By Peter Ladner
British Columbia’s bloated, family-battering property transfer tax is in the news again, with the premier recently saying she’d like to scrap it, but not right now, because she doesn’t know where else to find the $1 billion a year it brings in.
“It’s a drag on the economy,” Christy Clark told the Surrey Board of Trade. “It is absolutely part of our long-term plan to get rid of it because it is not good for affordability in B.C. ... It’s one thing we can do to try to increase affordability.”
Yes, that’s right. It is expected to bring in $1 billion a year for the next three years – up from a projected $740 million last year. As Vancouver Sun columnist Vaughn Palmer points out, that’s more than the province gets from liquor distribution or stumpage from the entire forest industry.
The tax has reaped between $12 billion and $15 billion since then-premier Bill Vander Zalm introduced it 28 years ago as a way to nick buyers of luxury homes. At that time it covered only about 5% of all home sales. Now the burden has blanketed everyone: the tax hits 96% of all home purchases, leaving only the bottom 5% and first-time buyers who can find homes under $475,000 exempt.
How does this help affordability for families? Not at all. It pushes up the $1 million cost of an average Metro Vancouver detached home by $18,000, when typical buyers are already stretched to the limit of their ability to pay. Typical residents depending on their incomes can’t even imagine having the ability to pay that much for a detached home because our housing prices are so completely out of whack with local incomes.
Although Finance Minister Mike de Jong last year bumped the threshold for a full exemption for first-time buyers to $475,000, the tax still extracts 1% from the next $200,000 and 2% from every dollar above that, and those same rates apply to all other purchases by people not buying their first home.
As I have mentioned before, there is a way to fix the property transfer tax, keep the same amount of money – or more – flowing to the province, and simultaneously deal with the darkest side of housing affordability for residents: competition from non-resident buyers, absentee owners and investors.
The idea came from the Kamloops Chamber of Commerce and was endorsed by the BC Chamber of Commerce at its annual convention last year. It proposed lowering the tax for any Canadian citizen who is buying a home in B.C. as a primary residence, keeping it the same for Canadian real estate investors and raising it for foreign-based buyers. The administrative tools for screening buyers are already available. There’s already a First Time Home Buyers’ Property Transfer Tax Return where first-time buyers have to declare they are Canadian citizens or permanent residents, have lived in B.C. for 12 consecutive months and will be using the home as a principal residence. Just add similar questions to all property transfer tax returns.
The changes could go even further – lowering the tax for Canadian citizens buying a primary residence and for local first-time buyers to zero, making up the difference with higher rates for investors and the highest rates for foreign-based buyers or corporations controlled by non-residents.
Why not? Most jurisdictions in the world – including London, Paris, Hong Kong, Beijing, Miami and Sydney – tax foreign real estate ownership differently. Alberta, Saskatchewan and Prince Edward Island have restrictions on foreign ownership. B.C. is an anomaly in treating foreigners and locals alike in real estate purchases, and it’s one reason why locals are being priced out of preferred locations in our real estate market.
Those simple tweaks of the property transfer tax rules could instantly make housing slightly more affordable for British Columbians, without any impact on provincial revenues. •
Peter Ladner (email@example.com) is a co-founder of Business in Vancouver. He is a former Vancouver city councillor and former fellow at the SFU Centre for Dialogue.