The government of British Columbia's decision to impose a 15-per-cent hike in Land Transfer Taxes for foreigners who buy real estate in Metro Vancouver will do almost nothing to lower high housing prices. It will, however, generate even more money for a government that has already profited enormously from foreign nationals seeking sanctuary not only for their capital (however it was gained) but also for their future.
As I suggested previously, money laundering and other illegal activities play a significant role in driving up home prices in Vancouver (particularly in the condominium market).
If you are hiding wealth from a foreign government or carrying out other illegal activities, a 15-per-cent tax on that illegal wealth is a very reasonable cost of doing business. Also, most foreign buying goes on at the higher, more inelastic end of the market.
Fifteen per cent is a small tithe to pay to cover up rampant corruption.
If you are buying a $3-million home, you can afford an additional 15-per-cent tax. If your kids are driving Lamborghinis in street races, you can afford a 15 per cent tax. In fact, the cost of 2015 Lamborghini (between $250,000 and $550,000) is exactly what the additional tax will cost foreigners purchasing homes between the average price ($1.5 million) and a home on the higher end (up to $3 million). Fifteen per cent is a small tithe to pay to cover up rampant corruption.
Even you are not hiding wealth or doing anything illicit, the 15-per-cent tax will still fail to deter a significant number of buyers. For cultural and historic reasons, property is a favourite asset class of many non-Canadians, particularly those arriving from authoritarian societies with politically volatile governments where rule of law is flimsy. Again, a 15-per-cent tithe is a small price to pay to guarantee the safety of your capital -- and bonus(!) you now have property in one of the best places to live on Earth (when it's not raining).
This tax will fill government coffers with even more foreign money -- and that may not be such a bad thing -- particularly if the money is used to ensure there exists adequate affordable housing within the city core and a robust, fast public transit network.
At a news conference announcing the tax increase on July 25, something Premier Christy Clark said struck purposely over-broad:
"... this legislation is part of the action we're taking to make sure that the dream of home ownership remains within the reach of the middle class in British Columbia."
A home in British Columbia is within the reach of the middle class, but owning a home in the downtown core (or other highly desirable areas) of a global city like Vancouver is not. Nor will it be, much like owning a home in the downtown core (or other highly desirable areas) of a global city like Toronto is not within the reach of the middle class.
And the same is true in other global cities in other countries -- try buying a home with a middle-class income in the downtown core (or another highly desirable area) of New York, London, Zurich, Paris, Hong Kong or Singapore.
You can't accept the good parts of globalization and then whine about human or capital migration.
The new reality is that global cities -- though livable -- are increasingly "for rent" when it comes to the middle class. Home is where the distant suburbs are, which is why public transportation is so vital. Globalization has increased the spread of wealth tremendously, and will only continue to do so. There are more of the rich, the wealthy and the just slightly above average than ever before, and they all want to live where you want to live.
For the record there is nothing wrong with foreigners buying land in Canada. You can't accept the good parts of globalization (the spread of technology, affordable consumer goods, speedy travel) and then whine about human or capital migration. The latter are prerequisites of the former. And these foreign buyers, remember, have made a many Canadians very rich.
The most interesting effect of this new tax will be its long term psychological impact on foreign buyers -- not its financial implications. Foreigners buy property where they feel their capital is safe and they can build a future. This new tax sends them the message that though they can certainly build a future, their capital may not be as safe as they thought it was. It is on that faint hope that the cooling of the real estate market in metro Vancouver relies.
So, if you're buying a home in that city in 2017, bring your shorts -- next summer will still be plenty hot.
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