A new study by SFU professors Shih En Lu and Andrey Pavlov, along with UBC colleagues, argues for the creation of a 1.5 percent property surcharge targeting owners of vacant properties that are not contributing enough to the BC economy.
Owners that rent out their properties to non-family members would be able to apply for exemptions, thereby providing an incentive to put more vacant units into the rental market. Revenues from any jurisdiction that adopts this proposal would then be distributed to all Canadian tax-filers in the area in a lump-sum payment to boost economic growth.
The report estimates that in Vancouver alone, this would generate around $90 million annually. On top of that, the surcharge would help slow the flow of foreign investment that puts upward pressure on housing prices.
En Lu, an assistant professor of economics at SFU, says, “If you’re not contributing to the BC economy [. . .] and are driving out someone who would, then you have to pay an amount comparable to the income taxes that this person would have paid.”
The Greater Vancouver Real Estate Board reports the benchmark price for a detached residence in the Metro Vancouver region was over $1.2 million in November 2015, increasing by 22.6 percent from the previous year, making Vancouver the most expensive Canadian city in which to buy a house.
A case study by researcher Andy Yan in 2015 found 70 percent of detached residences were sold to Mainland China buyers, with around 36 per cent of owners of homes worth over $3 million listed as housewives or students. This study adds to the concern over Vancouver housing being used as a way for foreign investors to evade taxes, flip properties, and store wealth through relatives tax-free while simultaneously increasing housing prices.
Other than Vancouverites losing the dream of owning a single-family home, there are substantial risks to the local economy. These risks include labour shortages and stifled business innovation, as skilled workers prefer to locate in other regions where they can afford a single-family home instead of only a condo.
Vancouver may also lose new firms and the accompanying jobs they create if they are not able to find workers.
En Lu suggests, “Vancouver could become dominated by low-skill workers serving millionaires that make their money elsewhere — bad for growth, and bad for our ability to pay for public services.” He points to SFU as an example of this already happening — almost all of the job offers made by the Department of Economics to candidates for faculty positions with children were turned down, says En Lu.
Additionally, Canadian homeowners in Vancouver are exposed to a substantial amount of risk from a downturn in the real estate market or an increase in interest rates if they have invested most of their wealth into their home. A recent TD Economics report stresses the increasing risk of correction “with every month of double-digit home price growth.”
Pressure has been growing to address the housing issue with the #IDontHave1Million social media campaign that arose the past year and the provincial government promising to address housing affordability in the next budget.
However, they have no specific plans. Premier Christy Clark has mentioned in the past that she worries that “moving foreign investors out of the market [will make] housing prices [. . .] drop,” negatively affecting those who have already invested in a home. “We are open to new ideas,” the premier said of the issue.
Both professors agree that using first-time home buyer incentives would be like using “gas to douse a fire,” as En Lu put it himself, and would either end up in the hands of sellers or become obsolete as housing prices are bid up further.