British Columbia’s Finance Ministry says homes sales have dropped 19 per cent in the past year, which will cut property-transfer-tax revenues significantly.
It’s peanuts in the overall fiscal picture that was released Friday, by way of a quarterly report covering April to June’s performance.
But the government’s new estimate is more confirmation that the real-estate market is changing.
The ministry expects the total value of home sales to drop by 26 per cent by the end of the year. The sales figures and a couple more data points in Friday’s report suggest the NDP government is operating in a different environment than the previous one.
Finance Minister Carole James said it’s going to be a much healthier one, because housing prices are moderating. Most people would agree that seeing the price rises ease would be a net plus for the economy.
But the provincial government was one of the big winners in the runaway price spiral. For all the acknowledged downsides to those price jumps, they rained money down on the provincial treasury and were a contributor to that $2.7-billion surplus last year.
Finance ministers don’t normally portray significant revenue drops as good news, but that is James’s position. The NDP government’s express intent was to tax the real-estate bubble until it burst. It looks like that’s coming to pass. Whether it goes pop or deflates more gradually is unclear.
The slowdown would mean a drop of almost $1 billion in projected revenue over the next three years.
Property-transfer-tax revenue dropped $53 million from April to June, so the full-year estimate is being reduced by $250 million, more than 10 per cent.
Over the longer term, James said the government is now projecting a $300-million drop next year and $400 million the following one.
Those estimates are based in large part on a 16 per cent drop in the number of home sales from April to July, which led to the new forecast of a 19 per cent drop over the course of this year.
“We do predict that will continue,” she said. There’s no similar decline in prices — yet — so James said housing is still considered in crisis. In fact, the Finance Ministry is predicting continued house price increases, just more moderate ones than previously.
She used the property-transfer tax as the key illustration of the difference between the NDP and the B.C. Liberals.
The previous government, she said, viewed the growth in revenues produced by that tax as the mark of a strong economy. She sees it as a challenge to maintaining economic growth.
That’s based on the view that the higher prices were becoming a brake on growth, because people couldn’t afford to live where they want, and businesses were having retention and recruitment problems.
The property-transfer tax brought in between $700 million to $900 million a year up to 2013. Then it hit $1 billion in 2014 and rocketed up to $2 billion in just two years. It stayed in that range for two years.
The change in forecast means it will likely drop below that mark this year, even though its bite has increased by way of the extra charged imposed on out-of-province buyers, a.k.a. the foreign-buyers tax.
James said she doesn’t control all the levers that determine real-estate prices. The interest rate is the main one out of her reach. But she’s pulling all the ones at hand to moderate the market.
One of them is the speculation tax, expected to bring in $87 million this year. James is still holding to a forecast of $200 million in revenue from that hotly debated tax in subsequent years, even though she has reduced its coverage and impact.
The rest of the update was encouraging, even with the revenue drop, as the government stayed on balanced budget track.
But Liberal critics are pessimistic. Declining sales numbers are one thing, but housing starts are forecast to drop as well. There’s no way to extract good news from that trend, but it’s in James’s update. For all the emphasis on housing, the forecast is for a substantial drop in housing starts.
