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.
@michaelgeller
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