Hardly a day has gone by over the past two weeks when I haven’t been asked about the province’s rashly imposed 15 per cent tax on foreign buyers.
Will it have an impact? Why was the tax not made retroactive, or at least somehow phased in? Will it make housing more affordable?
The answer to the first question is quite obvious. It has most definitely had a short-term impact. Many sales were cancelled, or are likely to be cancelled as a result of the tax. Lawyers are being asked to assist purchasers who are trying to get out of agreements, or assess the consequences of walking away from deposits. Put simply, it’s a mess for those directly affected.
As to why the tax wasn’t somehow phased in, one would have to ask those in the Premier’s office or inner circle. However, I find it hard to disagree with those who say the Premier saw her polling numbers sinking and wanted to be seen to be doing something significant. I also suspect no one around the Premier fully comprehended the unintended consequences of the tax.
Will the tax make housing more affordable? It will make some properties more affordable in the short term, but I question the long-term impacts, since they will depend on a number of other factors, some of which are described below.
But before considering these matters, let’s not forget Mayor Gregor Robertson’s vacant housing tax. It too will likely be fraught with unintended consequences and one can only hope that his advisors will caution him to do a better job than the Premier in introducing any new tax legislation.
Last week, I posted a comment on Facebook suggesting that a year from now we will have both the foreign buyers tax and the vacant dwelling tax without a significant change in overall housing affordability. To truly improve the long-term outlook, we need to both increase housing supply and dramatically improve municipal approval procedures.
Currently, it takes much too long to get zoning, development and building permits in the City of Vancouver and most other Metro municipalities. Even if you don’t like developers and house builders, you should take a closer look at the legitimacy of their complaints when it comes to project approval delays at city hall.
This issue was recently addressed in a report by the Fraser Institute, which looked at housing affordability in Toronto and Vancouver. It concluded that rather than simply focus on constraining demand, we need to look at the “long and uncertain approval timelines for building permits, as well as onerous fees and local opposition to new homes… which contribute to the housing supply’s inability to keep up with demand.”
Now again, many of you would expect the Fraser Institute to side with developers and home builders. But the reality is, while they may have to wait for permits, they are not the only ones suffering. Indeed, as one of my colleagues recently told me over dinner, the delays at city hall have made him a lot of money since they have stifled competition and allowed him to sell condos for much higher prices than anticipated.
In Vancouver, we have the added problem of Community Amenity Contributions (CACs), which are payments made to the city whenever land is rezoned. Since there are so few undeveloped multi-family sites in the city, rezoning is usually required, with all the angst that goes along with a zoning change.
One problem with CACs is that they are generally not pre-determined and negotiated on a case-by-case basis at the end of the approval process. While many are happy to see developers paying large sums of money to the city, trust me, the developer isn’t paying. The consumer is paying.
After I wrote an article critical of the current system of financing growth, a well-respected Vancouver appraiser called me up. “Michael, I’m surprised that you are speaking out on this. You know, and I know, that if you hire the right appraiser, you can beat the system.”
Until we reduce the uncertainty and unnecessary complexities in our approval system that severely restrict supply, housing in Vancouver will remain extremely unaffordable. The 15 per cent tax is not the answer.