The governments’ recent attempt to create affordable housing is a laudable goal, but their method of using taxation may have undesired consequences, including triggering a recession.

The BC Finance Minister’s stated goal is to see a correction in the housing market.  Unfortunately, if prices fall, ordinary folks who have recently bought their home could see its value drop significantly, possibly lower than the mortgage they took out to purchase it.  Even if they can continue to make the payments, they may not be able to refinance when the term comes due.  In 2016 the Bank of Canada calculated that a 15 per cent drop in housing prices would put one in eight mortgages in Greater Vancouver under water. 

As for the “speculation tax,” which is actually more of an empty home tax, this tactic is aimed at forcing people to rent out their second homes.  Think about it:  a speculator will flip the property and only have to pay the 2% for one or two years.  Long-term owners will have to pay every year, which on a $500,000 condo would be an additional $10,000 in tax they have to pay.  This tax will not deter speculators but will hurt folks who have had and intend to keep vacation properties in the family for many years.

Many people on the Sunshine Coast have a small apartment or condo in Vancouver that they use to visit the kids and grandkids, and perhaps leave to the family in their will.  Renting it out would not make sense as they and the family use it on a sporadic basis.  But they will be subject to the 2% tax.  Apparently there will be a credit given on one’s BC income tax if you are a BC resident, but one would have to owe more income tax than the speculation tax in order for the credit to be of any benefit.  

Agreed, we need to make sure there is reasonably priced housing available, but that needs to be done through policy, not taxation.  It’s all about supply and demand.  The supply is limited so the prices go up.  It’s classic.  Cameron Muir, chief economist of the B.C. Real Estate Association, commented:  “If home prices were arbitrarily driven downward by government policy there are large consequences to that in the marketplace, including builders pulling back on production so you’ll end up in another supply crunch down the road, as well as you’d impact the overall economy.”  I am sure that is the last thing our Finance Minister intends.

The BC Real Estate Association predicts mortgage interest rates will hold for the short term but the Bank of Canada will invoke at least one rate increase later in 2018.  Read the full report at http://www.bcrea.bc.ca/…/economics…/mortgagerateforecast.pdf