For starters, scrap the transfer tax
Don Cayo
Sun
The news about the Lower Mainland’s housing affordability seems to get only worse.
The latest, an RBC Economics report released Tuesday, reveals that a bungalow or townhouse is less affordable for most British Columbians than ever before, and a condo or a two-storey is almost as far out of reach as in 1990, so far the worst time to buy.
What can be done?
For starters, why don’t all three levels of government stop wringing their hands — and also stop wringing an unconscionable amount of money out of hard-pressed homebuyers?
Here in B.C. we hear frequent calls to scrap or ease the burden of the two-per-cent property transfer tax on every home sold, or to improve the GST exemption which, if more fairly applied, would cut the cost of most new homes by about 21/2 per cent.
Although there’s no doubt every little bit helps, two or 21/2 per cent doesn’t sound like much in a market where prices soar in double-digit percentages most years. So the people making these calls never really build up a full head of steam, and the issue dies.
But if you think paring away at taxes of just two or 21/2 per cent would make only a small dent in a big problem, then how about 25 per cent? That’s how much Peter Simpson, CEO of Greater Vancouver Home Builders’ Association, reckons that taxes, levies, fees, etc. add to the price of every new house in the region. This includes things like the provincial sales tax on building materials, the ever-increasing municipal development charges (up to $20,000 per home in some suburbs), and myriad other fees and levies, mostly small in themselves but huge in total.
These costs not only serve to keep thousands of potential buyers out of the new-home market, they also help drive resale prices to levels that are out of reach for so many.
Part of the problem stems from distortions that occur as prices rise. The GST exemption, for example, applies to homes valued at less than $350,000 — a boon to average homebuyers in most parts of the country, but almost useless in this region where barely over two per cent of new homes qualify for the full rebate.
Similarly, ordinary homebuyers got a break in 1987 when the property transfer tax was introduced. The rate was one per cent of the first $200,000 of value at a time when the average house price was $111,000 — so only high-end properties got hit with the full tax of two per cent.
Today, virtually every purchaser gets dinged with two per cent. And the province has raked in about $6 billion over the years.
At least three things need fixing:
n Ottawa’s GST exemptions should reflect real-world prices. A sliding scale should replace the single cutoff of $350,000 that gives a break to only a handful of Lower Mainland homes, yet to virtually every home built in low-cost parts of the country. Simply exempting the cost of land, which is proportionately sky high in hot real estate markets, would help level the field. Even better would be to peg the exemption level to the average price of homes in each region.
n The province should recognize that its property transfer tax can’t be made fair by tinkering, and it should be scrapped. It penalizes anyone who moves — ambitious workers who go where the best opportunities are, prudent young buyers who start with something very small to build equity, young families who trade up, empty nesters who downsize. And it aggravates an already difficult situation for British Columbians struggling to keep a roof over their heads.
Municipalities should take a sharp pencil to their tax and fee structures, and pay close attention to the costs of regulations they impose as well. This isn’t to argue that they shouldn’t recover costs or protect public interest, but rather that they resist the temptation to overdo it. It’s their own future citizens, not impersonal building firms, that’ll be hurt by high costs they impose on home-building.
I think the three levels of government could, if they were being efficient and fair, pare five, six or even seven percentage points off their excessive take from new home sales. With the average price of a stand-alone house well over $500,000 in this region (and much higher in many neighbourhoods) that would provide a break in the ballpark of a year’s take-home pay for a great many workers who’d like to, but can’t afford to, buy homes.
© The Vancouver Sun 2006
