There is a reason that certain sayings become famous: they are applicable to every high-minded solution to an intractable problem. In BC the problems are housing affordability and money laundering through casinos and real estate. The results of identifying the issues and trying to solve them fall into "Be careful what you wish for, it just might come true" or the Law of Unintended Consequences. Both these bits of philosophy apply in BC since the NDP government started tinkering with the system with the help of the Federal government taking a sledgehammer to the mortgage qualification process.
The February 20 Provincial Budget started the markets roiling. The Foreign Buyer Tax of 15% introduced by the Liberal government in July 2016 has been raised to 20% and applied to a much wider area in order that offshore investment doesn’t move from place to place and destabilize communities other than Vancouver. On homes over $3 million the property transfer tax paid by all buyers rises to five percent from three percent. Urban demographer Andy Yan states in the Vancouver Sun that Metro areas will feel the tax rise most and that it is designed to tax wealth coming into the province to buy real estate.
The Law of Unintended Consequences is showing up in the dramatic drop of detached home sales in February all through Metro Vancouver. In Richmond 52 detached homes sold in February 2018 compared with 92 homes sold in February 2017. In Vancouver Westside 53 homes sold in February 2018 compared with 93 sold in February 2017. These are areas with a large number of foreign buyers. Local sellers hoping to cash out for retirement are having to rethink their plans as the downsizing has gotten more expensive and elusive.
False Creek Sunrise by Gord McKenna
Prices for detached homes have risen 10.8% across the Lower Mainland since February 2017 but that figure varies per area. Vancouver Westside rose 2.3%, Richmond which is more affordable rose 8.8%. Vancouver East rose 9.5%, North Vancouver rose 6.7% while Coquitlam rose 14%.
The elephant in the room is the Speculation Tax, something that was devoutly wished for by left-out buyers and suggested by a group of economists trying for a way to make Vancouver real estate affordable to local buyers. Andrew Weaver, leader of the Green Party and partner to the NDP in keeping them in power commented that the ratio of house prices to incomes needs to be 3:1 to be considered affordable...In the city of Vancouver the ratio is at 37:1. There is almost no way to build more affordable housing except by rezoning single family neighbourhoods and restricting what can be built there.
The devil is in the details of the application of the speculation tax and the famous saying that applies here is "it all depends on whose ox is being gored".
Pensioners who are living in $3 million homes that they purchased 50 years ago will be paying .02% tax on the value between $3 million and $4 million and 0.4% tax on assessed value above $4 million. One couple profiled in the Vancouver Sun article purchased their house in Point Grey for $370,000 in 1987 which now has an assessed value of $6.5 million. Their school tax bill will increase by $12,000 next year. Many baby boomers are house rich and cash poor thanks to the meteoric rise in real estate prices fuelled by offshore investment in property.
There is a concern that many buyers who purchased at the end of 2017 to avoid the mortgage stress test coming into effect on January 1 2018 may be under water with the new tax rules.
The lack of affordable housing to buy or rent in Vancouver is creating a flight of younger people and retirees to towns outside the Lower Mainland. The new speculation tax is reaching the popular areas around Victoria, Nanaimo and Kelowna. The Law of Unintended Consequences strikes again. Residents of rural BC who have second homes in Victoria or Vancouver will be subject to the speculation tax if their apartment is not rented out on a long term basis. The finance minister says they are looking at tweaking the legislation but many Gulf Islanders and others are worried that they will have to sell their rural homes.
The purpose of the speculation tax (calculated at $5 per $1,000 of assessed value for 2018, increasing to $20 per $1,000 of assessed value in 2019) was to collect tax revenue from all homeowners that do not reside in BC, pay BC income tax and who don’t rent out their property. This has created a lot of anger from residents of other Canadian provinces who own second homes in BC. Alberta buyers are a big part of the real estate market in the Okanagan and most of them are upset by the new rules. The tax can be extended at the government’s discretion to any part of the province. The municipal governments around Kelowna are fearing a huge drop in real estate sales and prices plus general loss to the economy. Most areas that have been added to the speculation tax list are requesting to be exempted from the tax. Their "ox is being gored".
In the Metro Vancouver real estate market the Condo is King. As the prices have soared over the past year there is less and less room between detached home prices and newer condo prices. This has contributed to low inventory in every category. Detached home owners can’t lower their prices because they can’t afford to move if they do. Townhouses are scarce and larger ones are expensive even out in Maple Ridge and Pitt Meadows. Condos are selling at or over their list price, usually for quite a bit more than their assessed value. Recently in Steveston an unrenovated 1400 sf condo with a wonderful water view, assessed at $970k, in an older building sold for $110,000 over the list price. There are multiple offers on almost every unit in every municipality.
The sales to active listing ratio for February 2018 is 28.2%. By property type, the ratio is 13% for detached homes, 37.6% for townhouses, and 59.7% for condominiums.
In February 2018 the benchmark price for a detached home across the region was $1,602,000. An 8.2% increase from February 2017.
In February 2018 the benchmark price for a detached in North Vancouver was $1,686,800 up 6.7% in one year, up 81.4% in 5 years and up 88.6% in 10 years.
In Richmond the benchmark price was $1,697,900 up 8.8% in one year, up 82.6% in 5 years and up 130.2% in 10 years. In Vancouver East the benchmark price was $1,560,400 up 9.5% in one year, up 92.1% in 5 years and up 137.5% in 10 years. In Vancouver West the benchmark price was $3,500,600 up 2.3% in one year, up 74.8% in 5 years and up 123.6% in 10 years. In West Vancouver the benchmark price was $3,141,900 up 5.9% in one year, up 72.3% in 5 years and up 98.5% in 10 years.
Each year affordability declined for local buyers. First time buyers are particularly hard hit by mortgage stress tests, high prices and lack of inventory.
In February 2018 the benchmark price for an apartment property across the region was $682,800. This was a 27.2% increase from February 2017.
In February 2018 the benchmark price for a condo apartment in North Vancouver was $580,700 up 24.4% in one year, up 67.7% in 5 years and up 65.4% in 10 years. In Richmond the benchmark price was $657,800 up 30.5% in one year, up 89.5% in 5 years and 91.4% in 10 years. In Vancouver East the benchmark price was $565,300 up 26.7% in one year, up 87.4% in 5 years and up 94.1% in 10 years. In Vancouver West the benchmark price was $835,800 up 20.5% in one year, up 81.0% in 5 years and up 79.7% in 10 years. In West Vancouver the benchmark price was $1,237,100 up 26.2% in one year, up 70.7% in 5 years and up 83.7% in 10 years.
According to the Vancouver Sun David Eby, the Attorney General will be in Ottawa to speak before the House of Commons committee on finance which is working on changes to the Proceeds of Crime and Terrorist Financing Act. One of the concerns of the BC government is gang violence engendered by their ability to launder funds through the casinos. BC is looking for enforcement support from Ottawa.
Money laundering is a big component of the offshore investment in real estate in Metro Vancouver, particularly in Richmond and Vancouver Westside. This has fuelled some of the fast rising prices of the past few years and contributed to shadow flipping of expensive properties. Much of the wash and rinse of funds was done through the casinos where the tax revenue flowing into the provincial coffers was so overwhelming that much questionable activity was overlooked for a number of years.
The Vancouver Sun states that a confidential report commissioned by B.C. Lottery Corp. estimates that B.C. casinos could lose up to $88 million in revenue each year if the government bans large cash transactions by VIP gamblers at high-limit betting tables. This could impact government programs outlined in the recent Budget.