In hopes of cooling Vancouver’s housing market, B.C.’s government is introducing a new tax for foreign investors. Kim Parlee speaks with Michael Dolega, Director and Senior Economist at TD Bank Group about how this could influence home prices.
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Vancouver housing prices have rocketed up 30% in one year, prompting the BC government to do something about it.
They have decided to put a 15% tax on foreign real estate investors.
And it is happening quickly.
Here to explain what is happening is a Senior Economist at TD Economics, Michael Dolega.
Nice to see you.
And there's a whole lot here I want to talk about.
There's the 15% tax they've announced.
They've announced an investment into a housing property initiatives fund.
They have announced no more self-regulation for Realtors and a vacancy tax that's coming.
But it's the 15% tax that people are really focused on.
Why?
Well, that's the big one, obviously.
It's a significant amount of tax that is being imposed on foreigners.
And again, it's that selection of foreigners that is really grabbing a lot of attention as far as what's been happening.
You mentioned 30% increase.
A lot of that is thought of as being driven by foreign demand and capital inflows into the BC market.
This is obviously, to some extent, pricing out many residents and people who work and live in BC.
And as a result, it has become a political hot topic in addition to being an economic one.
Yeah.
We have-- it's interesting, because they came out, of course, with the data to show that the reason they think this is necessary.
Didn't look like it was a lot of days of data in terms of determining the amount of foreign real estate transactions.
But it is a good chunk of the market, is it not?
It is.
The five weeks-- initially, the first set of data that was released was only for three weeks.
That implied a fairly small share of foreign activity at that time.
The new set of data that actually includes the month end and a couple of additional weeks actually shows a fairly different picture.
It suggests that foreign activity, particularly in metro Vancouver, is quite significant, with a share of purchases basically about a tenth of all sales and basically about a sixth of all sales in the first two weeks of July.
So it's not an insignificant portion.
In fact, it's quite sizable.
And as a result, this is what has spurred on the regulatory environment.
Now, you were saying in the report, too, you think, I think, about a 15% to 20% reduction in sales-- number of sales-- and a 5% reduction in prices.
Now again, I know there's a whole lot of assumptions you have to make that.
But we're going to see a cooling off, and you expect to happen fairly quickly?
Right.
So again, if you-- the 15% to 20% is really our top line as to-- or our ceiling, I think, as far as what it can do to activity.
Again, this includes the investors pulling back as well as some of the uncertainty related to what might be happening that might keep others on the sidelines.
Again, the price is the 5% that we're talking about at this point.
It's not groundbreaking stuff.
Prices have gone up by 30 last year-- Yeah, so now you're going to be up 25%.
--so the 5%, you really-- exactly.
So not a lot of people are going to be losing sleep over it, I don't think.
So that shouldn't rock the market to the point where confidence is shaken and people all of a sudden start to pull out.
So again, I think it's going to be relatively muted.
However, there will be a one-time impact on investors.
And then I think gradually things will come back.
And ultimately, we do expect-- there'll be a cooling off, but not a collapse whatsoever in the Vancouver market.
And we've seen this in other markets in other jurisdictions.
This has happened around the world-- in Australia, in Hong Kong, in Singapore-- where they've done something like this.
Yeah.
Let me ask you, though, about the domino effects in either like geographies or close places.
Could we see money roll over into Victoria?
Could we see it roll into Toronto?
Although I will say-- we were chatting about this-- Vancouver is a gorgeous place, and there's a reason why people buy there.
It's not a same-same tradeoff.
But could we see money go elsewhere again?
Again, I think, as far as global investors are concerned, there's definitely scope for that.
Again, to what extent Toronto is a substitute for Vancouver is quite unclear.
And to your point-- Great debate we'll have over that.
I think the data will eventually show it.
At this point, we think that there would be some-- again, on the margin, there would be some investors who may want to shift into other markets as a result of that one-time price hike in the metro Vancouver area.
But again, it wouldn't be a complete shift of money.
The Victoria story, obviously, is a little bit more-- there probably is more substitutability.
And the Victoria market is a small one, as you mentioned.
So there could be potentially a significant impact on prices as far as that market is concerned.
And again, we're going to look-- pay attention closely in the next few months as to what's going on.
And I think other policymakers will as well.
Do you expect other jurisdictions to wait and see to see how this is impacting the Vancouver market?
Or would you expect them-- they might have to move a little more quickly, perhaps, than they were thinking before?
This is what I think everyone's asking right now.
Yeah.
Ultimately, I think that they're definitely in the planning stages.
They're definitely looking at these measures.
They're definitely looking at what is available to them, what has to be done.
just so they can hit the ground running should they choose to actually pursue it.
Again, I think there's definitely scope for it.
And I think it's a definite possibility that something might be coming down the pipeline in other markets.
Is there anything, I guess, in terms of unintended consequences?
From an economist's standpoint, you look at-- when governments make moves like this, things can happen.
Yes, it can make housing more affordable.
That is the hope for people in Vancouver.
The other side-- could it impact people's spending?
Could it impact how they're feeling about their home equity and therefore-- the wealth effect, so to speak?
Again, it depends on, to some extent, how much prices do fall.
If that price decline is limited, it should be relatively insulated from that perspective.
However, the uncertainty and the messaging that the government is sending as far as foreign investment-- there could be implications that are more far-reaching, that might be longer-term in nature.
So again, there's definitely a lot of scope for spillovers that that might be negative.
However, at this point, we do think that things are still looking relatively OK.
Michael, great information.
Thank you so much for joining.
Thanks for having me.
Michael Dolega.
He's a Senior Economist with TD Economics.
I'm Kim Parlee.
Thanks so much for watching.
They have decided to put a 15% tax on foreign real estate investors.
And it is happening quickly.
Here to explain what is happening is a Senior Economist at TD Economics, Michael Dolega.
Nice to see you.
And there's a whole lot here I want to talk about.
There's the 15% tax they've announced.
They've announced an investment into a housing property initiatives fund.
They have announced no more self-regulation for Realtors and a vacancy tax that's coming.
But it's the 15% tax that people are really focused on.
Why?
Well, that's the big one, obviously.
It's a significant amount of tax that is being imposed on foreigners.
And again, it's that selection of foreigners that is really grabbing a lot of attention as far as what's been happening.
You mentioned 30% increase.
A lot of that is thought of as being driven by foreign demand and capital inflows into the BC market.
This is obviously, to some extent, pricing out many residents and people who work and live in BC.
And as a result, it has become a political hot topic in addition to being an economic one.
Yeah.
We have-- it's interesting, because they came out, of course, with the data to show that the reason they think this is necessary.
Didn't look like it was a lot of days of data in terms of determining the amount of foreign real estate transactions.
But it is a good chunk of the market, is it not?
It is.
The five weeks-- initially, the first set of data that was released was only for three weeks.
That implied a fairly small share of foreign activity at that time.
The new set of data that actually includes the month end and a couple of additional weeks actually shows a fairly different picture.
It suggests that foreign activity, particularly in metro Vancouver, is quite significant, with a share of purchases basically about a tenth of all sales and basically about a sixth of all sales in the first two weeks of July.
So it's not an insignificant portion.
In fact, it's quite sizable.
And as a result, this is what has spurred on the regulatory environment.
Now, you were saying in the report, too, you think, I think, about a 15% to 20% reduction in sales-- number of sales-- and a 5% reduction in prices.
Now again, I know there's a whole lot of assumptions you have to make that.
But we're going to see a cooling off, and you expect to happen fairly quickly?
Right.
So again, if you-- the 15% to 20% is really our top line as to-- or our ceiling, I think, as far as what it can do to activity.
Again, this includes the investors pulling back as well as some of the uncertainty related to what might be happening that might keep others on the sidelines.
Again, the price is the 5% that we're talking about at this point.
It's not groundbreaking stuff.
Prices have gone up by 30 last year-- Yeah, so now you're going to be up 25%.
--so the 5%, you really-- exactly.
So not a lot of people are going to be losing sleep over it, I don't think.
So that shouldn't rock the market to the point where confidence is shaken and people all of a sudden start to pull out.
So again, I think it's going to be relatively muted.
However, there will be a one-time impact on investors.
And then I think gradually things will come back.
And ultimately, we do expect-- there'll be a cooling off, but not a collapse whatsoever in the Vancouver market.
And we've seen this in other markets in other jurisdictions.
This has happened around the world-- in Australia, in Hong Kong, in Singapore-- where they've done something like this.
Yeah.
Let me ask you, though, about the domino effects in either like geographies or close places.
Could we see money roll over into Victoria?
Could we see it roll into Toronto?
Although I will say-- we were chatting about this-- Vancouver is a gorgeous place, and there's a reason why people buy there.
It's not a same-same tradeoff.
But could we see money go elsewhere again?
Again, I think, as far as global investors are concerned, there's definitely scope for that.
Again, to what extent Toronto is a substitute for Vancouver is quite unclear.
And to your point-- Great debate we'll have over that.
I think the data will eventually show it.
At this point, we think that there would be some-- again, on the margin, there would be some investors who may want to shift into other markets as a result of that one-time price hike in the metro Vancouver area.
But again, it wouldn't be a complete shift of money.
The Victoria story, obviously, is a little bit more-- there probably is more substitutability.
And the Victoria market is a small one, as you mentioned.
So there could be potentially a significant impact on prices as far as that market is concerned.
And again, we're going to look-- pay attention closely in the next few months as to what's going on.
And I think other policymakers will as well.
Do you expect other jurisdictions to wait and see to see how this is impacting the Vancouver market?
Or would you expect them-- they might have to move a little more quickly, perhaps, than they were thinking before?
This is what I think everyone's asking right now.
Yeah.
Ultimately, I think that they're definitely in the planning stages.
They're definitely looking at these measures.
They're definitely looking at what is available to them, what has to be done.
just so they can hit the ground running should they choose to actually pursue it.
Again, I think there's definitely scope for it.
And I think it's a definite possibility that something might be coming down the pipeline in other markets.
Is there anything, I guess, in terms of unintended consequences?
From an economist's standpoint, you look at-- when governments make moves like this, things can happen.
Yes, it can make housing more affordable.
That is the hope for people in Vancouver.
The other side-- could it impact people's spending?
Could it impact how they're feeling about their home equity and therefore-- the wealth effect, so to speak?
Again, it depends on, to some extent, how much prices do fall.
If that price decline is limited, it should be relatively insulated from that perspective.
However, the uncertainty and the messaging that the government is sending as far as foreign investment-- there could be implications that are more far-reaching, that might be longer-term in nature.
So again, there's definitely a lot of scope for spillovers that that might be negative.
However, at this point, we do think that things are still looking relatively OK.
Michael, great information.
Thank you so much for joining.
Thanks for having me.
Michael Dolega.
He's a Senior Economist with TD Economics.
I'm Kim Parlee.
Thanks so much for watching.