Yesterday our provincial finance minister Mike de Jong announced the 2016 BC Budget that included a number of measures seemingly aimed at improving housing affordability.
The full details of these changes are here, but to recap... One of the key moves was to make new home purchases under $750,000 exempt from Property Transfer Tax (PTT) – whether you’re a first-time or a repeat buyer. All you have to be is a Canadian citizen or permanent resident, and for the home to be your primary residence (investors need not apply). This is being funded by an increase in PTT for properties over $2 million.
Sounds great, right? Well… maybe.
There’s a lot of reasoning behind the measure, which in many ways is well thought-through. Affordability issues don’t just affect first-time home buyers, so you could say it makes sense to apply an incentive to housing under a certain price threshold. And with our prices the way they are, $750,000 is a solid number to pick.
New homes are also subject to GST already (and still will be) so it means that you won’t be paying two lots of provincial tax on the same property purchase, thereby making a newly built home a much more appealing option than it currently is to many buyers.
And most of all, making new homes a more attractive option for buyers inevitably means one key thing: more new homes will be built. With the supply of housing, especially family-sized housing, desperately low in comparison with demand, this can only be a good thing.
Perhaps it will even push the City into some much-needed rezoning to allow for a far higher number of townhomes and row homes, which are in blistering demand at the moment and yet only a handful are being built around the city. Yes, it’s hard to get a townhome in Vancouver for less than $750,000 right now, but that’s because they are so few, and so desirable. If there were many, many more of them on the market, that should (theoretically) change. And in other areas of Greater Vancouver, where such homes are far cheaper and more plentiful, a new townhouse will become the property of choice for lower-income families, just as they are in many other countries in the world.
So there’s much to be optimistic about in terms of the effects that this change may have on our housing market. On the surface, at least.
But… there’s a but. Several, in fact.
One problem is that new homes are already more expensive than resale housing – and new homes have five per cent GST applied on them too. So if you’re buying new, you’re probably already spending more. Most people facing affordability issues have to choose resale homes. A lot of people simply prefer resale homes – especially in the condo market, where resale tends to offer more space for the same price as a new condo. And yet there is no tax relief for anyone, first-time buyer or otherwise, who wishes to buy resale.
The measure also hands a little too much control to the development industry. While increased density and development is to be supported, we must also remember that developers set the prices of new homes. With land costs increasing apace, it would be easy for developers to help fund their land purchases by raising the prices of the homes they build, thereby absorbing the saving that the buyer would have made with their PTT exemption. If this happens, buyers will be no better off.
Furthermore, if more buyers are looking for new homes because of the tax relief, the sheer demand for new homes could enable developers to push up those prices – again, ultimately negating the benefit of the PTT exemption.
Indeed, it is arguable that any financial incentives for purchasing properties – whether for first-time or repeat buyers, whether for new or resale homes – does little to help with affordability. Why? Because more and more people try to enter the market and take advantage of the incentives, which simply creates more demand and higher prices.
Perhaps it would have been better, instead of using the money to exempt new homes from PTT, to spend it on other affordability measures. Such measures could include provincially funded programs to help lower-income residents enter the market, like rent-to-buy or shared-ownership schemes. Or simply by funding more non-market affordable housing – both for sale and rental. More suggestions can be found in a previous editorial here.
It will be fascinating to see how the budget measures affect supply and demand – and the prices – of new housing in our region. Much now rests on the shoulders of our various municipal governments – especially the City of Vancouver – to make the necessary changes.