The One Water development in Kelowna.

(JOHN MCDONALD / iNFOnews.ca)

KELOWNA - The speculation tax proposed by the provincial government will likely have unintended negative consequences for Kelowna and is not likely to temper real estate speculation, a new report says.

However, it would also have one positive impact: increasing the supply of rental units in a city where they are in extremely short supply.

Prepared for Kelowna council by real estate services manager Johannes Saufferer, the hastily-produced report attempts to gauge the impact of not only the proposed two per cent speculation tax but the expanded foreign buyers tax and increases to the property transfer tax.

His conclusion: We don’t have much to fear from disgruntled foreign buyers or those with really expensive homes but the speculation tax is another story with the potential for significant local impact, should it roll out in its current form.

“Unfortunately, due to its structure the speculation tax is not likely to be successful in reducing speculation and 'flipping' of property in the housing market,” Saufferer writes.

“Instead, the speculation tax will have its greatest impact as a vacancy tax, once the terms of the new tax are clearly defined. In the meantime, the lack of clarity and perception of the tax will have a negative impact on the local real estate market from out-of-province purchasers.”

Introduced in the 2018 provincial budget, the new taxes are part of a plan introduced to boost housing affordability by stabilizing the soaring real estate market.

Key to the plan was the increase to five per cent from three to the property transfer tax on houses valued over $3 million, increasing the foreign buyers tax to 20 per cent of fair market value while extending it to the Central Okanagan and introducing the speculation tax.

The property transfer tax increase would apply to less than one per cent of the market and isn’t going to deter rich people from buying expensive houses, the report says.

The foreign buyers tax would also have a negligible impact, affecting less than two per cent of total sales in the Okanagan which would likely drop at first but then recover, as was experienced in the Vancouver market when the tax was first introduced in 2016.

The speculation tax applies to Kelowna and West Kelowna (but not the rest of the Central Okanagan) and is expected to most affect buyers and owners from outside B.C. but within Canada. While there are exemptions to the tax, Saufferer estimates about 3,500 units will be classed as unoccupied within the city, about half of which are owned by B.C. residents who will be unaffected by the tax.

If there is a silver lining, Saufferer estimates between 25 to 50 per cent of non-B.C. owners in Kelowna will rent out their units and could provide an increase of between three and five per cent in the number of rental units currently available in the city.

While Saufferer points out there appears to be support for the province’s housing initiatives from the general public and non-profit groups, “real estate specific” groups such as the Urban Development Institute and the B.C. Chamber of Commerce have criticized their potential impact on the real estate market and the economy as a whole.

Saufferer is recommending council send a letter to the provincial finance ministry outlining the city’s concerns about the speculation tax and urging changes to the terms of its application be announced as soon as possible to end uncertainty. West Kelowna council this week agreed to a similar measure.

Meanwhile, the three local MLAs, Ben Stewart, Steve Thomson and Norm Letnick will be joining MLA and Green Party leader Andrew Weaver on Sunday for a town hall meeting on the new speculation tax and the employers' health tax.

The meeting begins 3 p.m. Sunday, March 25 at Parkinson Recreation Centre, 1800 Parkinson Way in Kelowna.

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