In a bid to make housing within reach of more people, the B.C. government will give a big tax break to buyers of new homes worth up to $750,000.
The property transfer tax exemption, included in today's 2016 provincial budget, will apply to newly constructed housing, including detached homes, townhomes, condos, and existing homes that have been newly subdivided into a strata. A new home buyer who buys a house worth $750,000 would save $13,000.
Currently, the property transfer tax exemption applies only to first-time buyers of properties worth up to $475,000, but this exemption will apply to any buyer who is a Canadian citizen or permanent resident who lives in the property for one year after purchase.
The province will also make luxury home purchases more expensive by raising the property transfer tax from 2% to 3% on homes worth over $2 million. The government anticipates this will raise $75 million, which it anticipates will cover the cost of the new exemptions.
The property transfer tax was introduced by Premier Bill Vander Zalm in the 1980s. As Metro Vancouver's real estate market has become extremely heated over the past several years, the property transfer tax has been a major contributor to government revenues, raising over $1 billion in 2015.
The province is also committing to track data on foreign ownership — something it did regularly before 1998 — and to study what is driving price increases, which have become extreme in certain markets in the Lower Mainland.
Critics have said increasing the property transfer tax exemption is the wrong move if the province wants to make housing more affordable, because the policy increases demand for housing and puts upward pressure on prices. It also does nothing to help renters, who are struggling in Metro Vancouver with a very low vacancy rate and rising rents.
However, Finance Minister Mike de Jong said the exemption for new homes will have the effect of increasing the supply of new housing and should therefore ease demand pressures.
“In Metro Vancouver you'll see fully 50-70% of the market fall into that less than $750,000 range,” he said.
“We should be capturing the bulk of the market and creating some incentive for more homes to be built. We'll be working with municipalities to facilitate that and we'll be tracking closely the impact they have on market behaviour.”
Multiple media investigations, interviews with real estate industry insiders and analysis of the limited data available have all pointed to the influence of wealth from mainland China flowing into Vancouver's residential and commercial real estate as one factor contributing to price increases in areas like apartment buildings and single family homes in select neighbourhoods.
But de Jong emphasized that government believes the key reason properties in Metro Vancouver have become so expensive is that there is not enough supply to meet local demand. B.C.'s population has increased 70% since 1980 compared to 35% for the rest of Canada, according to Ministry of Finance briefing notes.
He encouraged municipalities to do more to increase the supply of housing, especially multi-family housing, and to encourage more density in the geography-constrained Lower Mainland.
At 18%, the real estate sector is the largest contributor to B.C.'s GDP. Along with sectors like tourism, film production, manufacturing and consumer spending, real estate is expected to be a major contributor to economic growth in the province in 2016, in contrast to the struggling mining and oil and gas sectors.
But while employment is up in sectors like manufacturing, said de Jong, employment in real estate has recently dipped.
“Go figure,” he said.