Sunday, April 8, 2018

Editorial: Confiscatory taxes aren't the answer to housing woes

It turns out solving the housing-affordability crisis is more complicated than the NDP government may have thought.

Its inaccurately named speculation and school taxes, along with an increase in the foreign-buyers and the property transfer taxes, have generated a torrent of complaints and the government has responded with tweaks, adjustments and exemptions.

But the damage can’t be undone. Against a backdrop of rising interest rates, a cooling economy and more stringent mortgage qualifications, home sales were down nearly 30 per cent in March year-over-year and are 23-per-cent below the 10-year March sales average. The Real Estate Board of Greater Vancouver says the sales-to-active listings ratio is nearing the mark where downward pressure on prices could occur.

Before we start cheering on lower home prices, however, we might consider what the B.C. Real Estate Association has to say about the economic toll of a negative price shock. A decline of 35 per cent in home prices would drive the B.C. economy into recession, the average homeowner would lose $245,000 in equity, housing starts would fall by half and 64,000 jobs would be forfeited (sending the unemployment rate to 7.5 per cent), leading to $4.4 billion in forgone retail sales and an $8-billion loss to GDP in the first year.

Even a more modest 10-per-cent decline, based on the BCREA’s econometric model of the B.C. economy, shows devastating outcomes, including wiping out $90 billion of the wealth of the 70 per cent of British Columbian households that own their homes (or $70,000 of the average homeowner’s equity), which would rein in consumer spending. Nearly $2 billion in retail sales would be forgone and there would be 10,000 fewer housing starts as builders cut back production by 25 per cent, exacerbating the problem the government is trying to address.

If a 35-per-cent drop sounds unrealistic, tell that to the Office of the Superintendent of Financial Institutions which, in July 2016, required Canadian banks to look into what a 50-per-cent drop in real-estate prices in Vancouver would mean for their bottom lines.

The Organization for Economic Co-operation and Development has warned that a “disorderly” correction would reduce residential investment, household wealth and consumption, and threaten financial stability.

Perhaps these calamitous scenarios explain why the government has been soft-peddling its goal of lowering prices and fine-tuning its measures to limit the obvious harm they’re causing. But its impromptu adjustments are fuelling uncertainty and that has the perverse effect of stalling development of new housing.

A confiscatory tax regime will not solve B.C.’s housing issues. The government needs to change course.

No comments:

Post a Comment