The province is being urged to create a property tax surcharge targeting only foreign and absentee owners in response to rising fears about housing affordability as Metro Vancouver land prices soar.
Three professors at UBC’s Sauder School of Business argue a surcharge on property tax levied by the province could exempt all Canadian-owned primary residences and rented units.
They say that would hit foreigners using Vancouver-area real estate strictly as an investment while ensuring typical B.C. homeowners pay nothing more and Canadian investors have an incentive to rent out units rather than leave them vacant.
Tsur Somerville, the director of UBC’s Centre for Urban Economics and Real Estate who co-wrote the proposal, says the money raised by the province could be used to boost rental housing subsidies and expand the property transfer tax exemption for first-time home buyers.
He suggested a 100 per cent surcharge to double the property tax owners now pay if they are unable to demonstrate they qualify for an exemption.
“Essentially people who live in it as their primary residence or rent it out don’t pay the tax and everybody else does,” he said.
He cautioned that the mechanism would do little to stop the influx of foreign money into B.C. real estate and would likely raise only modest amounts of revenue.
“It’s not like we think this is going to solve anything,” Somerville said.
“But at least you could start taxing people who are increasing the affordability challenges for existing residents and use that to help people who are most hurt by it.”
He said that could happen immediately without waiting for the province to begin to collect data on foreign ownership of property in B.C.
He said there might be a case for creating further exemptions for Canadian or B.C. owners of vacation property in resort areas like Whistler or the Gulf Islands.
The provincial government has so far shown little interest in significant reform to counter the rapid rise in real estate prices but has said it will explore options to improve affordability.
Somerville said a well-designed property tax surcharge could meet the premier’s requirement that any new policy not hurt the values of existing homes and the equity of their owners, which could occur if B.C. imposed tougher limits on property purchases by foreigners.
Variants of the same idea exist, he said, including raising the homeowner grant to allow cities or even TransLink to raise their property taxes without impacting most residents. Only Canadian citizens qualify for the homeowner grant.
Alternatively, the UBC profs’ letter says the province could enable a revenue-neutral progressive property tax where a higher surcharge on more expensive properties is rebated as a provincial income tax credit, which non-B.C. tax filers could not claim.
Finance ministry officials indicate they’re studying the proposals, among others.
Vancouver Mayor Gregor Robertson this spring proposed a higher property transfer tax to hit luxury homes harder when they change hands.
Cameron Muir, chief economist for the B.C. Real Estate Association, doubted the property tax surcharge idea would have much benefit for those having difficulty buying a home.
“If the purpose here is to fill provincial coffers with additional tax revenue coming from people from outside of British Columbia, it sounds good,” Muir said.
“If the goal is that by causing a surcharge on foreign investors that somehow that is going to make housing more affordable, there’s no evidence to suggest that.”
He said foreign investors are not buying homes of the type built for first-time buyers.
“The connection there is tenuous at best.”
June saw continued strong sales activity in the Metro Vancouver area, with detached house prices topping $1.1 million, up nearly 15 per cent from a year ago.
“That’s coming from broad-based housing demand from people who live, work and raise their families here,” Muir said.