During the election last year, all three provincial parties agreed housing was not affordable in the province. With the NDP in government, they announced a 30-point housing plan which promises $6.6 billion over 10 years to build 114,000 affordable homes through partnerships and build 14,000 affordable rental units for individuals, working families and seniors. New taxes on speculation have also been introduced, which the government says will bring in $200 million annually, but it is not without controversy.
When asked if the funds from the speculation tax would go directly to affordable housing, Michael Prince, a professor of social policy at the University of Victoria, said government revenue is not typically routed like that.
“Very few tax measures are ever earmarked for particular functions,” said Prince. “As a casual outsider, you might be led to believe that this money will be directly plowed into housing initiatives, but legally this goes into the Consolidated Revenue Fund: the general piggy bank.”
Given the new investments in housing, child care and health care, Prince said the money has to come from somewhere.
During last year’s election campaign, Prince said people expected some sort of action from both the NDP and the Greens on the issue, but they were surprised by that tax’s effect not just on foreign buyers, but on Canadians as well. Critics have called it a “cabin tax,” since it affected some Gulf Islanders that only live there part-time. On Monday, B.C. finance minister Carole James announced changes to the speculation tax, exempting rural cabins and certain areas like the Gulf Islands, and reserving the two per cent tax for foreign buyers while introducing a one per cent rate for out-of-province owners and 0.5 per cent rate for British Columbians.
Monday’s announcement stressed that “over 99 per cent of British Columbians will not pay the speculation tax.”
In a March 26 news release, B.C. finance minister Carole James said, “We are going after speculators who are clearly taking advantage of the market, leaving homes vacant and driving up prices.”
“I think you could argue that they’re now closer to the original intent,” said Prince.
Prince said earlier consultation or details ahead of time would have been helpful, but officials who create the tax are in a dilemma. He said officials tend to keep future tax measures secret, particularly business taxes, so “no one gets insider knowledge, or benefits ahead of time from a planned tax change.” Detailed consultations would make secrecy difficult, “so governments in a way trap themselves into getting a reaction sometimes.”
Ken Peacock, chief economist and vice-president of the Business Council of British Columbia, said speculators are just one part of the problem. He thinks the government tried to slow the rise of home prices, and maybe even level them off, but by using the tax to change public behaviour and raise revenue, the government has placed themselves in “a tricky situation.”
“B.C. is a desirable place to live. [There are] land constraints in the Lower Mainland, steady inflows of immigration, inter-provincial migration. Add that all up, and there’s a fair amount of demand … The fundamental is that there is excess demand over supply in the housing which will drive up prices over time.”
Peacock said if the goal was to improve equity between children and their parents on housing affordability (known as intergenerational equity), the tax doesn’t do much because for first-time homebuyers or young renters, a hypothetical five-per-cent price decrease is insignificant since a home is sometimes out of reach by hundreds of thousands of dollars. Prince said older people with money tied up in housing don’t want to see prices drop too far.
The province has allowed some exemptions for the speculator’s tax. For example, if a home is rented out for at least six months out of the year starting in 2019, the tax does not apply. But Peacock believes it won’t do much to increase the housing stock for prospective long-term residents because they likely won’t want to move every six months.
“It captures everybody who has an investment property and rents it out, so they had to pick a threshold and it sounds like they picked six months.”
If the tax only affected foreign buyers, said Prince, it would be a politically palatable way to raise that revenue.
“Everyone’s for a tax that affects somebody else,” he said. But British Columbians who live part-time in vacation homes do not see themselves as speculators, “so the government’s learned that they could have defined this more narrowly and avoided this grief.”
Prince said if an election were this month, this would be “a headache,” but if the NDP survive this and govern until 2019, “this is one of those issues I think that could fade in people’s memories if they handle it well from here on in.”
Prince said the Clark government, and to a lesser extent the Horgan government, has been using language that prioritizes housing for British Columbians who live and work in the province, rather than a commodity.
“I think there has been a clear shift in the rhetoric, how close it is to reality I’m not absolutely sure, to be honest,” said Prince. “There is a sense that in some parts of the province that people have neighbours who they’ve never met, whom they’ve never seen, who’ve never moved in. Fairly or not, they attribute that to this unaffordability issue.”