In my article yesterday, I had alluded to a story on the news about up to 25% of downtown Vancouver condo units being vacant. On the Georgia Straight website, there is an article also about this, and about a mayoral candidate that is campaigning to have vacant condos subject to a higher property tax.
The idea behind taxing absentee owners is to make Vancouver’s real-estate market a less attractive place to park offshore money. The revenue the city would take in from such a tax would go towards creating affordable housing, says Wong.
It is an interesting situation. It is understandable that having 1/4 of the houses in the city vacant will drive up the cost of renting to a potentially artificial level. The logic from a municipality’s perspective is sound, and its a demographic that is kind of easy to go after. However, will it be likely that people who are leaving their homes vacant will then occupy them or sell them? I believe that this is not likely, and at the end would basically represent a tax grab by the municipalities. The question that the article raises is also whether it would be legal or enforceable to do so.
The concern about discouraging foreign investment was also raised in the article. I do not agree that it would discourage foreign investment in Vancouver. In the sense that rising real estate prices will benefit the owners of homes in Vancouver, it does make sense that many Vancouver residents are beneficiaries of this foreign investment. However, it is also pricing many people out of the market at the same time, and those who do not even live here most of the time are most likely not starting businesses or creating jobs here either. Furniture stores, automobile dealerships and condo developers are likely the main beneficiaries of this foreign investment. Beyond the trickle-down effect that comes from that, I don’t believe there is a benefit derived from this status.
However, I tend to find that when governments try to get involved in matters like the free market, the results are not often desired. Having the government own or build “affordable housing” is a recipe for disaster. I believe the Vancouver Olympic Village was supposed to be “affordable housing”…and the city appears to be on the hook for a $300 million loss on that project.
Housing in Vancouver is a very complex issue, and I don’t believe it has a straight-forward answer. From a mortgage perspective, I have long advocated that mortgage lending policies should make it easier for the average person to own, and if the government wishes to cool the market, they should take care to what demographic of the population they are making it more difficult for. I do not believe they have taken this care since 2008, and as a result their policies have served to take people out of the market. These policy changes have not had a negative effect on wealthy investors, but on the person trying to save 5% for down-payment and paying an exorbitantly high rent.