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McDONALD: Speculation tax may have some flaws but its aim is right on target

March 16, 2018 - 12:19 PM

 


OPINION


This Just In: The dreaded speculation tax could put a chill on real estate sales in the Central Okanagan and cause house prices to drop.

While the full effects of the new tax are hard to predict, it could force out-of-town homeowners to sell or move full-time into their homes.

The tax could also lead to an increase in the number of rental units as out-of-province property owners are forced to rent them out to avoid the tax.

Wait. Isn’t that what it was supposed to do?

However poorly designed you feel the new tax might be, (and I’m not entirely in disagreement) isn’t one goal of the tax measures introduced in February to dampen house prices in areas where soaring values are putting a house beyond reach for many locals?

And isn’t another goal to try and force people to rent out homes who might otherwise leave their second homes empty?

Data on the effects of this type of tax is relatively rare which is why both Kelowna and West Kelowna sent staff scrambling to produce some analysis when the tax measures were introduced in the 2018 provincial budget.

Both reports came back to council this week and necessarily contain a lot of “coulds” and “mights” and “mays”.

The report delivered to West Kelowna council was cringe-worthy, consisting largely of an estimate of how much the speculation tax might pluck from the city (about $10 million) and a bunch of anecdotes cherry-picked from social media about real estate deals that might go south.

It felt like West Kelowna Mayor Doug Findlater ordered his staff to come up with a report to back up his earlier dire predictions of complete ruin to West Kelowna and its economy.

The Kelowna report is more nuanced, predicting possible negative consequences but also noting the relative impact of each of the tax measures, including an increase of as much five per cent in the city’s secondary rental housing stock from the speculation tax.

The effect of the foreign buyers tax and the bumped up property transfer tax on homes valued at more than $3 million will be negligible, the report notes.

Where the big hit will land is on non-resident owners who live in Canada but outside B.C. — mostly those from the western Canadian provinces who have bought a vacation home in the Central Okanagan.

There’s been a lot of venting on social media from this group who are aghast at being branded real estate speculators.

Got news: You are a speculator, no matter what you call yourself.

Speculation is by definition buying something in anticipation of it increasing in value, even if it’s years down the road. The real estate market is by its very nature speculative even when buying a summer home.

Would any of the people buying a vacation property have done so if they thought the value would go down? Likely not. And can they guarantee they won’t sell the property if there is a surge in valuations? Again, not much chance of that.

One theme among the disgruntled seems to be how spending the summer months and some disposable income in the Central Okanagan makes them part of the fabric of the community.

You say you’re part of the community; we call you tourists.

Don’t get me wrong, the Okanagan needs and welcomes tourists but we also need and want to do something about homelessness and housing affordability, both in renting and home ownership for the people who live here the rest of the year.

Please don’t come up with that tired cliché of choosing to live here — someone has to live here so they can wait on your table and pump your gas and they need a place to stay while they are doing it.

One statistic that never made it into either report is the purpose-built rental vacancy rates and renter’s market that exists in most major Prairie cities right now: Edmonton 7 per cent, Calgary 6.3 per cent, Saskatoon 9.6 per cent, Regina 7 per cent.

Kelowna is 0.2 per cent, with average rents here also substantially higher because of scarcity.

Predictably, some have labelled this a government tax grab, but how else to pay for the 1,000 or so units of supportive housing the Central Okanagan desperately needs to bring its homeless problem under control?

Homelessness and housing affordability are issues that plague Kelowna year round, not just during the balmy summer months when the tourists come out to play. And regardless of its structural shortcomings, this tax may actually move the needle on two files that have so far defied solution.

Some upset owners are threatening to sell out and move elsewhere and that’s their choice to make. There’s a reason people want to live here but there are also plenty of communities outside of West Kelowna and Kelowna and indeed, B.C. where the speculation tax does not apply.

West Kelowna Mayor Doug Findlater and council have been particularly vocal, excoriating the tax at every turn, demanding the fast-growing city be excluded from its measures, insisting it will gut the local economy and drive up unemployment.

(Interestingly, the Daily Courier reported that Canadian Mortgage and Housing Corporation analyst Taylor Pardy this week told a group of home builders the Kelowna housing market is resilient enough to shrug off the uncertainties of all the new tax measures as well as more stringent mortgage rules and rising interest rates.)

Signs that Victoria may be revising the speculation tax seem to mean nothing to West Kelowna nor does the woeful lack of data on which they are basing their bleak prognostications.

Just the uncertainty and the bad publicity around the tax will do the job, Findlater has said, to any media that will listen. (Have you heard of self-fulfilling prophecy, Doug? Keep railing on like you have been and you will.)

Personally, I would like to see a speculation tax combined with an empty home tax, calculated on a sliding scale weighted to how long the property has been owned and tied to the number of months each year the home is rented out.

Is the new speculation tax flawed? Perhaps, but that doesn’t mean its intended purpose is unworthy and I'm willing to give the government some time to figure it out.

— John McDonald is a long-time reporter, editor and photographer from the Central Okanagan with a strong curiosity about local affairs. You can reach him at jmcdonald@infonews.ca.


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