The cooling of the supercharged Lower Mainland real estate market means less money will flow to government coffers from every property transaction.
The frenzied market and red-hot prices that peaked last spring had sent the property transfer tax revenue ballooning to more than $2 billion in 2016 – nearly triple the amount collected in 2012 and more than the combined resource revenue from forestry, mining and energy.
This year, the province forecasts the transfer tax to drop to $1.54 billion, due to reduced sales activity after the foreign buyers’ tax was introduced to cool the market.
The additional 15 per cent transfer tax on foreign buyers in Metro Vancouver – since revised to exclude foreigners with work permits – is expected to make up $150 million of the total transfer tax in the coming year.
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The budget provides for a series of housing affordability initiatives, many of them previously announced last summer and fall, after mounting criticism that the government had let housing costs spiral upward for too long without intervention.
Already committed is $920 million to help build 5,300 affordable housing units through a various partnered initiatives.
Also previously unveiled was a mortgage assistance program to help first-time buyers enter the housing market. Dubbed the B.C. Home Partnership, it allocates $700 million over three years to cover the interest on down payment assistance loans.
“We think it will be upwards of 42,000 families – first-time home buyers – that benefit,” Finance Minister Mike de Jong said.
First-time home buyers will only pay property transfer tax on the portion of a home worth more than $500,000 – a threshold that bumps up this year from $475,000.
De Jong painted the housing price challenge as a reflection of B.C.’s prosperity and attractiveness.
“The pressures we have seen develop in the housing market are a direct result of the growing demand to live in B.C.,” he said, adding other Canadians see “hope, promise and opportunity unmatched anywhere else in Canada.”
The nearly 24 per cent drop in expected property transfer tax revenue back down to 2015 levels is expected to be followed by further declines of nearly four per cent in the next two years, in line with a forecast for slowing housing starts.
As for any potential further adjustments to the foreign buyers tax, de Jong said Greater Victoria/Southern Vancouver Island is the region where the evidence of foreign investment activity comes closest to justifying an extension of the tax, but added no decision has been made.
While the tax on real estate deals has become a huge cash cow for government, B.C.’s economic growth has also become increasingly reliant on the jobs associated with home construction, renovation, sales and related business.
“We have become quite dependent in terms of the growth dynamic on the broad housing and real estate sector,” said Business Council of B.C. executive vice-president Jock Finlayson. “As that cools off, and I think it is cooling off, we’re like to see the economy lose a bit of momentum.”
Finlayson said he’s satisfied that the government’s budget has allowed for that cooling, with its 2.1 per cent forecast for economic growth, slightly below the average forecast of economists.