Introduction
Rapidly rising home prices have led to affordability issues, prompting the provincial government to introduce several measures to cool the market. In recent years, BC's housing market has experienced significant volatility, characterized by escalating prices and increased demand. The provincial government has implemented a variety of strategies to address these challenges, including taxation, regulatory changes, and incentives for increasing housing supply. Below, we discuss the most notable measures and their effects on the market.
Foreign Buyers' Tax (2016)
In August 2016, the BC government introduced a 15% Property Transfer Tax on foreign nationals, foreign corporations, and taxable trustees purchasing residential property in the Greater Vancouver Regional District. The tax aimed to curb foreign investment, which was believed to be a major driver of housing demand and price increases.
According to data from the BC Ministry of Finance, the introduction of the Foreign Buyers' Tax led to a significant decline in foreign purchases. In the months following the tax implementation, the proportion of foreign buyers dropped from around 13% to less than 5%. However, home prices continued to rise, albeit at a slower pace, indicating that while the tax reduced foreign demand, it did not entirely solve the affordability issue.
Speculation and Vacancy Tax (2018)
The Speculation and Vacancy Tax (SVT), introduced in 2018, targets empty homes in major urban centers. The tax rate varies depending on the property owner's residency status and how the property is used. The goal is to encourage homeowners to either rent out their vacant properties or sell them, thereby increasing housing availability.
The SVT has been effective in increasing the rental supply. Data from BC Housing shows a noticeable uptick in rental listings and a decrease in vacancy rates in affected areas. For example, Vancouver's vacancy rate improved from 0.8% in 2017 to 1.2% in 2019. However, critics argue that the tax has had a limited effect on overall housing prices.
Additional School Tax (2018)
In 2018, the government introduced an Additional School Tax on properties valued at over $3 million. This progressive tax aims to generate revenue for education while discouraging the accumulation of high-value properties by wealthy individuals.
Revenue from the Additional School Tax has contributed significantly to BC's education funding. In 2019 alone, the tax raised approximately $250 million. However, its impact on cooling the housing market has been minimal, as it affects only a small segment of the property market.
Rental Housing Initiatives
To address rental shortages, the BC government has launched several initiatives to increase rental housing supply. These include the Rental Housing Construction Tax Credit and funding for affordable housing projects through BC Housing.
These initiatives have led to the construction of thousands of new rental units. According to BC Housing, between 2018 and 2021, over 10,000 new rental units were approved, with many specifically designated as affordable housing. These efforts have helped stabilize rental prices and improve availability.
First-Time Home Buyer Incentives
To assist first-time homebuyers, the government has introduced programs like the First-Time Home Buyers' Program, which reduces or eliminates the Property Transfer Tax for qualifying buyers, and the BC Home Owner Mortgage and Equity (HOME) Partnership, which provides down payment assistance.
These incentives have made homeownership more accessible for first-time buyers. Data from the BC Ministry of Finance indicates that over 5,000 first-time buyers benefited from the Property Transfer Tax exemption in 2020. While these measures support new entrants into the market, they have not significantly cooled overall home prices.
Increasing Housing Supply
In addition to tax measures, the BC government has focused on increasing the housing supply. The HousingHub initiative, launched in 2018, partners with non-profits and the private sector to create affordable housing. Additionally, zoning changes and expedited approval processes aim to encourage new developments.
The HousingHub has been successful in facilitating the creation of affordable units. Since its inception, the initiative has helped build over 3,000 affordable homes, with many more in the pipeline. However, challenges such as land availability and construction costs continue to limit the pace of new developments.
Discussion
The BC government has implemented a range of measures to cool the housing market and improve affordability. If we analyze the period from 2013-2023, when these measures were in place, the average home price in BC increased by about 112%. What about the decade immediately prior (2003-2013), when there was far less government intervention? Over these ten years, the average home price in BC increased by approximately the same amount or 116%. Clearly, these efforts have had varying degrees of success, the complexity of the housing market means that no single solution can address all challenges. A combination of tax policies, incentives for increased supply, and support for first-time buyers will likely continue to be necessary to create a more balanced and accessible housing market in British Columbia.
