Three years later, has British Columbia’s speculation and vacancy tax made a difference?

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On the third anniversary of British Columbia’s adoption of a vacant home tax and speculation, the province says the tax has turned vacant units into homes.

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But experts remain divided on its benefits, noting that it is difficult to isolate the exact effect of the supply tax and the market for homes and rental shares.

The BC Ministry of Finance, in a 22-page technical briefing to mayors released Wednesday, notes figures from Canada Mortgage Housing Corp. that it says show the tax “helped” add 18,000 units to the long-term rental market in Greater Vancouver in 2019 and 2020. as investors repurposed their properties for long-term rental. and added recently completed units to the market.

The tax was introduced in 2018 by Prime Minister John Horgan’s NDP government, in part, in response to escalating home prices in urban areas and low rental availability rates and high rental prices.

It applies to all vacant homeowners, although foreign owners pay a higher tax, in the Vancouver, Victoria, Nanaimo, and Kelowna metropolitan areas.

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Rent rates at Metro have recently fallen but remain high and house prices continue to rise.

Tom Davidoff, associate professor at the Sauder School of Business at the University of British Columbia, said it is difficult to isolate the exact effect of the tax on speculation and vacancies as there are other factors at play, including the tax on vacancies. the City of Vancouver and the Overseas Vacancy Tax. -tax on buyers, also introduced almost at the same time.

“I think there was some effect. But you know, it’s hard to separate yourself from everything else that happens in the world, ”said Davidoff, director of the UBC Center for Urban Economics and Real State.

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“I think going into the future, annually, what it does is keep things on the rental market,” he said.

The tax may also provide incentives for creating more specially designed rental homes, Davidoff added.

Andrey Pavlov, a finance professor at Simon Fraser University, has a different opinion.

He believes the increase in rental units is linked to the higher price of new units on the market, units that have not been subject to rental controls. The CMHC report noted that the average requested rent for vacant units was 21.4 percent higher than the overall average rent for occupied units in Metro.

Pavlov said the NDP’s speculation and vacancy tax and other housing measures are stifling new home construction, pointing to a recent drop in building permits in the metropolitan area.

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Pavlov says the tax can devalue a new housing asset because it reduces flexibility in its use and can also reduce other government revenue, such as the property transfer tax.

“The way to increase affordability is to increase supply,” said Pavlov, who specializes in risk management for real estate investments, mortgages and financial derivatives.

The latest CMHC rental market report notes that a combination of “market forces and housing policies at different levels of government” has led landlords to convert existing-use units to long-term rentals, creating a new rental offering. The CMHC report notes that in 2020, 3,631 of the 7,137 condo units added to the rental market were conversions of existing units for long-term rentals.

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However, the report notes that with lower demand in the short term due to less tourism due to COVID-19, some of these conversions are likely to be the result of investors choosing to rent their units to long-term tenants.

The BC NDP government also highlighted the $ 231 million raised by the speculation and vacancy tax that has been earmarked to support affordable housing.

For fiscal year 2020, the speculation and vacancy tax is expected to raise $ 81 million.

Provincial law requires the money to go toward housing priorities, with a large portion going to BC Housing, which provides affordable housing in the province.

In providing statistics on the speculation tax and vacancies, the British Columbia government stated that more than 99 percent of British Columbia residents are exempt from paying the tax for the third year in a row. The province added that foreign owners and satellite families are paying most of the tax.

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