Photo: Herb Neufeld/Flickr
BC’s new 30-point housing plan to tackle affordability will have a lesser impact compared to the measures rolled out two years ago, according to an economist from one of Canada’s largest banks.
On Tuesday, the BC government unveiled its Homes for BC plan in its 2018 budget which includes a new speculation tax and an increase to Metro Vancouver’s foreign buyer tax by five per cent to 20 per cent. In addition, the foreign buyer tax now extends to the Fraser Valley, Central Okanagan and Nanaimo and Capital Regional Districts.
However, Michael Dolega, a senior economist at TD, says the new levies will have a “more muted” impact on BC’s housing market.
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“Putting it into context of the 2016 round of regulations, the impact of the current round on sales and prices will be around one-third,” Dolega writes in a report published Thursday.
“This is due to the fact that current market conditions are far more balanced, expansion housing markets are exhibiting only modest foreign activity, and the marginal increase in the tax is smaller,” he adds.
“In fact, after falling 30 per cent in B.C. and 40 per cent in the Lower Mainland within six months of the 2016 round of regulations, home sales regained about half of the declines and are now around the level suggested by fundamentals: about 27 sales per 1,000 people aged 15 and over,” he continues.
In addition, Dolega says that expanding the boundaries of the foreign buyer tax will also have a weaker impact because of the “relatively modest foreign presence” in the four additional regions.
The economist notes that the slowdown in activity will be assisted by the introduction of the speculation tax, beginning fall 2018. The levy will apply to real estate owners who do not pay BC income tax and will apply to the same regions as the foreign buyer tax. The new tax will start at 0.5 per cent and rise to 2 per cent in the following years.
Over the coming months, Dolega expects the new measures to cool BC’s resale market with a 5 per cent to 10 per cent peak-to-trough decline in home sales. Meantime, he predicts prices will decline by about 5 per cent from peak-to-trough.
Although Dolega says these new measures will have less of an impact compared to 2016’s round, the timing of these new levies leaves uncertainty around the possible impacts.
“These far-reaching reforms are being implemented at a time of rising interest rates (though gradual) as well as the recently implemented update to B-20 rules by the federal regulator OSFI, which are both weighing market activity,” writes Dolega.