VICTORIA — British Columbia is raising its foreign buyers tax and expanding it to areas outside of Vancouver, while bringing in a new tax on speculators, as part of a sweeping plan to improve affordability in the province’s overheated housing market.
The New Democrat government unveiled a 30-point housing plan in its first full budget on Tuesday that also increases the property transfer tax and school tax on homes over $3 million, and invests $6 billion in building 114,000 affordable homes over the next decade.
“Our intent is to bring stability to housing prices with these changes and have revenues to invest in building affordable housing,” said Finance Minister Carole James in a speech to the legislature.
“We recognize these are bold actions. But that’s what B.C.’s housing crisis demands.”
The previous Liberal government introduced a 15 per cent tax on homes purchased by foreigners in the Metro Vancouver area in 2016. Sales slowed for several months before rebounding and prices continue to rise.
The minority NDP government will increase the tax to 20 per cent and expand it to the Fraser Valley, central Okanagan, the Nanaimo Regional District and the Victoria area. The changes take effect on Wednesday.
The speculation tax will be introduced this fall. The annual property tax will target foreign and domestic homeowners who do not pay income tax in B.C, including those who leave homes vacant. So-called satellite families, or households with high foreign incomes that pay little provincial income tax, will also pay the tax.
Up-front exemptions will be available for most principal residences, long-term rental properties and certain special cases, so most homeowners in B.C. will not pay the tax, James said.
“This tax will penalize people who have been parking their capital in our housing market simply to speculate, driving up prices and removing rental stock,” she said.
In 2018, the tax will be $5 per $1,000 of a property’s assessed value. In 2019, the tax rate will rise to $20 per $1,000 of assessed value. It will initially apply to Metro Vancouver, the Fraser Valley, the Victoria-area, the Nanaimo Regional District, Kelowna and West Kelowna.
A non-refundable income tax credit will also be introduced to offset the new tax, providing relief to people who do not qualify for an up-front exemption, but who pay income taxes in B.C.
Cameron Muir, chief economist of the B.C. Real Estate Association, said he is concerned the tax would affect B.C. residents who have vacation properties or second homes. The credit may not be enough to offset the tax they have to pay, he said.
It’s also unfair to penalize people from other provinces who own vacation homes in B.C., Muir added.
“That’s a really big tax increase for Canadians who have done nothing wrong but own recreation property in one of Canada’s most amenable climates,” he said.
Asked whether out-of-province owners of recreation properties in B.C. would have to pay the tax, James said the government was still considering possible exemptions.
The government also moved to close loopholes that allow people to skirt tax laws. It’s building a database on pre-sale condo assignments and a beneficial ownership registry that it will share with tax authorities.
The plan also addresses supply through what the government says is the largest investment in housing affordability in B.C. history — more than $6 billion over 10 years to deliver 114,000 homes. That includes more than 14,000 rental units, 1,750 units for Indigenous people and 2,500 homes for the homeless.
It will also increase a grant for elderly renters and expand a program that helps low-income families.
The government said it’s working with municipalities to develop new tools, such as rental zoning, and creating a new office through BC Housing to partner with non-profits and developers to build affordable homes.
Thom Armstrong, executive director of the Co-op Housing Federation of B.C., applauded the government for taking “critical steps” to address supply and affordability. While measures like the foreign buyers and speculation taxes don’t directly affect his members, he said anything that cools the market helps.
“Anything that moderates demand in the market and has a dampening influence on prices will help the overall situation that our members and clients face,” he said.
Recent statistics from the Real Estate Board of Greater Vancouver show the average price of a detached home was $1.6 million and the average price of an apartment was $665,400. Vacancy rates for renters are at one per cent or lower in most cities across B.C., including Victoria and Kelowna.