Don Cayo: B.C.’s Property Transfer Tax could be made less harmful

The best way to deal with B.C.’s socially and economically harmful Property Transfer Tax would be to scrap it.

However, the B.C. Chamber of Commerce is promoting a second-best solution that has a far better chance of winning support from provincial politicians hooked on spending our money.

The Chamber’s approach, adopted at a policy session during its annual meeting in Richmond on Friday, is to lower the tax for British Columbians who buy primary residences, and raise it for foreigners who buy second homes or investment properties. In Vancouver — which has the province’s and the nation’s least-affordable housing — this could help rein in runaway costs, and not just by reducing the bite the tax takes from money saved for downpayments. It also might, by costing non-residents more, moderate the impact of so many of them bidding up the price of higher-end houses and condos.

My preferred solution — scrapping the tax — is almost certain to be a non-starter because the tax is such a rich cash cow. It brings in about $750 million a year — nearly two per cent of the provincial government’s revenue. And it has the “merit” — viewed through a political lens — of irking only a limited number of citizens in any given year. So politicians won’t surrender it. Too much money is at stake, and they are loathe to provoke a whole new group of voters by replacing it with some other tax.

But B.C.’s tax on home buyers is the highest in Canada — $5,000 on a modest $350,000 home here, compared with $120 in Alberta, $1,050 in Saskatchewan, and $3,725 in high-priced Ontario.

Our tax has another huge failing. It hammers home buyers at the very time they can least afford it, when they are scraping together money to buy a home. It erodes the savings available for downpayments, thus forcing buyers to borrow more. This means higher mortgage payments for years.

The Chamber’s proposed solution deals nicely with both these issues: how to replace the revenue government will lose if it makes the tax less burdensome for citizens, and how to spare home owners a worrisomely high expense.

The resolution calls for the tax to remain as is — one per cent of the first $200,000 of value, and two per cent on the rest — for British Columbians purchasing anything other than a primary residence. For people buying homes to live in, the Chamber wants it lowered to one per cent across the board. For non-residents of Canada or corporations they control, the resolution wants the rate raised to two per cent on the full price.

Thus, to cite the example from a paper prepared for the policy discussion, today’s PTT assessment of $8,500 on a $525,000 home would drop to $5,250 for a British Columbian buying a primary residence, but would rise to $10,500 for a non-resident.

The paper notes many jurisdictions, several provinces among them, either put restrictions on what non-residents can buy or tax them up to 15 per cent extra.

B.C. doesn’t track foreigners’ involvement in the real estate market, so precise figures are hard to come by. But the paper cites a 2011 study of Vancouver’s housing market by Landcor Data Group that concluded: “In 2008 and 2010, between 46 and 74 per cent of buyers of condos over $2 million and homes over $3 million were sold to persons identified by Landcor as People’s Republic of China investors.”

The best way to deal with B.C.’s socially and economically harmful Property Transfer Tax would be to scrap it.

However, the B.C. Chamber of Commerce is promoting a second-best solution that has a far better chance of winning support from provincial politicians hooked on spending our money.

The Chamber’s approach, adopted at a policy session during its annual meeting in Richmond on Friday, is to lower the tax for British Columbians who buy primary residences, and raise it for foreigners who buy second homes or investment properties. In Vancouver — which has the province’s and the nation’s least-affordable housing — this could help rein in runaway costs, and not just by reducing the bite the tax takes from money saved for downpayments. It also might, by costing non-residents more, moderate the impact of so many of them bidding up the price of higher-end houses and condos.

My preferred solution — scrapping the tax — is almost certain to be a non-starter because the tax is such a rich cash cow. It brings in about $750 million a year — nearly two per cent of the provincial government’s revenue. And it has the “merit” — viewed through a political lens — of irking only a limited number of citizens in any given year. So politicians won’t surrender it. Too much money is at stake, and they are loathe to provoke a whole new group of voters by replacing it with some other tax.

But B.C.’s tax on home buyers is the highest in Canada — $5,000 on a modest $350,000 home here, compared with $120 in Alberta, $1,050 in Saskatchewan, and $3,725 in high-priced Ontario.

Our tax has another huge failing. It hammers home buyers at the very time they can least afford it, when they are scraping together money to buy a home. It erodes the savings available for downpayments, thus forcing buyers to borrow more. This means higher mortgage payments for years.

The Chamber’s proposed solution deals nicely with both these issues: how to replace the revenue government will lose if it makes the tax less burdensome for citizens, and how to spare home owners a worrisomely high expense.

The resolution calls for the tax to remain as is — one per cent of the first $200,000 of value, and two per cent on the rest — for British Columbians purchasing anything other than a primary residence. For people buying homes to live in, the Chamber wants it lowered to one per cent across the board. For non-residents of Canada or corporations they control, the resolution wants the rate raised to two per cent on the full price.

Thus, to cite the example from a paper prepared for the policy discussion, today’s PTT assessment of $8,500 on a $525,000 home would drop to $5,250 for a British Columbian buying a primary residence, but would rise to $10,500 for a non-resident.

The paper notes many jurisdictions, several provinces among them, either put restrictions on what non-residents can buy or tax them up to 15 per cent extra.

B.C. doesn’t track foreigners’ involvement in the real estate market, so precise figures are hard to come by. But the paper cites a 2011 study of Vancouver’s housing market by Landcor Data Group that concluded: “In 2008 and 2010, between 46 and 74 per cent of buyers of condos over $2 million and homes over $3 million were sold to persons identified by Landcor as People’s Republic of China investors.”

As well, “While the Chinese buyer group is significantly present, other foreign buyers from 90 different countries are also entering the Vancouver market.”