September 1, 2016 By Keith Norbury
Something had to give with Vancouver’s overheated housing market. With the price of the average home soaring above $1.5 million, the B.C. government has imposed a 15 per cent surtax on buyers from outside Canada. Foreign buyers, especially those from mainland China, have been widely blamed for feeding the frenzied price increases.
It was bold move — of the kind that the Opposition would, well, usually oppose. But B.C.’s Opposition New Democrats appear on board with this — or least they recognize that something, almost anything, had to be done.
But as this edition goes to press in early August, nobody knows if the surtax will have the desired effect or what unintended consequences might spin off. Will it stifle a Vancouver construction boom that has been good for the crane business?
The Metro Vancouver region had more than 150 tower cranes on the job this spring, according to a recent CTV News report. That level of activity hadn’t been seen since the building boom leading up to the 2010 Olympic Games.
The boom is such that construction companies are having trouble finding qualified trades people, and at least one company that supplies tower cranes can barely keep up with demand, according to the report. So should the surtax cool demand, it might give everyone time to catch their breath. It might also stall a real estate bubble before it can burst.
Then again, the recent habits of foreign buyers have indicated that money isn’t much of an object. They’re already quite willing to part with $2 million for a home — and then leave that home empty for most of the time. What’s an extra $300,000 for someone who has such deep pockets?
The B.C. government is practically counting on that not being the case. But should the surtax prove no deterrent, the hope is the extra cash can be put toward much-needed affordable housing in the region. How affordable is anyone’s guess, though, if it doesn’t put the brakes on soaring real estate values.
If the foreign buyers are price-sensitive, then another danger is they’ll just turn their attention to areas outside Metro Vancouver, where the surtax doesn’t apply. There were signs of that happening already in Victoria, where prices have also been soaring — up 22 per cent on average this July compared with July 2015, according to the Victoria Real Estate Board. Real estate agents in the B.C. capital — where the benchmark price in the city core reached $741,100 in July — have also begun aggressively marketing to potential buyers from mainland China.
Concerns have also been raised that the Vancouver surtax will nudge foreign buyers toward other desirable markets, like Toronto, which is dealing with its own frothy housing market.
Then again, maybe the foreign buyers will cast their eyes on the metropolises in Alberta, which has had its economy battered by slumping oil prices. Calgary and Edmonton could probably use a real estate boost, although recent news reports from the CBC and the Edmonton Journal point out that quite a bit of construction is still going on in those cities. Despite Alberta’s unemployment rate hovering around eight per cent, and oil selling at less than $50 a barrel, a luxury condo in Calgary sold this July for nearly $8.4 million, “a hefty price tag in a city embroiled in a recession,” CBC News noted. That’s the kind of cash that a Russian oligarch or a Chinese industrialist might willingly part with to shelter assets or launder money.
It’s a bigger problem in Vancouver and Toronto, which are now considered to be in a rarified class of “international” cities like San Francisco, Hong Kong, and London. These are places in which the general rules of economics don’t apply, where there is no connection between the price of the average house and the ability of the average person to pay for it. In these strange places, these expensive houses very seldom house anyone either. Which is why the B.C. government also recently endowed the City of Vancouver with the power to impose a tax on empty homes. Again, so far nobody knows how that tax will be determined or what its unforeseen impacts might look like.
The B.C. government also disbanded the province’s self-regulating Real Estate Council in the wake of revelations about the “shadow flipping” practices of real estate agents who were enriching themselves at the expense of their clients by reselling homes before the original sales closed. That the B.C. Liberals, who basically believe in the self-regulating power of the market, would return oversight of the industry to government control is a cautionary tale in itself.
So let’s cautiously applaud the B.C. government for that action and the other two bold measures. Let’s just hope they achieve the desired effects, such as cooling the price heat, and making homes more affordable and available. And let’s pray they don’t crimp the construction of new homes, which would cause cranes to vanish again from our cities’ skylines.
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