There is an old Yiddish curse that warns that you better be careful what you wish for – you might just get it.
Many believe that new taxes recently announced by the BC NDP government are designed to make housing more affordable in Greater Vancouver. But it is much more likely these measures will only kill jobs, further hollow out the middle class to the point where only the very rich can afford to stay in their homes, and sour homebuilders on risking their money to construct the many new homes our region desperately requires.
Are these new taxes simply a method of increasing general government revenue at the cost of the largest creator of high-paying jobs in the province? Will these new taxes do more harm than good to those whom these policies were intended to benefit?
It is an irrefutable fact that there is a housing crisis in the Lower Mainland. Unfortunately, the cause of this crisis is not as clear-cut. It is most likely the crisis was caused by a perfect storm of ultra-low interest rates, significant migration to the region, lack of supply, high regulatory costs and Vancouver’s emergence as an international city.
Many felt the previous BC Liberal government was ignoring the issue and that doing anything would be better than the status quo. Just be careful what you wish for.
It is difficult to comprehend how massive additional property taxes on houses valued at more than $3 million will do anything other than decrease the price of high-end houses that will never be affordable to those seeking to enter the housing market. It will simply force homeowners (who may well have voted for David Eby) to leave where they have lived perhaps for decades.
Some take glee in punishing someone fortunate enough to benefit from owning a home. But forcing anyone to move from neighbourhoods where their doctors are located, where they shop and where they feel comfortable is unjust punishment. And guess who will be there to scoop up this bargain property? Most certainly, it will not be someone who is currently renting, and more than likely it will not be a young professional who also would be unable to afford the new property tax regime.
It is hard to see how new taxes will solve the affordability crisis. It is much more likely to make the situation worse by decreasing supply. The government does not have sufficient resources to build housing for anyone other than the most vulnerable members of our society. Those hoping that this new tax revenue will be used to build affordable housing for anyone other than the homeless will be left sorely disappointed.
The remainder of new housing must be built by non-government builders – those willing to risk their money to buy land and borrow money to construct homes with the hope they can sell this housing at a profit.
If these homebuilders believe government policies are designed to decrease house prices and make home building uneconomical, they will simply stop building. Once this occurs the fallout will be twofold.
First, jobs will disappear. Well-paid tradespeople will see their incomes decrease, and they will stop spending money locally. And it will not be just them: new housing means building materials are required, and that provides jobs in lumberyards and cement plants. New furniture and appliances are required and must be delivered by truck drivers. Credit unions finance the new homes and notaries get paid for filing the paperwork at the land titles office. On and on.
Second, the supply of new housing will dry up. This decrease in the number of new apartments, townhouses and other forms of housing will cause the market to stagnate. On the one hand, government taxes will put a damper on prices; on the other hand, the lack of supply will mean house prices will not fall to the point where they are affordable. As in-migration continues and new housing is not built, the market will become more crowded and the people these NDP polices were intended to help will be hurt the most.
In Part 2 of this series next week: what caused this housing crisis and what should the NDP government be doing if it wants to preserve jobs and make housing more affordable? •
Hugh Woolley, CPA, CA, TEP, is a Vancouver income tax consultant, author and lecturer at Lewis & Co. Chartered Accountants.