British Columbia's Property Transfer Tax -- the tax charged on every real estate purchase in the province -- was first introduced in 1987, when the average price of a single-detached home was just $147,485. At the time, the 1% tax levied on sale prices up to $200K applied to 95% of all home sales, while just the top few transactions with a remaining balance above $200K were hit with a higher 2% tax.
It's now 2023 -- 36 years later -- and the average home price has increased by 1,162% to about $1,861,100, meaning an average tax bill that used to be under $1,500 is now closer to $35K, because the $200K threshold still stands, despite a grand total of zero homes being sold in the Greater Vancouver region for under $200K in 2022.
The tax was originally created to only target wealthy speculators, but instead of raising the threshold to meet the times, new thresholds were added -- 2% on home prices between $200K and $2M and 3% on prices over $2M.
The government did introduce exemptions for first-time homebuyers, though. First-time homebuyers are eligible for a full exemption from the Property Transfer Tax if the property has a fair market value of $500K or less, and a partial exemption if it has a fair market value of less than $525K.
However, in 2022, a grand total of 8,396 single-detached homes were sold in Greater Vancouver, 120 (1.4%) of which were sold for less than $525K. In 2022, a grand total of 4,214 townhouses were sold, 75 (1.8%) of which were sold for less than $525K. In 2022, a grand total of 15,597 condominiums were sold, 2,239 (14.4%) of which were sold for less than $525K.
This is all just one of many reasons why the Real Estate Board of Greater Vancouver (REBGV) made formal recommendations to the Province last week to "overhaul" the Property Transfer Tax by conducting a comprehensive review of the tax, removing the tax on any home costing less than $75K, increasing the first-time homebuyers exemption threshold to $750K, exempting all presales, indexing those thresholds using the Consumer Price Index to allow for annual adjustments, and using revenue from the tax to assist renters looking to buy.
REBGV simultaneously made recommendations regarding the forthcoming Flipping Tax proposed by Premier David Eby, as well as general recommendations regarding increasing the supply of rental housing in British Columbia.
STOREYS recently caught up with REBGV's Director of Economics and Data Analytics, Andrew Lis, to dive a bit deeper into the rationales behind the various recommendations, whether flipping is really a problem, and how all of these things tie into our housing and affordability crisis.
To start off with, can you tell me about how these policy recommendations came together? When did REBGV first start exploring these changes? Were any other industry stakeholders involved?
These recommendations were actually developed in-house. There was no panel of stakeholders. The vast majority of the work was actually done by our Director of Government Relations Harriet Permut.
The first recommendation, regarding changing the threshold on the Property Transfer Tax -- our organization and Harriet herself has been lobbying for this for a very, very long time. Many, many years. It's possible it's over 20, so this is not a new one we've been looking at. However, the angle that we've taken this time is slightly different, by translating it into an effect on renters, because I think the government is often not aware of how certain policies may impact or spill over into segments of the market that they're not targetting.
It's kind of shocking that the policy has not been reviewed since 1987. You would think something that old and that important would at least warrant a review.
The worst part is the government has a program to exempt first-time homebuyers, but they put in thresholds. To be honest, I'm not sure why the threshold levels exist. I think it just sort of so they could say 'Well, we're not giving this tax break to the wealthy, we're just giving it to people who truly need it.' That's my speculation, but one could very reasonably question whether there should even be a threshold at all. If the goal of the policy is to help first-time buyers, does it really matter what price point they're shopping at? They're still a first-time buyer.
Home prices have gotten quite expensive. For many people, it's very hard to find an entry-level home below the $525K threshold. We found that 15% of condos that sold last year were sold below that, but not all of that 15% were sold to first-time buyers. So really, this policy is having very little impact on our Greater Vancouver region. Outside the region, even if you look across the province, I think you'll find that a significant amount of homes are priced above that threshold level.
It's unfortunate. It's a policy that exists, it could be helping, it could be doing more right now, but it's sort of just sitting on the shelf collecting dust, when all they really need to do is a review of it and tie the thresholds -- if they're going to have a threshold -- to the movement in the property market so it continues to make sense over time.
How did REBGV settle on the $750K threshold that's being recommended?
It's sort of just an arbitrary number, in some ways. That's sort of where we see the entry-level price point for a lot of homes in our market. But again, I'm not sure there should even be a threshold. Of course, the policy already has a threshold in place, so removing the threshold is probably harder than just changing it, from a government policy and process perspective. It's really just trying to make it as easy as possible for the government, but, honestly, it could be higher.
Another recommendation is regarding presales. Why exempt all presales without any thresolds?
Presales are tricky. In the discourse around housing, I think there is this belief that presales are kind of the domain of speculators, but that's not really all that true. The issue there is that for one to actually move the needle on building more housing, your presale investors are a very key component. They are the one who fund new projects. Without them, you're not going to get new projects. So if you put roadblocks in place, on people trying to invest in that product type, you're just going to get less of that product at the end of the day. So we're saying any kind of new construction should really be exempt to encourage people to invest in construction, so that we get more of it, because, ultimately, the answer to a lot of our issues is unquestionably adding more housing.
Let's talk about flipping. What was the rationale behind the recommendations?
If you think about it: How do you define a flip? Is it simply any home that transacts within some arbitrarily-defined time period such as 12 months? Does it have to be a situation where the so-called flipper makes money on the transaction? What if they don't make money? What about people who need to move for all kind of life reasons?
We know from census data that the vast majority of people who are younger, they're the most likely to move, and so they're the most likely to be hit by a tax like this if the tax is not very hyper-aware of all the life circumstances that could lead to somebody needing to move. And, of course, these are not people looking to flip, these are not people looking to speculate on the housing market. They're just trying to live their life. You could imagine a situation where a young person buys a condo and let's just say for some reason they don't like it. They find that it's too noisy and they can't sleep, so they decide they want to sell it. Well, if the tax is so cost-prohibitive that they can't sell it, then some renter who may like to own that condo can't move in to it, because the owner isn't going to move.
I think there is enormous potential for very negative spillover effects, such as limiting the freedom of movement up and down the housing ladder, and kind of locking people into their homes longer than they otherwise might stay, simply for fear of having to pay the tax, while they are not actually flippers. We're just trying to say 'be careful with a tax like this, make sure it targets the correct segment of the market you're actually trying to target, be specific about who a flipper is, make sure this doesn't penalize those who are most likely to move for life reasons.'
Is flipping a big enough issue these days to even warrant a new tax?
I think if you were to put in all kinds of exemptions, you would find that the true number of so-called flips is just trivial. So it seems odd to me that they want to go through with the process of legislation and regulation, which is time-consuming, expensive, and takes up a lot of resources, while not providing the public with any information about the extent to which they know flipping is a problem.
It's concerning to us in that it feels like another tax being added into the market, and we know taxation does not tend to spur the creation of new housing. Every new tax tends to have a negative effect on the addition of new supply.
I bet you that if you were to do an analysis of the values [so-called flips] were purchased at, what it was sold at, and you account for everything like fees, taxes, legal fees, title registration, and transfer taxes, the vast majority of homes bought and resold within some arbitrary-defined time period do not make money. At least not enough for it be associated with somebody speculating on the property market.
I'm not so sure that there is a sound rationale for the flipping tax, both in terms of its profitability and its prevalence. The government has the information they need to do a proper analysis. They have all of the sales data they would possibly need, they have tons of information about BC Assessment about the uses, they have data from the land titles registry. I would be very curious to see an analysis to see whether it truly is a problem.
It reminds me of the saga with the federal foreign buyer ban where it seemed to be responding to something that was perhaps a problem several years ago and created unintended consequences.
That's exactly right. That's a great example. It's not like we don't have examples of the government putting in policies that are both ineffective and create downstream consequences that are undesirable. It's just kind of unfortunate, because it feels like a policy that's a bit targeted towards garnering public support, but probably won't have the impact they're looking for, and could potentially create problems that they will find much more problematic than the so-called flipping problem, which may or may not be prevalent.
Has REBGV heard, or anticipate hearing, any pushback about any of these recommendations? Are there any that may require more softening for people to accept?
I think all of them are going to be somewhat challenging for the government to accept. I don't want to sound too cynical, but the government has people working on policy -- I used to do that, actually -- and I know that when somebody from the outside comes in with a recommendation, a lot of people on the inside look at it and say 'why would we do that? We already have these policies that are doing x, y, and z,' so there's that possibility.
For the flipping tax, it remains to be seen what the legislation will look like. We're hopeful that they will at least listen to the fact that there could be a very lengthy list of exemptions that are needed. On the Property Transfer Tax, like I said, our Director of Government Relations has been lobbying for that for I don't know how many years, and they haven't listened. I'm hopeful they will listen this time, but we'll see.
So the recommendations have been presented. What happens now?
Our understanding is that we take this information to this panel, the pre-budget submission panel, and they take that information and they go to government and present it, presumably, at other committees they have within government, and discuss which ideas may have some merit. And because of the sensitivity of some of these things, a lot of that is behind closed doors, so we don't actually see the inside thinking and what happens next. Really, it's more like we make these recommendations, I think there was a statement that the government released saying they've heard our recommendations, and that's kind of all we hear.
So the ball is in their court now.
The ball is in their court.
Responses have been edited for length and clarity.