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The British Columbia government is in the midst of a wide-ranging overhaul of how the housing market is regulated and taxed, amid growing concerns that foreign ownership, rampant speculation and unscrupulous real estate agents are fuelling an affordability crisis.

On Aug. 2, a 15-per-cent tax took effect for home purchases in the Metro Vancouver area involving foreigners. During the past several months, the province has also announced an end to self-regulation, largely in response to a series of Globe and Mail investigations into questionable practices within the industry. This has included a tax on vacant homes in the City of Vancouver.

These are in addition to what the federal government is doing, including closing a loophole that some foreign buyers have used to avoid paying capital-gains tax, as well as requiring lenders to stress-test mortgages.

The federal government is throwing some cold water on Canada’s overheated housing market, hoping to keep Canadians out of unaffordable debt and slow down foreign investment.
- THE GLOBE AND MAIL

Foreign buyers and vacant homes

The debate about the Vancouver region’s seemingly out-of-control housing market has focused in large part on the theory that wealthy foreign buyers have been driving up prices and then leaving homes and condos empty.

Earlier this year, the B.C. government promised to begin tracking the nationality of buyers for all residential purchases in the province. The collection only began at the beginning of June, but as data showed that one in 10 sales in the Vancouver region went to foreign buyers, the province announced a 15 per cent tax on foreign buyers.

The tax, which took effect on Aug. 2, applies to buyers who aren’t Canadian citizens or permanent residents; foreign-registered corporations; and Canadian corporations controlled in whole or in part by foreign nationals or foreign corporations. The tax adds $300,000 to the purchase of a $2-million home. A Chinese citizen who has been living in Vancouver as a student filed a proposed class-action lawsuit, arguing the tax is discriminatory and may even violate a list of international treaties.

There are already signs that the tax may be having an impact.

The province released data from land title transactions covering about seven weeks before the tax took effect, as well a month after the tax was in place.

In the Vancouver region, foreigners – people who aren’t Canadian citizens of permanent residents – accounted for 13.2 per cent of transactions from June 10 to Aug. 1. Those transactions amounted to more than $2-billion. But the proportion of transactions plummeted after the tax was in place, with just 60 sales to foreigners from Aug. 2 to Aug. 31.

Similar drops were seen in individual cities. In Richmond, foreigners made up about 25 per cent of purchases in the weeks before the tax and just 1.9 per cent in August. In Victoria, where the tax does not apply, there was very little change, with foreigners accounting for just under four per cent of sales before and after the tax.

The final business day before the tax, July 29, saw foreigners flood the land title office with $851-million worth of transactions – accounting for more than half of all titles registered in the Vancouver region that day.

The tax’s introduction prompted immediate speculation from within the industry that the new policy had tanked the market. August and September sales data has since released by the Real Estate Board of Greater Vancouver, with both showing the pace of sales had fallen significantly. In September, for example, there were 32.6 per cent fewer homes sold than in the same month in 2015.

However, sales volume had already been dropping steadily for months even before the new tax took effect.