Finance Minister Carole James delivers the budget speech in Victoria, B.C., on Feb. 20, 2018.CHAD HIPOLITO
The B.C. budget aims to temper the province's hot housing market but neither the government nor other observers know what the impact on real estate prices will be.
The main measure is a new tax to be levied annually on property owners who do not pay income tax in British Columbia. Homes used as a primary residence and properties with long-term renters will be exempted. The tax rate will be 0.5 per cent in 2018 and then 2 per cent in 2019 and thereafter, charged on a property's assessed value. The tax is among several changes focused on the housing market.
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Finance Minister Carole James, before she introduced the budget on Tuesday, told reporters she hopes the moves lower prices. The goal is to take on speculation – people who are "parking capital" and have contributed to high housing prices, she said. But her officials acknowledged that the ministry does not have a projection about how housing prices will respond to the tax and other measures, and Ms. James said her government will monitor the situation.
The housing measures are a pillar of the first full budget introduced by the B.C. NDP, after the party formed government last summer. The provincial economy is strong, but Ms. James said high housing prices are hurting employers who struggle to draw in new workers from elsewhere.
"It's a really great step," Tom Davidoff, a real estate expert at the University of British Columbia, said of the new tax. Investors in B.C. real estate to date have not paid "meaningful" tax, he said.
The Business Council of B.C. said the housing measures were unprecedented in scope and may disrupt the market.
Jock Finlayson, the council's chief policy officer, said the high end of the market will feel a hit, because some new measures would increase taxes on houses worth $3-million and more. The question is the impact on the broader market. The moves will be a live public policy experiment. If prices do decline, it probably won't be extreme. "I don't think it's going to collapse," Mr. Finlayson said.
The wild housing market has transformed the city of Vancouver. In 2005, about one in 10 detached houses was assessed at $1-million or more. By 2016, almost every single house was. And the jump in prices has radiated widely. The benchmark price of detached homes in the greater Vancouver region is $1.6-million, up almost 60 per cent in the past three years. The benchmark condo in the region is $665,400, up about 70 per cent in the past three years.
When the former BC Liberal government introduced a foreign-buyers tax of 15 per cent in the summer of 2016 – in Metro Vancouver only – the move appeared to cool the market, but prices soon started climbing again.
B.C.'s measures will be closely watched in Ontario, where the housing market in Toronto and the surrounding region is also hot. An Ontario provincial election is coming this spring and housing prices could be a big election issue, as it was in B.C. last year.
Last spring, the Ontario Liberal government introduced a foreign-buyers tax of 15 per cent, following B.C.'s move, over a wide swath of Southern Ontario known as the Greater Golden Horseshoe region.
On Tuesday, B.C. expanded the area where the foreign buyers tax and other changes apply well beyond Metro Vancouver. It now includes the Victoria and Nanaimo regions, Kelowna and the Fraser Valley.
The new tax will be administered by the province outside the normal property tax system. Owners will be mailed a notice and told to go to a Ministry of Finance website to request an exemption, if applicable.
Audits will be used to identify those owners who are supposed to pay but don't. Compliance is to be enforced by a beefed-up audit team at the Ministry of Finance.
The tax changes arrive on a staggered basis. The higher foreign-buyers tax – 20 per cent, up from 15 – and a higher property-transfer tax on properties worth more than $3-million are effective Wednesday. The school tax for properties worth more than $3-million will go up in 2019. The new tax will have to be paid for 2018.
The new housing measures together are predicted to generate $253-million in 2018-19 for B.C. and $521-million in 2019-20. The money comes on top of the original foreign buyers tax, which is set to generate about $200-million this fiscal year.