The 2018 B.C. budget says owners seeking an exemption from the new housing speculation tax would have to show their properties are used as private homes or for long-term rentals.CHRIS HELGREN/Reuters
The B.C. government will assess the impact of a new tax on owners of real estate from outside the province who do not pay income tax in B.C. and will consider expanding where the tax is applied in future.
What the government describes as a speculation tax will be applied annually and will rise to 2 per cent on the assessed value of homes once it is fully up and running next year. The tax is aimed at investors who park capital in B.C. and drive up housing prices. It will hit foreign and out-of-province owners of properties, unless the homes are used as primary residences or house long-term renters.
The tax will apply in Metro Vancouver, the Fraser Valley, the Vancouver Island regions of Victoria and Nanaimo and the municipalities of Kelowna and West Kelowna in the Southern Interior. The tax was one major move in the B.C. budget, released on Tuesday. In budget documents, it was noted the tax will "initially" apply to the five areas outlined.
On Thursday, when asked if it would be expanded, Finance Minister Carole James said the impact of the tax would be watched closely and the government would make adjustments if needed.
"We're going to start with the tax in urban settings," Ms. James told reporters in Victoria. "This tax is a first in the country, so we want to monitor it as we go along."
TD Economics said on Thursday that the B.C. government's overall housing plan was smart.
"All in, we expect the Homes for B.C. plan to provide long-term benefits for the housing market and the economy, given the proposed investment in infrastructure, alleviation of affordability pressures and prevention of the build-up of excessive risks in the housing market," wrote TD senior economist Michael Dolega.
While the province is geographically large, most of the population is already covered in the first five areas of the new tax, home to about 3.5-million, three-quarters of B.C.'s total population of 4.6-million.
There are about 1.6-million residential properties in B.C. The new tax could be imposed on an estimated 15,000 properties, about 1 per cent of the total.
But there does not appear to be a compelling reason to expand the out-of-province tax beyond the initial five areas, suggested Tom Davidoff, a real estate expert at the University of British Columbia.
There must be a balance between tourism and the ability of locals to afford housing, he said. In places such as Tofino or Whistler, Prof. Davidoff said there is probably too great a risk of damaging the essential tourist economy. That is not the case in Metro Vancouver, where Prof. Davidoff said the extreme cost of housing means "there is no question the tax is the right move."
Elsewhere in the province, Prof. Davidoff said housing affordability has to be a clear problem before a move is considered.
"Otherwise, mucking about in the property market would be a mistake," said Prof. Davidoff.
The Union of B.C. Municipalities (UBCM), worried about housing speculation, called on the B.C. government earlier this year to expand or increase the foreign buyers tax, which had been introduced in 2016 for Metro Vancouver. This week, the B.C. government increased the tax to 20 per cent from 15 per cent and expanded it.
But in early February, Wendy Booth, UBCM president, also talked about the impact of domestic investors, such as the "Alberta effect" in the East Kootenays. Ms. Booth represents an area that includes Windermere, Fairmont Hot Springs – where she lives – and Panorama Mountain Village.
Real estate industry statistics show that Alberta accounted for 30 per cent of purchases in 2017 in the East Kootenays – but whether these purchases were vacation homes, full-time homes for those moving to B.C., or otherwise, was not tallied. Albertans accounted for 9 per cent of buyers in the West Kootenays.
When the B.C. government used the word "initially" on Tuesday in regards to the areas covered under the new tax, real estate industry economist Cameron Muir said it suggested future changes may be possible.
The more immediate impact is that potential owners of recreational property in places near the current tax areas may be cautious about buying, said Mr. Muir, chief economist of the B.C. Real Estate Association.
Those who face a big new tax bill – property taxes on a $500,000 condo would quintuple to more than $10,000 annually – could decide to get out of the market.
"It may encourage Albertans to sell their homes," said Mr. Muir. "They'll receive a big tax bill every year."