Wednesday, March 21, 2018

Housing Affordability and Negative Impacts of the 2018 Budget

The Urban Development Institute Capital Region has written the attached letter to share our thoughts on the housing related taxes announced as part of Budget 2018.

Dear Minister James and Minister Robinson

Re: Housing Affordability and Negative Impacts of the 2018 Budget

The Urban Development Institute Capital Region (“UDI Capital Region”) is writing this letter to share our thoughts on the housing related taxes announced as part of Budget 2018. While Victoria and the surrounding Capital Region is not as densely populated as Greater Vancouver, housing affordability is a pressing issue for our members and local residents alike.

UDI Capital Region is a sister member to the Urban Development Institute Pacific Region (“UDI Pacific Region”). Like UDI Pacific Region, our members consist of a wide range of companies and individuals involved in all facets of land development and planning. UDI Capital Region has over 140 corporate members which represents thousands of individuals. One of our primary goals is to build and maintain strong relationships with local communities and governments in order promote thoughtful public planning and responsible development practices.

Like many other groups concerned with housing affordability in this Province, UDI Capital Region is very concerned by the host of housing related taxes proposed by the BC Government in their latest budget.  More specifically we are concerned about the impact it has on development land. We do not agree that increasing property taxes will help achieve the important goal of housing affordability, and regrettably, there is a substantial risk that these measures may have the opposite effect. In our view, increasing the supply and diversity of the housing stock ought to be the focus of government.

Increases to the Luxury Property Transfer Tax One of the issues in using the Property Transfer Tax to address housing affordability is that the Property Transfer Tax is applied multiple times in the development context: when land is initially purchased for development, when land is sold to builders, and when homes are sold to buyers. This results in increased costs by every party involved, costs which are ultimately passed on to the end buyers. The proposal to increase Property Transfer Tax from 3% to 5% on residential property valued at over $3 million only aggravates this issue. This is particularly concerning in the context of purpose built rentals and larger scale residential projects given the typical cost of development property in the Capital Region for these types of developments.  UDI Capital Region requests that development land be exempt from the Luxury Property Transfer Tax or that amount be rebated once the units are occupied.

Increases to the School Property Tax  The proposed increase to the existing annual School Property Tax on residential properties over $3 million is also concerning. Larger phased development projects can take years to complete, often due in part to delays in municipal approvals. Increasing the School Property Tax on development sites will mean increased carrying costs over the length of a project – year over year, as the land value increases so do the taxes - the longer the project the higher the cost. This will result in larger scale residential projects costing more, which reduces housing affordability and reduces the supply and diversity of housing stock in the Capital Region’s market.  UDI Capital Region requests that development land be exempt from the proposed increase in the School Property Tax.

Introduction of the Speculation Tax  In many ways, the Capital Region is uniquely vulnerable/sensitive to the Speculation Tax. The Capital Region has traditionally been a popular tourist and retirement destination. Over that last few years the businesses in Victoria’s downtown core have faced difficulty. However, of late, these same businesses have enjoyed a rejuvenation which, in our view, has been due in part to the increased availability and variety of housing stock in the downtown core.

The introduction of the Speculation Tax raises concerns for several reasons.

Under the Real Estate Development Marketing Act, developers are allowed to market projects for an initial period of 9 months before they have unconditional financing in place to construct the project. Financing from lenders is often conditional on the developer entering into a number of pre-sale contracts with buyers during this 9 month window – sometimes referred to as a pre-sale test. If the pre-sale test is not met within the 9 month period, the project will not get the necessary financing and likely will not proceed.

Very often a project’s financing is contingent on achieving success early on the marketing phase. If there is not sufficient support early on, then this increases the likelihood that the project will not come to market at all.  Canadians outside of British Columbia, Albertans in particular, often make up an important component of pre-sale buyers.  In many cases, these buyers are not just “investing” in properties in the Capital Region – they are planning to live here part time, retire here, and to be part of the community. Increasing the cost to other Canadians of purchasing property in British Columbia will not help achieve housing affordability. Instead, it will make it more difficult for developers to satisfy their pre-sale quota, which in turn will make it less likely that these projects will come to market.  

Victoria and the surrounding Capital Region are also attractive to Canadians planning their retirement. Often, Canadians outside of British Columbia will purchase property in Victoria with a long-term view of retiring here. Not only does the introduction of the Speculation Tax fail to address housing affordability in a meaningful way, it will make it more difficult for Canadians outside of British Columbia to invest in and move to the Capital Region and other areas in the province. Currently, the Capital Region holds a vacancy rate of .6% creating a situation where adding supply is absolutely necessary.  UDI Capital Region is concerned that the ill-defined Speculation Tax will not only reduce the supply of housing in the Capital Region, it will have a significant negative impact on our tourism industry and local businesses in particular.  UDI Capital Region requests that Speculation Tax not apply to British Columbians and Canadian tax payers – and not be applied to development lands as requested for the other taxes.

Overall, the introduction of housing related taxes included as part of Budget 2018 increases uncertainty in the real estate market and will very likely lead to increased development costs, costs which will ultimately be borne by buyers.  For the above reasons UDI requests that the Capital Regional District be exempt from all of these new proposed taxes.

We thank you for the opportunity to share our thoughts on this important issue with you and welcome the opportunity to discuss this with you further.


Sincerely,


Kathy Hogan – Executive Director (on behalf of the UDI Capital Region Board of Directors)

 

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