Squamish council has recently complained to the province about being left out of the 15 per cent foreign ownership homeowner tax in Metro Vancouver that went into effect last Tuesday.
Mayor Patricia Heintzman said Squamish needs to be considered alongside Vancouver because of how interconnected our housing market and labour force are with the Lower Mainland. About five per cent of buyers in Metro Vancouver in June were foreign, according to the B.C. Ministry of Finance.
The Squamish Chief sat down with University of British Columbia’s Tom Davidoff, a real estate expert and associate professor of strategy and business economics. What follows is an edited version of that conversation.
Q: Squamish is the first community outside of the 15 per cent foreign ownership tax. What could the impact be of us not being included?
A: That is the question, isn’t it? Are people just going to buy through friends and family and not pay the tax or are they going to pay the tax where they want to buy? Or are they going to respond to the tax by following incentives and going where the tax isn’t in place? If that does happen, it may drive prices up in places like Squamish. But there are some [other] factors.
Q: What are the other factors?
A: One: are [foreign buyers] really willing to substitute Squamish, if they haven’t already? Two: do they look at the tax in Vancouver and say what if the tax comes into place here in Squamish in a couple of years? That would reduce values, so I am not so excited to buy in.
Three: suppose the foreign buyers stop buying in Vancouver, that would stem the tide of Vancouverites [currently moving to Squamish], so there is an offsetting effect. My guess is the net effect, if the tax is not extended to Squamish, is still a positive with the substitution of forcing buyers away from Vancouver and into Squamish, but my guess is it would be a modest increase relative to what has been happening.
Q: What do you think of the tax itself?
A: I don’t totally agree with the base, but I do agree with the idea that workforce housing is really under threat in Vancouver and I think it is worth doing something about it.
At UBC and Simon Fraser University, about 50 of us proposed this BC Housing Affordability Fund and the tax there was on people who don’t pay income tax and aren’t landlords and haven’t lived in the home a long time. So that says housing should be used for the workforce so let’s help out people who do in fact participate in the economy. This (15 per cent) tax says housing is for Canadian nationals, obviously a different emphasis. I think I support this relative to doing nothing.
Q: If we are included in the tax area, what some local people are worried about is that we will have had a period of boom, but that this could all turn into a bust very quickly. Do you share that concern?
A: Yes, Squamish – and forgive me because it is a beautiful place – but it has a bit of the flavour of “drive until you qualify” locations. You want to buy a house, but the bank won’t lend you enough in the prime location so you have to go out to the point where it is affordable. Of course, arguably Squamish is more “prime” than Vancouver, but just in terms of housing prices, it is not. I worry about people spending a lot of money on homes that may ultimately be subjected to being reduced, basically, to construction costs. When and if there is a housing correction I worry that the ‘drive until you qualify’ locations are going to be the hardest hit. And it will be the last buyers in, who overpaid the most in the places where they were able to afford a home, that will be hurt the most.
Q: Can you explain, for people who aren’t in the business of studying this stuff, what the heck is going on with the housing market, beyond foreign buyers?
A: Housing prices are complicated. A very important factor is expectations. In Vancouver, it is very hard to build new housing so houses are pretty much worth what people are willing to pay for them. So, when people think prices will continue to go up, they are willing to pay more, which makes them go up, which makes people confident they are going to go up. It is reinforcing expectations and stirring up the pot. We also have really low interest rates, so that made housing affordable. So people are willing to pay more for the same house, because they can make the payments... Parents have home equity, you take out a home equity loan and you give it to your kids for a down payment, that adds to housing demand. You buy an investment property yourself with your home equity, you sell a home to a foreign buyer, you trade down to a condo and that drives up housing not just at the high-end point where the foreign buyer is buying but at other price points. You have multiple factors reinforcing each other at this point, I believe.
Q: What is your solution for places like Squamish?
A: Adding supply always helps affordability. I would also say raising property taxes and giving the money back to the workforce, is a great idea. Raise property taxes and make them progressive. If the home is worth over $1 million, charge extra, take the money and say “If you work in Squamish, everybody gets a cheque,” – you would have to have that approved by the province, but it looks like they are looking at doing some creative things.
Q: People who own houses are not going to like that and they are going to go after the municipal government.
A: That is why Vancouver doesn’t add density, they are afraid of homeowners. It is hard to overcome. It takes a lot of political courage at the provincial level. Incumbent homeowners love unaffordability, but the thing is it has gotten so bad for the next generation that even homeowners want to see something done. Density is tough; it has to be done at the provincial level. You can’t let municipalities do density on their own.
Q: Can you explain how that would work – having the province involved in zoning?
A: I would say municipalities can zone, but they have to explain their zoning laws as consistent with provincial goals, not just with the 10 angry neighbours who don’t want any renters next door. That would make a huge difference.
Then the mayors can say “Hey we are trying to be snobs and keep out those god awful doctors and lawyers who can’t afford a detached house, but no dice because the province won’t let us.”
But that would take a lot of bravery from the province.