There is much debate these days about the new so called “speculation tax” in BC which levies 1% onto Canadians and 2% on foreigners who own houses or condos in BC that are not rented 6+ months. It also levies a 20% foreign buyer tax and expands the taxable region from MetroVancouver to 4 others regions (Victoria area, Nanaimo, Kelowna incl W Kelowna and Fraser Valley).
The purpose is to allegedly improve affordability in BC – by reducing demand. To me, it is really an #EnvyTax to buy votes that will do little, if any, to increase affordability. Who really benefits if a home in West Vancouver drops from $4M to $3.5M due to these new taxes, or if a golf course condo on Bear Mountain that is vacant for 8 months of the year is now sold in the market and drops from $800,000 to $725,000?
The predicable result: These new taxes merely cause many Albertans (and some foreigners) to sell, causing a short term sell off in markets like Kelowna or Victoria, with a result of much less supply in the coming years and a negative impact on local retailers, restaurants and the construction industry. Add enforcement costs and the much envisioned additional several hundred million in taxes will likely not appear, as investors are not dumb. How ? Rentals are easy to fake to family members or friends, and it is easy to create local income taxes paid for a Canadian spouse of a non-resident foreign investor that owns multi-million dollar properties in the Lower Mainland.
Also keep in mind many immigrants [me included] come here because they can buy property, incl land and many love large lots or large houses, not just tiny condos. It is part of the appeal to immigrate to Canada. Have a drive through Richmond, Surrey, Vancouver Island, Sunshine Coast or Fraser Valley for ample proof of that theory. Not everyone wants a small shoebox in the sky. Many want land. That puts an upwards price on land. Many immigrants come with money, and many more have connections from back home to friends, family and business associates with money. Not one politician has mentioned immigration in their speeches about well meant, but poorly thought through legislation. Not one. Immigration is the number one driver of high house prices. Canada might even increase immigration. That will make homes more affordable?
Totally exempt has been the agricultural sector in BC thus far, so money now will move into that space and drive up agricultural land prices, endangering our local food supply even. Look no further than to spiraling vineyard and orchard prices in the South Okanagan or to farmland prices in the Fraser Valley.
To create affordability we need more supply. Not just more, but also inexpensive supply. The only way to make new supply more affordable is by lowering all-in build costs and speeding up approval cycles, as time is money.
Rather than taxing existing homes more, in an attempt to reduce demand somewhat, in an immigration society like Canada, and especially BC, the warmest part of Canada and closest to Asia, the BC Government should focus primarily on cost reduction and new land supply – the true source of our unaffordable housing in BC today.
So, let’s look a little closer at these two aspects: build costs and land availability.
Costs have several sub-components, such as:
- physical material costs (concrete, wood, fridges, wires, windows, doors, siding ..)
- labour & shipping costs to get those physical materials on site
- labour costs to install those materials
- design costs
- planning & approval costs
- finance costs incl upfront fees and ongoing interest
- fees paid to various municipal or provincial (and sometimes federal) entities
- land costs [ with its own design, planning, financing, fees, labour and material costs ]
- sales costs
- marketing costs
- risk costs [ such as this new EnvyTax, also referred to as speculation tax, that now has substantially increased risk of sales for condos to Albertans in Victoria, Kelowna or Nanaimo ]
Since time is money, delays cost money. Often planning and getting approvals is a multi-month to often multi-year process with often unknown timelines or outcomes even. It is here where a lot of emphasis has to be placed to increase affordability: fees and timelines. If land could be used for 17, 22 or 25 units it will make a big impact on home prices down the road, for example. If a serviced road approval can be shortened to 6 month from 18 that is a huge win. If density and associated CACs (community amenity contributions) are known upfront – rather than being negotiated over a 2-3 year period of time – that is a huge win.
A few specific examples:
On a recent large condo project in Vancouver [where I was involved in a few years ago, in the early conceptual stage as a member of the steering committee] now called the Butterfly, as part of the re-zoning approval, the City of Vancouver levied almost $90M in CACs onto the 300 unit tower, well over $290,000 per condo just in CACs alone. No wonder prices are through the roof in Vancouver. The idea was born 5-6 years ago, with conceptual plans 3-4 years ago. The construction will start at best next year with estimated occupancy in 2022. A ten year planning to occupancy timeline. No wonder condo prices without views start at a mere $1500/sq ft. This is affordability these days in Vancouver?
For another example, I am currently involved in a land development project in Oliver, BC where we have to slightly widen a curved road by cutting across a very small (say 3 to 5 sqm or 35 to 55 sq feet) plot behind some sheds to connect to a new road with new underground services on non-ALR land. This 3 to 5 sqm however is on ALR land (agricultural land reserve). Usually the ALR provincial planning department gives such permission but it is a 4-6 months process with substantial paperwork, with unknown outcome, that substantially increases project risk and thus, serviced land costs, thus housing price. [For those interested here are the allowed ALR uses in BC .. ours would be section 3 (permitted uses in ALR) item (4) d.1 ]
In a second project I am involved in the building inspector outright refuses new building material as he is not familiar with it, also causing massive delays, thus costs. One can appeal it to the BC ombudsman, which is a delay of two month or more, or one can hold one’s nose and switch to more expensive but known materials.
A fourth example is the building code that restricts or disallows certain common sense approaches such as spiral staircases to create cheap attic space for use. I have written about this example here a while ago here
So, plenty of options to streamline building code, timelines and fees. Let’s talk about land, the other major cost driver in cities.
ALR is a big issue in BC and touching ALR for housing is essentially taboo, even in high density regions like Richmond or Surrey where 10 storey buildings routinely stand besides blueberry farms. A earnest debate about opening up select, sub-par ALR land near cities, or land swaps, especially in MetroVancouver or the Fraser Valley is in order.
Also a discussion how to create more land from ocean or river flats would be very useful. We did that in BC 80+ years ago as much of a then small, muddy island in the tidal plains of the Fraser River delta was wrought from the Fraser River via dykes. This island is now called Richmond. Massive housing developments, industrial land and massive newly created fertile land has been created. But we could do even more today, for example, we could expand further west by easily one km into the Salish Sea (formerly Georgia Straight) where the ocean is very shallow, as could Surrey by going south into Boundary Bay or Tsawassen by going east. Plenty of new land could be created in the Lower Mainland, in the Fraser River or along its shore line, with rapid transit and very walkable, with beaches and scenic shorelines, with a mix of retail, recreation, subsidized & high-end housing. Venice did that. Holland did that. San Francisco Bay Area did that. Singapore is doing it. But not in BC ?
City owned Langara golf course in the heart of Vancouver is another example where valuable land worth billions sits within blocks of a subway, the Canada Line. Why is there not affordable housing on it ? Where are the plans, almost 10 years after CanadaLine opened? Do we have a golfing crisis, or a housing crisis ?
As such, rather than taxing existing homes driving away investment capital, why not look at sensible cost reductions in the planning process or building code, and more land creation where it makes sense ?
Thomas Beyer, President
Prestigious Properties Group – www.prestprop.com
Managing Partner, Oliver Landing Development – www.oliverliving.ca