Will Vancouver’s housing become more affordable in 2017?
This is the question on the minds of many, especially as we open our 2017 Property Assessments.
I have been reviewing forecasts from the BC Real Estate Association, economists, bankers and real estate experts. The consensus seems to be that given the rapid price escalation in recent years, and the province’s 15 per cent Foreign Buyers’ Tax, house prices will go down this year.
UBC economist Tom Davidoff is even predicting rents will also go down, in large part because of the mayor’s Empty Homes Tax.
I am not so sure.
While there’s no doubt single-family house prices have softened since the 15 per cent Foreign Buyers’ Tax was introduced, they are not likely to drop dramatically. Moreover, condominium prices have not gone down. In many cases, they have gone up since Aug. 2.
Given the difficulties obtaining approvals in most Vancouver neighbourhoods, there is limited supply coming onto the market. At the same time, demand from migration and downsizing baby-boomers is increasing. Furthermore, if air quality in China continues to get worse, expect more demand from Chinese buyers.
As for rental housing, by the end of 2017, I predict rental rates will rise even more than the 3.7 per cent allowed by provincial legislation.
While the mayor rightfully boasts Vancouver has witnessed construction of thousands of new rental units, rents for new apartments are higher than expected. Moreover, unlike Davidoff and city politicians, I do not expect the Empty Homes Tax to result in thousands of new rental units coming to market.
Let me explain why with a personal anecdote.
Last month, I received an email from the Floridian who purchased an apartment I once owned at Bayshore. He and his wife spend four to five months here during the summer and had just received the mayor’s letter about the proposed tax.
"Is your government nuts?’ he asked. “Do they really expect me to rent it out when I'm not here, or pay the tax?” – adding it would be $40,000-plus a year.
He told me he once tried to rent the apartment, but it is very difficult to find someone who wanted it for precisely the period when he was not here, at an appropriate rent.
When he reviewed his situation with city officials, he was advised in writing that if apartments in his building can be rented for six months or more, the tax would apply, even if it was listed for rent.
When I tweeted out his predicament, I received some interesting responses. Many questioned why he should be unwilling to pay the tax if he could afford a $4-million-plus second home. Others pointed out the injustice of him having two homes when they didn't have even one.
To my mind, this is the essence of the tax. It just doesn't seem right to some people that others keep homes empty, for whatever reason, when there is a shortage of rental housing.
One clever soul, who understood why my friend might not want to rent his beautiful, furnished, waterfront home, asked why he didn't rent it to someone on the understanding they would keep it vacant.
This way he would be complying with the requirement to rent it. City lawyers might have to go after the tenant.
I posted this on Twitter. "Attention lawyers. If someone rents an empty home to someone who keeps it vacant, would the tax penalty still apply?"
My tweet was shared around at least one downtown law firm where the matter was discussed. The consensus seemed to be that the city would have a hard time prosecuting either the owner or tenant, provided there was a lease in place.
More importantly, lawyers questioned the legality of this empty home tax in its entirety, and expected it to be challenged in court. They also believed those who wanted to get around it would easily find a way.
I suspect the Empty Homes Tax will result in some properties rented out, and others sold to owner-occupiers or investors who will rent them out.
But ultimately, it will be administratively expensive and not make rental housing more affordable in 2017.