June 9, 2021 | A Pox on Them

A year ago 60% of BCers said heaping more taxes on real estate would make it less expensive, proving many people will believe anything if told it often enough. This year that number is down to 42%. House detached house prices in YVR, meanwhile, have hit $1.8 million, up 23% since last May. As we told you yesterday, Kelowna’s average is now a million. And try finding anything under $1.5 million in Victoria.

BC is interesting and federal Tory leader Erin O’Toole should go there more. If so it might save him the kind of embarrassment experienced on Tuesday.

On the left coast they have an astonishing 20% surtax on real estate if you’re not a citizen. It’s been in place for a few years and used to be 15%. Plus there’s another annual ownership tax on owners who don’t primarily pay BC income tax – so it sweeps up folks from Alberta with cabins or Upper Canadians with a vacay condo. There’s an additional tax equal to 3% of a property’s value – every year – on places considered under-utilized. New property tax increases are afoot for higher-values houses, plus elevated transfer taxes.

Since the NDP took the reins in that province, real estate has been taxed, Hoovered, whacked and sucked even more every few months. The government has told people that others – from across the ocean or over the mountains – are to blame for the fact young people cannot afford homes. So they tax more.

It hasn’t worked. The penny is dropping. A new poll shows 59% of people aren’t sure any of this has been effective. The proof is in the sales and prices data of every real estate board across BC. Ditto in Ontario, where average prices have topped $1 million anywhere with decent cell reception and running water. There’s an anti-foreigner tax there, too. Also ineffective. Prices keep rising because (a) mortgage rates are ridiculous, (b) helo parents are financing down payments and pushing values up, (c) one in five households owns a secondary property, usually for speculation, (d) WFH, the pandemic and FOMO have goosed demand, (e) capital gains on houses are tax-free, (f) listings are scant since sellers fear becoming buyers and (g) politicians have fed demand with buyer incentives like free RRSP withdrawals and a shared-equity mortgage.

So what policy does O’Toole unveil in Ottawa this week?

Yup, a tax on foreigners. Actually a ban on them. Seriously.

Meanwhile Covid crashed immigration by two-thirds and existing anti-foreigner taxes have reduced non-Canadian ownership to ant-like levels. Remember the CMHC Condo Survey published here a few days ago? Apartments owned for rental income are the most prevalent form of offshore buyer investment in Canada. And according to the federal housing agency, these are the four markets with the greatest concentration:

• Toronto – 2.6%
• Montreal – 1.8%
• Vancouver – 1.3%
• Halifax – 1.3%.

Yes, that’s the best the Tories could come up with. No mention of central bank rate suppression through bond-buying. No talk of increasing down payment requirements to reduce leverage and dampen demand. An outright rejection of changing the capital gains exemption for residential real estate. Oh, and O’Toole wants Canada to bring back 40-year amortizations – which lower monthly payments (by jacking up the interest owners pay) therefore increasing demand, and fueling price gains.

Meanwhile the NDP likes the foreign buyer ban and the Libs are about to enact a 1% annual levy on all real estate in Canada owned by a non-citizen (including the properties of permanent residents who immigrated here) if it is ‘under-utilized.’ More tax. More overhead on real estate. No action on the systemic causes of the current bubble.

Our leaders have lost their way.

In fairness, the slimy little pathogen caused a global pop in property prices. Fears of infection caused a rush for personal space while wide-scale WFH and govy-support programs pushed real estate lust into the suburbs and beyond. But nowhere in the world has this been as acute as here – where household and mortgage debt now exceeds the size of the entire economy and 85% of people do not earn enough to qualify to buy or carry the average home.

Americans complain of crazy prices too. But according to Zillow, the average US resale home value is $239,000 US (that’s about $288,000 in C$). In contrast CREA pegs the average Canadian property at $696,000 in April, up 42% year/year. Say, have you ever checked out what $1.7 million (the average of a SFD in Toronto) will buy in Chicago or Houston?

Here ya go. Now write your MP.

Garth Turner June 9th, 2021

Posted In: The Greater Fool

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