplest way would be to reduce the cost to build. The primary factor in ballooning home prices is clearly a lack of supply. We’re hemmed in here by mountains and ocean, and we need more density. We need more creative ways to encourage housing starts. But we’re going in the opposite direction. In 2008, the development process for a new project took about six months for a low-rise, including all the municipal permitting fees. Now that time has doubled to about 12 months. There’s an increase in the volume of permits, but the staffing hasn’t grown. I think the province needs to incentivize, or provide funding for, municipalities to grow the permitting staff. That would have so much more of an impact on home prices than new taxes.”
 

Daniel thinks that the experimental taxation effort to free up housing is a misguided exercise in government meddling.
 

“The thing is, very few large investors do property speculation. I’ve hardly ever seen a buyer purchase more than two or three condos at a time, and even that is pretty rare. Especially in Langley. You don’t see someone from China buying homes in Langley, but this speculation tax will hit homes all over the province, not just in Vancouver or Richmond. So new taxes aren’t going to magically create more affordable homes. The simplest way to do that is to reduce the cost to build. The expense is so astronomical right now, and 10-12% of those costs are government fees and levies. This hurts supply, and the way to solve the housing crisis is to increase supply. We need to build more, and the provincial government needs to find creative ways to help us do that.”