As a measure of how far the B.C. Liberals have moved in a short space of time on the housing issue, consider Potential Implications of Reducing Foreign Ownership of B.C.’s Housing Market.
It was a briefing paper from the Finance Ministry last year, written to address “the perception that non-resident investors are driving an affordability crisis in residential real estate.”
Conclusions: The perception is wrong. Taxing foreigners wouldn’t make any difference. It could have serious negative consequences.
It was a nine-page analysis written to give Finance Minister Mike de Jong some comfort in his belief at the time that foreign ownership was not a driving force in the real-estate market. The public had arrived at just the opposite conclusion and the conviction was growing stronger day by day. But the B.C. Liberals didn’t buy it. They rejected any notion of curbing foreigners.
The paper concluded that “the data we have do not support this perception.” It listed a number of implications if the government moved to drastically reduce foreign investment. The central finding was that it simply wouldn’t work. It also listed several possible consequences that read like a doomsday scenario of side-effects.
It said moving against foreigners would likely have little impact on general housing prices, given the limited extent of foreign investment. That was roughly estimated then to be less than five per cent. The paper warned that $1 billion in residential sales would be lost, representing about 1,400 units.
“Roughly $350 million in nominal GDP would be lost … Around 3,800 total jobs would be lost, mainly in the construction and real estate sectors … Housing starts would fall by about 760 units.”
Alternatively, if such a move did have an impact, such as reducing home prices by 10 per cent, the ministry surmised that about $60 billion in home equity would be lost, averaging about $85,000 per homeowner in Metro Vancouver.
It’s a measure of how strong the demand to do something became that the Liberals last week introduced a bill that invites all those scenarios and more. The 15 per cent tax on foreign buyers in Metro Vancouver is far higher than anyone expected and was sprung on the market with a week’s notice, prompting considerable immediate chaos.
While the real-estate industry is in an uproar, the theory of the bill is wildly popular with the people it is designed to help — B.C. buyers who now have a distinct advantage over foreigners.
Still, the briefing paper sits on the books as a caution about what might happen as the tax takes hold.
It said Singapore tried to cool its market with similar measures, but it didn’t work.
“The example of Singapore suggests that it will require drastic measures to do more than halt the rise of house prices. Residents as well as foreign buyers would likely have to be targeted in order to reduce prices.”
A price drop of 10 per cent might not be enough to fully address affordability, given recent increases, the paper said. And a more significant correction could leave some homeowners with negative equity — mortgages higher than the real value.
The briefing paper leaned away from a tax on foreign buyers and more toward taxing speculators/flippers. It also touted supply-side measures such as densification and encouraging housing-friendly municipal policies. Those ideas are still in the works.
After the paper was released, de Jong changed the tax forms to include nationality and place of residence for buyers. Early data from that question show foreign ownership is higher than what the briefing paper assumed. The working estimate for Metro Vancouver is now 10 per cent. That finding and the steadily building political pressure prompted the Liberals to ignore the downside warnings in the paper and impose the tax.
In hindsight, the significant line in the paper was the one saying: “The data we have do not support this perception.”
They didn’t really have much data, and the hard numbers coming from the new tax form confirm foreign investors are a bigger part of the market than first thought.
Whether the economic analysis is right or not, the public demanded action, so the Liberals changed course. Everyone will be watching to see if there’s a price to be paid.
