Is British Columbia’s new foreign-buyer tax bad news for Toronto?

Friends of mine in Vancouver are on the brink of a move. They’re thinking of selling their East Vancouver property and moving to Coquitlam, where the $1.38 million home they’re looking at sold for $319,000 just 13 years ago. The home they’re in now, just off Victoria Drive, should fetch them about $1.7 million. Seems doable, since they had the good luck or foresight to get into the Vancouver market many years ago and climb up a few rungs on the property ladder as time passed.

In spite of the equity in their current home, they’re nervous. First, because they’re looking at a 40 year mortgage, and they’re already on the southside of age 40. And don’t prices have to come down eventually? Only time will tell.

It’s strange days on the West Coast, and they’re about to get stranger. B.C. Premier Christy Clark this week announced a 15% tax to be imposed on property transfers. Revenue from the tax will fund housing, rental and support programs. The tax, which takes effect August 2nd, will mean foreign buyers pay an additional $300,000 on a $2-million purchase. The benchmark price for a detached home in Vancouver went above the $1.5 million mark last month, according to the Real Estate Board of Greater Vancouver.

The B.C. government highlighted housing data that says more than $1 billion in property was snapped up by foreign buyers in just a five-week period starting on June 10th, with 86% of it in the Lower Mainland. With middle class buyers priced out of the market, Clark says the new tax will help make real estate more affordable.

“There is evidence now that suggests very wealthy foreign buyers have raised the overall price of housing for people in B.C.,” Clark said at a news conference. “If we are going to put British Columbians first, and that is what we are intending to do, we need to make sure we do everything we can to try and keep housing affordable. Ultimately, the goal is to affect the demand by making sure it's maybe a little tougher for foreign buyers to find their way into our market.”

While NDP opposition said the Liberal government has waited too long to act, the Greater Vancouver real estate board criticized the government for acting too fast. “Housing affordability concerns all of us who live in the region,” said board president Dan Morrison in a statement. “Implementing a new real estate tax, however, with just eight days' notice and no consultation with the professionals who serve home buyers and sellers every day needlessly injects uncertainty into the market.”

Unlike my friends, who are a pretty typical two-income family with a young daughter, foreign buyers who are snapping up $2 million properties in big numbers don’t seem to be struggling with the price; I’m not sure even a 15% surcharge will cool the market much. If dissenters are right, though, it’ll be difficult to enforce, making it even less effective.

Foreign nationals could purchase through local residents, something that is probably already pretty prevalent. Critics have said it would make more sense to give those who can prove they pay local income taxes a break. Nationality means less than local employment.

Last year, Australia implemented a law barring foreign buyers from purchasing anything but newly built properties, but it’s still too early to see what effect the measure will have.

A more relevant question for us is where foreign buyers dissuaded by the tax will go — Victoria is a likely candidate, but might they head to Toronto as well?

The fallout remains to be seen, but at least somebody is trying to do something — a recent Globe and Mail column said that if Vancouver prices continued their annual increase rate of 17% from this year onward, a typical single-family home would soon cost $80 million. If you’re having trouble wrapping your head around average prices in excess of $1.5 million, try wrapping your head around that.