Real estate investors brace for new Liberal laws

Party has promised to implement a tax on flipping homes owned less than a year

thomas davidoff - rk
Thomas Davidoff, director of the University of British Columbia’s Centre for Urban Economics and Real Estate, says the best way to keep housing prices from rising is to have policies that encourage home construction and more rental housing | Rob Kruyt

If real estate investors needed clarity on what the general public thought about the practice of buying and flipping Metro Vancouver homes, they got it in the 2021 federal election. 

Vancouver Granville Liberal candidate Taleeb Noormohamed came under heavy fire after the media revealed that since 2005, he had bought and sold at least 21 homes within timeframes shorter than one year.

Many took to social media to express outrage that the Liberal Party of Canada candidate would do that when the party was promising to implement an “anti-flipping tax” that would be over and above the capital gains tax that real estate investors already have to pay on those sales.

Coverage of Noormohamed's dealings may have almost cost him the riding, which he was able to win in a squeaker when mail-in ballots were counted. 

The issue became a flashpoint because the high cost of housing was a key issue for many voters.

Rentals.ca and Bullpen Research & Consulting’s latest rent report revealed that the asking price for Vancouver one-bedroom apartments rose 15.7% in September compared with the previous September. That was the highest increase in the country. The $2,167 average monthly price for a one-bedroom apartment that landlords were asking in Vancouver was also the highest rate in the country. 

The Liberals winning a minority government provides some clarity of what policies could be on the horizon to battle housing affordability. 

In order for a newly purchased property to qualify as a principal residence for tax purposes, the owner must live in the property for at least one year. The result is that the tax that the Liberals have proposed for home resales would only be for properties that are not considered primary residences. 

The Liberals would also need support from another party in Parliament to legislate the plan. 

If the Liberals succeed in passing the plan, it will not be a silver bullet to affordability, said Thomas Davidoff, director of the University of British Columbia’s Centre for Urban Economics and Real Estate.

“The reason people speculate is because they think prices are rising,” Davidoff said. 

The best way to keep prices from rising, he added, is to have policies that encourage home construction and more rental housing. 

He praised the Liberals for recently tweaking the Canada Mortgage and Housing Corp.’s mandate to include rental housing, which he said could help create more rental units. 

On the campaign trail, the Liberals promised to build, repair or preserve 1.4 million homes in the next 10 years.

The party also said a Liberal government would double the first-time home buyer tax credit – something Davidoff called inflationary because it gives new buyers more purchasing power. 

The current system provides first-time homebuyers with a $5,000 non-refundable income tax credit. Doubling that amount would put up to $10,000 in those buyers’ pockets.

“There will be action on the foreign buyers and foreign capital file,” said Simon Fraser University director of the City Program, Andy Yan. 

The Liberals promised in the campaign to implement a two-year ban on allowing foreign nationals to buy homes in Canada, but Yan doubts that the ban will materialize.

“If anything, it will be a foreign buyers’ tax, because, hey, that’s income,” he said.

Real estate developers, such as Hold It All owner Chip Wilson, similarly, like the idea of taxing foreign buyers more than banning them.

“Let them buy, but make them pay a premium,” Wilson told BIV.

Yan said that if the Liberals implement a new tax on reselling homes within a year of purchase, the levy is unlikely to evolve into being a tax on homes resold within longer timeframes. 

Doing so, he said, would mean taxing primary residences, and though that would be popular among some voters, others would be irate.

A flipping tax is aimed at deterring speculative real-estate purchases, Yan said, whereas taxing principal residences is just a money grab.

Real Estate Wealth Lab chief intelligence officer Jennifer Hunt told BIV that she expects the Liberals will try to win support from another party to introduce a new multi-generational home-renovation tax credit for homeowners who want to add secondary units to their homes to accommodate immediate or extended family members.

Those upgrades would increase real estate values and could be inflationary.

The Liberals promised in the campaign that homeowners would be able to claim a 15% tax credit, up to $50,000, in renovation and construction costs for these upgrades. That means homeowners doing those renovations could pocket up to $7,500.

Another Liberal housing promise that hinges on support from the NDP, or another party, is to provide $1 billion in loans and grants to develop, or scale-up, rent-to-own projects with private, non-profit and co-op partners. 

A typical rent-to-own scenario could be one where an individual commits to rent a property for a period of time and receives the option to buy the real estate at a locked-in price before the end of the lease.

“The policy that would be more likely to get passed, based on NDP support, would be to double the first-time homebuyers’ tax credit,” Hunt said.

The NDP promised in the campaign to extend the maximum amortization period for mortgages to 30 years, and this could be a part of horse-trading that the party engages in with the Liberals to support policies that the Liberals want to put in place, she said.

That Liberal policy could be the flipping tax, but Hunt still gives that policy only a moderate chance of becoming law.

“I don’t believe that the appetite from the other parties would allow for that policy to go through,” she said. •

gkorstrom@biv.com

@GlenKorstrom