As likely most of you who read this blog know, a group of UBC and SFU economists and/or business professors put out a joint statement yesterday calling for a tax on vacant homes. That follows an interesting op-ed piece published last week by SFU public-policy prof Rhys Kesselman for a surtax on expensive properties whose rate would increase with the price of the property. And that follows calls by Mayor Gregor Robertson for a speculation tax or luxury tax.
The clever piece of the various professors proposals is that they say that the surtax would be reduced or eliminated as long as the property owner has declared local income and paid taxes here. So it would be targeted to anyone who uses Vancouver as a vacation camp: Americans, Brits, Russians, you name it. If I’ve understood it correctly, it could even apply to, say, the many Albertans who own summer cabins in Kelowna and the rest of the Okanagan or the Vancouverites who have summer cabins in the Gulf Islands.
It’s been interesting to see the raft of defences and “oh, that can’t work” from the other side. Real-estate marketer Bob Rennie said it would kill foreign investment in everything, since it would inevitably lead to a tax on foreign investment in manufacturing or other sectors. (Never heard of that in other jurisdictions with housing taxes.)
The mystery documents from the finance ministry surfaced again, claiming it would kill off $1 billion and 4,000 jobs related to construction. (Puzzling claim, since this surtax wouldn’t affect, say, foreign investors who are putting capital into major construction projects.)
And Premier Christy Clark claimed again that somehow this could end up targeting seniors who spend part of the year in the hospital or vacationers. Yet the proposal clearly stated that people who do or have contributed to the local economy (in other words, people collecting pensions) would be exempt.
It’s almost like someone is just trying to confuse the public.
My Globe story here. Oddly, the link to the actual proposal on the UBC site is not functioning.
22 responses so far ↓
1 boohoo // Jan 19, 2016 at 11:36 am
Question. If they don’t have any stats on foreign ownership which they say they don’t, how do they know how much this tax would theoretically cost in money/jobs?
2 Morven // Jan 19, 2016 at 11:50 am
The NY Times recently had a story on identifying cash only purchase of housing behind shell companies in NY.
That would be far more effective.
Why ? For one, there has to be financial enablers – eg local banks/law firms etc for overseas investors to function in the real estate market. Why are the transactions not covered by money laundering regulations?
Look at the local angle not the overseas angle.
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3 BCHAF // Jan 19, 2016 at 12:14 pm
I’m not sure what’s wrong w/ the UBC page, but you can read the full proposal here: http://www.housingaffordability.org/
4 IanS // Jan 19, 2016 at 1:28 pm
Interesting proposal, though I think it would be fairly complex to implement.
I can’t imagine that it would really kill off foreign investment or eliminate the construction industry, although I expect it would lower the price a foreign investor would be willing to pay for a property covered by the new tax. I imagine that is the real source of Mr. Rennie’s concern.
It wasn’t clear to me whether the exempt taxpayers would include those resident in BC only or Canadian taxpayers generally. Likely the former, I think. Thank god we will finally be able to put a stop to those freeloading eastern Canadians!
The proposal would also lead to some interesting business opportunities for exempt persons to hold properties for foreign investors. In fact, give that retired individuals are apparently exempt, this could really help some retirees supplement their income.
5 A Taxpayer // Jan 19, 2016 at 2:17 pm
Both proposals read like they were developed by these academics after kicking these ideas around over several bottles of wine. It is revealing that there is no research paper supporting this proposal (or at least I couldn’t locate one on the
website) because the holes in the proposal would be evident.
The most serious deficiency of both proposals is that they purport to offer a partial solution to the “affordability” problem when we do not have sufficient market data analysis to understand the drivers of housing prices. This was acknowledged by Prof. Davidoff who said
“But the beauty of this proposal is that, as you make some money that can support locals, you can find out how large the extent is of this problem.”
Really. We are going to implement a new tax regime to solve a problem we do not know what’s causing it? We do not need another tax.
Which leads us to the other deficiency. The tax regime proposed is not that simple or inexpensive to implement. There will be the cost of administering the
granting of exemptions and ensuring compliance. There are many reasons why someone may not be paying income taxes (dividend tax credits, business investment losses) and while regulations can be written to cover these scenarios it just adds to compliance costs.
These proposals were all about creating new taxes on real estate and only tangentially had anything to do with the cost of housing in Vancouver.
6 IanS // Jan 19, 2016 at 2:25 pm
“Really. We are going to implement a new tax regime to solve a problem
we do not know what’s causing it? We do not need another tax.”
But that’s the beauty of it, don’t you see? We are taxing someone else (foreigners, no less!) and giving the money to us! Who could object to a tax like that?
7 spartikus // Jan 19, 2016 at 2:57 pm
Shush, you. This is no place for logic.
8 Kenji // Jan 19, 2016 at 3:36 pm
The tax would act as a partial drag on sales. Probably not a good one. But the gubmint would also have new funds to play with – co-housing, co-op, below market rental, or (my dumb idea), a top-up to sellers who chose to take a lower bid in order to sell to a family that plans to live in the property rather than flip it.
9 A Taxpayer // Jan 19, 2016 at 3:54 pm
I might agree with you if the tax could be targeted as simply
as the authors suggest but as you acknowledge the scheme would be complex to implement and complexity means costs to ensure compliance. Further, the estimate of $90 million appears
to be a back of an envelope calculation. From their FAQ’s:
“10. How much money will I get?
In order to calculate the BCHAF taxes and individuals’ rebate, we would need to know the exemptions that property owners
are likely to claim. No currently available data provide the information that we would need to determine how many exemptions will be claimed.”
So it is quite possible that we implement yet another tax
that is costly to administer and not achieve the revenue target because the complexity of the system of exemptions provides numerous avenues for people to avoid the tax.
10 A Taxpayer // Jan 19, 2016 at 3:59 pm
The proposal is to give the surtax back to the residents of the municipality where the surtax was collected which keeps it out of the hands of government (a good thing).
11 IanS // Jan 19, 2016 at 4:02 pm
“… as you acknowledge the scheme would be complex to implement and complexity means costs to ensure compliance.”
Absolutely. But you say that like it’s a bad thing.
Before the ink is dry on the legislation, solicitors throughout the province will have produced numerous opinions as to the scope of the legislation and the mechanisms which might be employed to bypass it or otherwise benefit from the exemptions. The economic benefits of, and taxes generated by, all of that legal work will be enormous. And that’s just the beginning!
Inevitably, many of the mechanisms set up to bypass or benefit from the legislation will be challenged by the Province, which in turn will give rise to litigation. More economic benefit for lawyers. All good.
And, if there’s anything left over at the end of the day, once the legal bills and administration costs are paid, WE GET THAT MONEY!
I really don’t see the downside.
12 A Taxpayer // Jan 19, 2016 at 4:03 pm
You can ask the same question of the professors – if they don’t have the data (on more than just the foreign ownership aspect), how can they possibly predict the outcome of their taxation proposal.
13 penguinstorm // Jan 20, 2016 at 1:02 pm
The capital gains tax in theory acts as a partial drag on sales. Property transfer taxes act as a partial drag on sales. High propety taxes (with an rebate/incentive for primary residences) are a partial drag. How may partial drags do you want to keep adding until you figure out that it’s a demand and supply issue?
14 YVR_City // Jan 20, 2016 at 4:17 pm
You can estimate the vacant aspect using BC Assessment values and NHS rates of not-occupied by usual residents. I believe the policy recommendation states this is a rough approximation based on vacancy for Vancouver alone
15 penguinstorm // Jan 21, 2016 at 9:23 pm
Fantastic. So you’re just going to hand money over to residents?
The tax is collected by government and government will be “handing it back” which means it will likely just be applied as a property tax credit of some sort. Effectively, it’s just another revenue source for governments.
Unless you’re proposing that the residents should just collect it directly, in which case I’d better find that pitchfork and the torches I have. I’m sure they’re in the basement somewhere…
16 A Taxpayer // Jan 22, 2016 at 11:20 am
The proposal is for a revenue neutral tax – it would be a shift in tax burden and not an increase in total tax revenue. Of course, even if it started out revenue neutral there is nothing to stop future governments from changing that equation which is one reason why I oppose creating new taxes.
17 Lysenko's Nemesis // Jan 23, 2016 at 6:49 pm
If you are living in Hawaii and buy a $750,000 condo as a rental investment, then the government increases your property taxes. You can just raise the rent, since everyone else will be doing so too.
If you are a parent you can buy a home as an investment and have your children live in it while you are working and living abroad. If the the government raises the property taxes, you can avoid the raise by transferring ownership to your children, who will also be able to realise any capital gains tax-free when selling.
Bigger government and higher rent cost brought to you by brilliant, “UBC and SFU economists”.
18 peakie // Jan 23, 2016 at 11:37 pm
And a FAQ attached and also linked to housingaffordability.org/faqs.html
But beware, these are biz school people in the main. Those signatories who test real-world examples for “proof” are few, and at the Vancouver School of Economics.
In the Repository of Economic Papers, ready to be flailed by others is Davidoff, with 16 papers, 2 recent on housing supply etc.
https://ideas.repec.org/
The notoriously non-writing Tsur Somerville has 3 papers.
19 peakie // Jan 23, 2016 at 11:40 pm
See the footnote 3 of page 2 of their proposal.
20 A Taxpayer // Jan 24, 2016 at 11:25 am
This was just a headline grabbing exercise by the academics who make some assumptions and arrive at an attractive $90 million per year. In the FAQ’s they acknowledge they don’t have the data to produce a comprehensive proposal:
“2. How much money will I get?
In order to calculate the BCHAF taxes and individuals’ rebate, we would need to know the exemptions that property owners are likely to claim. No currently available data provide the information that we would need to determine how many exemptions will be claimed.”
If this was a serious study they would have detailed the sensitivity of their assumptions, the risk of avoidance through abuse of exemptions, the potential impact on property values etc etc. This proposal is just not something anyone is going take seriously because it has not been rigorously thought out.
21 brianeleryphillips // Jan 28, 2016 at 4:56 am
two honest questions:
if you live in Hawaii and rent out a home in Van, aren’t you making rental income in BC?
In this scheme, BC-based landlords would have an edge on outside investors, as they could charge the same or less rent and make more/the same amount of money. wouldn’t this put downward pressure on rents?
22 YVR_City // Feb 5, 2016 at 4:55 pm
Somerville has 18 published perr-reviewed papers, 10 of which relate to housing supply.