Budget Delivers Good News, Faint Hope
The recent provincial budget delivered great news for those who want to see more affordable housing. We got a glimpse of what was in store in the lieutenant governor’s speech opening the current session of the legislature. Commonly known as the Throne speech, the remarks set forth government’s agenda for the upcoming legislative session. This one squarely focused on making life more affordable for British Columbia residents.
“The single, greatest challenge to affordability in British Columbia is housing,” the government said. Public Enemy No. 1 in “B.C.’s out-of-control real estate and rental market”? Speculators.
Rather than just target foreign owners, the government will target speculators regardless of their place of residence.
“Safe, decent housing is a right that is under threat by speculators, domestic and foreign, who seek windfall profits at the expense of people who work, live and pay taxes in B.C.,” it said.
When the province’s budget appeared, it contained measures to address the effect of speculation on real estate prices. The unintended consequences drew sharp criticism, however. Some of the new measures threaten to penalize cottage owners and seniors, people no government wants to antagonize.
But rather than simply use taxes to discourage demand by speculators and part-time residents, the budget also announced plans to build new housing. The government also plans to limit housing to appropriate areas. Agriculture land, for example, will be off-limits.
Coupled with plans to introduce a tax to ensure short-term rentals benefit the province as a whole, the province wants to make sure housing houses people. It should shelter people living in B.C., not cash or tourists (who can use hotels). Provincial plans dovetail with a national housing strategy announced in the federal budget a week later that targets those in core housing need.
Despite some very valid criticisms of how the new measures are going to work, it’s tough to argue with policies that try to let the market do its thing while ensuring the province reaps the benefits.
Some of the funds collected on less-than-desireable real estate activities will help fund affordable housing initiatives. Since those units will mostly be rental units, renters should enjoy more choice. This could have two key impacts on owners of Westside real estate who want a mortgage helper.
One, it will mean more supply, giving those at the lower end of the market more options. This will reduce pressure on the market as a whole. Two, the long-term impact may be more moderate increases in rental rates. This will limit potential increases in rental unit cash flow. This isn’t likely in the short term, however, because all those units government wants to build have yet to be approved and developed.
Devil in the details
And this is the proverbial devil in the details of the budget. The promising action may not deliver the desired consequences after years of escalating prices. Real Estate Board of Greater Vancouver data indicates that benchmark home prices topped $1 million last summer. Just four years ago, the benchmark price was approximately $600,000. Turning back the clock would require a 40% drop in prices. That kind of cure that might be worse than the disease because of the impact on market confidence.
While the budget is addressing public concern over high prices, there’s a good chance they’re here to stay. Sure, further escalation might be more moderate than in the past five years but buyers will still struggle to afford a home. That benefits no one – neither those who want to get into the market, those who want to sell, and of course, people like me who help both sides come to terms.