My goal with this article is to break down the initiatives that target the Real Estate Market and help interpret what it could mean to you. I boil it down for you at the end of the newsletter in case you want to skip the boring details!
As you have probably already heard, the NDP released its first budget yesterday which focused a lot of attention on the housing crisis which has dominated headlines for the past few years. Action was needed, and expected, as housing prices skyrocketed throughout Metro Vancouver (the average home is now at $1.6 mill and average condo at $665,400) and the Fraser Valley.
Efforts concentrated on addressing the major factors that are believed to be contributing to the crisis:
- Improving affordability & supply of homes for purchase
- Improving affordability & supply of rental housing
- Cracking down on loopholes, money laundering and tax evasion
Improving Affordability & Supply of Homes
- Speculation Tax: Additional Property Tax will be applied to homeowners, both foreign and domestic, who do not pay income tax in BC. The tax will be $5 per $1000 of assessed value in 2018 and will then jump to $20 per $1000 of assessed value in 2019. It will apply to Metro Vancouver, Fraser Valley, Capital, and Nanaimo Regional districts and in the municipalities of Kelowna and West Kelowna. Although details are still unclear, it appears there will be exemptions for principal residences and long-term rentals.
- Foreign Buyer Tax Increase: Effective Feb 21, the Foreign Buyer Tax will increase from 15% to 20% and will be extended to the Fraser Valley, Capital, Nanaimo, and Central Okanagan Regional Districts.
- Property Transfer Tax: PTT on residential properties above $3 million will increase to 5% per cent from 3% per cent.
- Provide 114,000 affordable homes over the next 10 years: This point is a little unclear whether this includes rental units or affordable homes for purchase. The plan is to invest $6.6 bill in the next 10 years to fill housing gaps for growing families, seniors and those fleeing violence.
Improving Affordability & Supply of Rental Housing
- Building 14,000 rental units: The Province is investing $1.8 bill over the next 10 years in rental housing
- Supplying new housing for the marginalized: About $565 mill will be allocated to supply new units of student housing, those facing homelessness and for women and children who are victims of domestic violence. Student housing will be increased through a new plan that will allow post-secondary institutions to build on-campus housing thus alleviating pressure on rental housing in the surrounding areas.
- Renovictions and Demovictions: Changing laws in order to prevent “renovictions” and “demovictions” providing more support for renters and to close loopholes used by landlords.
- Taxing Short-Term Rentals: AirBNB will begin collecting 8% PST and up to 3% Municipal tax. The government is looking to do the same with other short term rental platforms in the future.
- Reviewing Homeowner Grant: The current grant helps home buyers but not renters. The Province will be reviewing this program to make sure both owners and renters benefit.
- Property Tax Exemptions: Offering Property Tax exemptions for purpose-built rental housing.
Cracking-Down on Loopholes, Tax Fraud and Evasion
- New database to track pre-sale assignments: This info will be shared with Provincial and Federal tax authorities to make sure taxes are collected from pre-sale flipping.
- Hidden Ownership: New registry for beneficial ownership, getting additional information from Property Transfer Tax Form and other means of understanding and keeping track of who owns BC real estate.
- Strengthening Provincial Auditing and enforcement powers.
Derek, Stop Explaining and Tell Me How this Affects Me!
Ok fine! As you can see, the budget focuses on those who look to profit from the hot real estate market and view it as a tax shelter, a store of wealth and/or as a market place for speculation. Most of these initiatives are not targeting local home owners and renters with the exception of perhaps the Home Owners Grant, tax collection on short-term rentals and possible future initiatives for pre-sale assignments. Although they may not directly affect you as a home owner or potential buyer/seller, they may have an indirect impact by disrupting the market.
This is big news and will likely flood the media over the next few weeks as the government begins to fill-in the details of the plan. Market places are like cats; they don’t like change and are happiest when they can do their thing in a stable and predictable routine. Historically, news like this tends to slow the market down as people digest the info and figure out the impact. It will be interesting to see how this will play out as we enter the spring market which is typically the most active period of the year.
Here are my thoughts on the short-term impact of these changes:
If you are a happy traditional home owner: This likely won’t impact you except for having to hear about it for the next 6 months from the news and your friends. You may see a dip in sales and have to listen to your irritated neighbor blame his Realtor for not selling his overpriced home. Home prices may correct depending on how much of an effect foreign buyers really have on our market.
If you’re looking to buy: High end homes will likely suffer the most because of the new Property Tax and the potential loss of foreign investors from the marketplace. We may see less competition for single family homes and less pressure from home investors in the condo market. Could be a good time to get serious about up-sizing or buying your first home if the market stalls.
If you're looking to sell: Be realistic and price your home sharply. I really believe that everything sells at the right price. There is a shortage of affordable homes for sale right now and there is a lot of pent-up demand from buyers who have struggled to compete and new buyers looking to take advantage.