While popular – and profitable for the provincial government – B.C.’s two-year old speculation tax and vacancy tax has not met its goals of reducing urban home prices or increasing the supply of affordable rental housing, critics say.
The Ministry of Finance said in a statement January 12 that the tax, which raised $88 million in 2019, resulted in some property owners repurposing formerly vacant properties into rental units.
“This change in behaviour, and the tax continuing to capture speculators while exempting almost all British Columbians, shows this tax is working for the people of our province,” Finance Minister Selina Robinson said in the statement.
But housing experts doubt that the tax has had much effect on either the rental market or affordability.
Casey Edge, executive director of the Victoria Residential Builders’ Association, said a Canada Mortgage and Housing rental housing report suggested the rental vacancy rate in Greater Victoria dropped to 1.0 per cent in 2019 and that in 2020 any small improvement in the rate was due to university and college students staying home during the pandemic instead of moving into the region.
Edge also pointed out housing prices are not moderating, but have been increasing, and the average price of a single-detached home in the Victoria region last month was $992,202 up from $899,782 in December 2019.
In Metro Vancouver, the benchmark price of detached house in December 2020 was $1.5 million, a 10.2 per cent increase from December 2019.
Edge said that flies in the face of the minister’s assertion the tax “has contributed to the ongoing moderation of the housing market and has not negatively impacted housing supply.”
Brendon Ogmundson, chief economist with the B.C. Real Estate Association, said the impact of the tax on affordability in the ownership market was temporary at best.
“After the remarkable events of 2020, demand in the market is on a record pace while the supply of homes available for sale closed the year at a record low,” he said. “That imbalance of demand over supply means that prices are rising dramatically.”
Last year, the real estate association released an analysis of the tax, which suggested its effect on the rental market was only noticeable in Metro Vancouver, and even there it was impossible to determine if the increase in the number of rental properties was due to the provincial tax or the municipal Empty Homes Tax and short-term rental regulations that were implemented around the same time.
The tax, introduced in the February 2018 budget, applies in Greater Victoria, Nanaimo, Lantzville, Metro Vancouver, the Fraser Valley, Kelowna and West Kelowna.
The idea behind it was to reduce the number of empty homes and help deal with B.C.’s shortage of affordable housing by encouraging owners of vacant units to put them into the rental market or sell them.
The ministry notes less than 1 per cent of British Columbians have to pay the tax as it applies to largely to foreign owners, satellite families (where the majority of their worldwide income is not declared on a Canadian tax return), Canadians from outside B.C. and other non-B.C. resident owners.
The ministry says the $130 million the tax has raised provincewide since 2018 goes toward funding housing, shelter or rental initiatives in the five regional districts where the tax applies.
The tax rate is two per cent of a property’s assessed value for foreign owners and satellite families and 0.5 per cent for Canadian citizens or permanent residents.
Owners are exempt from the tax if it is their principal residence, they rent it at least six months of the year, they are disabled, the property was just inherited, it’s valued at less than $150,000, or a person was away and it was vacant due to medical reasons, residential care, work or spousal separation.
The introduction of a speculation tax targeting foreign and domestic homeowners who pay little or no income tax in British Columbia, and those who own second properties that are not long-term rentals, is endorsed by 77 per cent of B.C. residents, according to a mid-2020 poll conducted by Research Co. and Glacier Media.
