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Buying an affordable house in Vancouver is often compared to living in the land of unicorns and leprechauns, but B.C’s new legislation may help make this far-away dream a reality once again.

British Columbia Premier Christy Clark announced a one-time 15 per cent tax on Monday, July 25 in Vancouver that would apply to foreign investors who are neither Canadian citizens, nor permanent residents, in an effort to cool the housing market. The new legislation applies to residential real estate in Metro Vancouver, from Bowen Island to Maple Ridge and Langley, and begins on Aug. 2.

With the new foreign tax, a $2 million home in Vancouver would accumulate an additional $300,000 if purchased by a foreign buyer. If a foreign buyer purchased a home for $10 million, this tax would raise to $1.5 million. On the other hand, if a foreign buyer tried to avoid the tax, “anti-avoidance” measures would be put in place that include $100,000 for individuals and $200,000 for corporations that don’t comply to the legislation.

The funds raised by the new tax will be put towards a new housing priority initiatives fund for provincial housing and rental programs that is set to be launched in the near future. This fund will receive an initial investment of $75 million from the government and then begin to accumulate revenues from the tax on foreign buyers.

In order to obtain the necessary information on buyers in Vancouver, Clark also announced the Real Estate Services Act, which officially ends the real estate board’s self-regulation or ability to govern itself. The government’s involvement in the industry will allow them to access information on buyers to see what homes will be charged the foreign tax. Finally, the province will also introduce a vacancy tax that targets empty rental homes of foreign investors to increase the number of available rentals.

There are possible issues with the foreign tax, though the response from B.C home buyers has been overwhelmingly positive. Investors could potentially avoid the tax by getting family members to purchase properties, highlighting a loophole in the legislation that relies on buyers reporting their nationality honestly. The tax may also hurt international recruitment because new immigrants won’t be able to purchase property tax-free until they are permanent residents or Canadian citizens.

Toronto’s housing market has skyrocketed and a foreign tax in Canada’s largest city would cool the hottest housing market in the east as well. Ontario Financial Minister Charles Souza reported he is looking at implementing a similar law in Toronto. Hopefully Toronto will follow Vancouver’s lead and take necessary steps to implement a foreign tax and cool the housing market for local buyers. The outcome of the foreign tax remains to be seen, but any effort to lower housing prices and give people access to homes is a step is a good move.

High housing prices in Toronto are affecting homebuyer’s pockets and effectively preventing them from investing money in building sustainably instead.

The real estate market has skyrocketed, with expensive homes and low availability for people looking to buy. A detached single-family home in the GTA costing between $2 million and $4 million rose 77 per cent compared to 2015. Single detached homes in the GTA between $1 million and $2 million rose 64 per cent compared to the prior year. Homes have become unaffordable and are causing homebuyers to pool all of their available funds into buying a house at an extremely inflated price.

When homebuyers use every penny to invest in their home and begin paying their mortgage, much needed sustainable building practices such as solar panels or geothermal energy are cast by the wayside. Homebuyers often view sustainable practices as expensive and not worthy in the long-term. Though sustainable energy can be expensive initially, the long term investment is actually less expensive. However, many people aren’t even considering green energy investment because of current astronomical costs of housing.

Solutions are being discussed though to remedy the inflated real estate market and assuage the housing issues at hand. The federal government is discussing a speculative tax targeted at foreign investors. Many properties in Toronto and Vancouver — the two Canadian housing markets that have increased — are owned by absentee owners. The Canadian government has made it fairly easy for foreign investors to purchase property without paying taxes as a local citizen and it has helped inflate the market significantly.

One idea that has been presented to help Vancouver’s housing market is the B.C Housing Affordability fund. House owners would be charged a 1.5 per cent property surcharge on residential real estate, which would amount to $15,000 on a $1 million property. If the homeowner paid over $15,000 in income taxes though, they would be exempt from the surcharge.

Another issue that is driving housing prices upwards is a loophole in the real estate board that allows investors to flip properties without being taxed, which drives up the property value at a fast rate without repercussions. In Vancouver, the provincial government has promised to intervene in the real estate board to ensure they are following fair practices, but Toronto has not moved forward with any commitments of their own.

The federal government is also discussing forcibly cooling the housing market by increasing the mandatory down payment for houses under $1 million to 10 per cent. This would dissuade most first-time buyers from purchasing a house and decrease competition in the Toronto and Vancouver markets. At the same time, measures need to be taken to ensure that the rental market doesn’t accidentally drive prices up. There is also a fear that cooling the market would harm Calgary and Montreal’s housing markets, which aren’t doing as well as Toronto and Vancouver.

Preventing first-time buyers from purchasing homes to cool the market has been criticized as an unfair practice, and another option might be more profitable for everyone. Creating affordable housing in key areas would allow first-time buyers to purchase homes and wouldn’t continue to increase current house prices. Calgary launched a program called “Attainable Homes” that allowed buyers to purchase a home for $2000 as long as they could manage the mortgage. These homeowners were required to take financial training to properly understand the market and to pay the organization a certain amount of the property value increase when they sold the house. People are also prevented from flipping their house because if they try to sell too quickly, they would owe “Attainable Homes” a higher percentage of their property value increase.

The housing market has been a popular topic of conversation at the dinner table and the chosen solutions don’t seems to be working. It will be interesting to see how government intervention will cool the market, and if affordable housing becomes a priority. No matter what, cheaper housing prices will allow people to focus on sustainable building practices and invest in the future of green living.

foreign investors

B.C implements foreign tax on housing in Vancouver

Inflated Toronto housing market prevents buyers from going green