The chief economist of the association representing realtors says government’s flipping tax won’t do much to curb speculation and warns that it could actually lower supply by encouraging people to wait two years until they list their properties.
The flipping tax introduced during Thursday’s provincial budget applies to profits from the sale of residential properties held for less than two years. The rate will be 20 per cent for properties sold within one year of purchase, then decline on a graduated scale before hitting zero after two years.
The tax will kick in on Jan. 1, 2025 with legislation to be tabled this spring, but includes exemptions for life events such as separation or divorce among others. The addition of another housing unit to the property will also trigger an exemption.
Brendon Ogmundson, chief economist with the British Columbia Real Estate Association, said he can’t really see many people pay the flipping the tax because they are going to be exempt in the majority of cases.
“This is only going to have an impact on one or two per cent of sales,” he said. If government wanted to have a flipping tax with more bite, it should have designed it with a shorter time frame in mind, such as six months, Ogmundson said.
Not much speculation is happening right now anyway, Ogmundson added. Less than two per cent of all transactions happen within six months in Greater Vancouver and Greater Victoria, he added.
With this assessment, Ogmundson joins the analysis from the Canadian Centre of Policy Alternatives. That group noted in its budget review that “home flipping is not a predominant concern” and that a flipping tax “won’t move the needle on affordability as it doesn’t get at the fundamental causes of the housing crisis: the shortage of homes overall and non-marking housing in particular.”
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Ogmundson also said that the tax might actually create an incentive not to list homes.
“There is a really good chance, that this policy actually has a negative supply effects,” he said. People might just wait a couple of years before listing their home to avoid the tax, he added.
So in other words, the flipping tax might be a solution looking for a problem and could end up having consequences running counter to its intentions.
“Exactly,” Ogmundson said. Even the revenue effects are not robust, he added. Government projections of $43 million for the first full fiscal year of the tax do not account for foregone property transfer tax revenues from sales that won’t be happening.
So why did government then introduce this tax? Ogmundson said it is a “politically motivated” policy.
“They (government) have been doing a lot of really good policy on getting supply built, setting the regulatory regime for making sure we can build more housing in the future,” Ogmundson said. But those measures take a “long time” and the flipping tax fulfills a promise, which government had previously made, Ogmundson said in comparing the flipping tax to the foreign buyers ban.
“It’s going to be popular because people tend to believe that prices are high because of someone else (such as) speculators and investors,” he said.
Premier David Eby said Friday the flipping tax itself is not going to solve the complex housing crisis.
“The flipping tax is just one piece of an array of housing initiatives to address the housing crisis,” he said, pointing to other previously announced measures that increase the housing supply and curb speculation.
“There is no one silver bullet to address the housing crisis. If there was a silver bullet on the housing crisis, we would have fired it a long time ago.”