British Columbia Cracks down on Vancouver Housing Bubble

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Targets Foreign Buyers with 15% Tax.

Vancouver, British Columbia, has  been in a phenomenal housing bubble. The benchmark price for homes in Metro Vancouver soared 32% in June year-over-year, according to the Real Estate Board of Greater Vancouver! Other price gauges come up with different results, depending on how they’re structured, including the chart below. But all of them point at an insane situation. For just how far this can go, read, Teardowns and Shadow-Flipping: Living Inside the Insane Vancouver Housing Bubble.

But now the government of the Province of British Columbia is doing something about it – trying to at least. The Globe & Mail:

The British Columbia government is in the midst of a wide-ranging overhaul of how the housing market is regulated and taxed, amid growing concerns that foreign ownership, rampant speculation and unscrupulous real estate agents are fueling an affordability crisis.

During the past several months, the province has announced an end to self-regulation, largely in response to a series of Globe and Mail investigations into questionable practices within the industry; a tax on vacant homes in the City of Vancouver; and a 15 per cent tax on home purchases involving foreigners.

Here’s Christine Hughes, Chief Investment Strategist, OtterWood Capital:

The surge in Canadian house prices has been well documented, notably in the white hot markets of Toronto and Vancouver. In June prices rose 2.3% nationwide led by Vancouver which exceeded 2% for the fifth straight month in a row. The chart below shows the increasing divergence between markets like Toronto and Vancouver and the rest of Canada.

The debate over the source of Vancouver’s surging house price has focused primarily on purchases by wealthy foreign buyers, see here. To gain support for this idea the BC government tracked the nationality of residential housing purchasers in the province between June 10 and July 14. The early data showed foreigners accounted for $1 billion in purchases with 5% foreign buyers in the Vancouver region.

To slow foreign demand the BC provincial government has added a 15% tax on houses purchased by foreigners. This translates into an extra $300,000 tax for a foreigner buying a $2 million house. The City of Vancouver is also planning on adding a tax on empty homes after a study revealed that there were roughly 10,800 empty homes in the city as of 2014.

For more details see the related Globe & Mail article hereBy Christine Hughes, OtterWood Capital

But unlike stocks, a housing bubble, even Housing Bubble 2 in the US, can only go so far. Read… Why this Won’t Work out: Rampant Rent Inflation Collides with Stagnant Incomes

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  29 comments for “British Columbia Cracks down on Vancouver Housing Bubble

  1. michael
    July 26, 2016 at 10:36 pm

    I don’t think it is much of a disincentive. Government wants more money so they put these taxes in place to say they are doing something about the situation. Property taxes are based on property values. Higher property values means higher taxes. It is a virtuous circle.

    • Mick
      July 27, 2016 at 1:13 am

      LOL!!! A $150,000 tax on a typical home and you say it’s not much of a disincentive???!?!! Are you nuts?
      Top it off with another 15% tax per year if the house is vacant!! Shake your head, nobody in their right mind would buy in Vancouver as a foreign buyer. You must be up to your neck in mortgage debt…

    • Al
      August 1, 2016 at 8:40 pm

      This tax should be imposed on developer also! So we can support the same cause. Why should they have an advantage? My question is why just metro Vancouver it should be imposed in Victoria also!

      My rat for the day :)

  2. CV5
    July 26, 2016 at 11:46 pm

    Taxes eh? When all you have is a hammer everything looks like a nail.
    And when you a running a shakedown racket everybody looks like a victim.
    Very lucrative this bubble business if you are a grifter hustler or tax man.

  3. Kreditanstalt
    July 27, 2016 at 1:10 am

    R.I.P. freedom of contract. Anyone daring to voluntarily trade their “privately-owned” property with a willing buyer will be further restricted.

    Indeed. R.I.P. “private” property. If one can’t dispose of ptivately-held property, it is PUBLIC property…

  4. Mick
    July 27, 2016 at 1:18 am

    Put this in real numbers for simplicity.

    On the typical Vancouver home, the government just added $150,000 to the price, for zero value. But the Chinese don’t buy the typical home, they buy the high end homes, more like 2 or 3 million per home. So, this tax just added $300,000-$450,000 to the price, per home!

    Then top it off with a yearly tax if the home is vacant, which many are. This is how you utterly destroy a market with one blow.

    Consider that Vancouver has hundreds, maybe a thousand vacant homes, which now will incur a yearly tax which is no laughing matter. Care to wager that the owners decide to sell?

    This just changed the psychology of the Vancouver market, since all investors know what just happened, even if it’ll take the average guy a few months to figure it out.

    R.I.P. Vancouver housing bubble.

    • nhz
      July 27, 2016 at 3:17 am

      will be interesting to see what happens.

      Wouldn’t it be VERY easy to work around those tax rules by e.g. using a straw man to buy the property, or buying through a shell company? I would be surprised if criminal buyers (that’s probably most of the VA market) suddenly stop laundering their money there.

      In Netherlands RE (transfer) taxes are close to zero, but despite that the politicians have made sure that the elite can avoid any RE taxes using special loopholes. Many homes over 1 million are now purchased by ‘corporations’ which means that taxes are zero, plus this makes it impossible for outsiders to see any details of the transaction because everything becomes a ‘business secret’. For normal homes you can check e.g. the official owner, the mortgage amount and the purchase price for a very small fee, but for these ‘corportation’ homes only a realtor can see some details in their system.

      I would love a tax on vacant homes in my area (there are plenty of them, driving up prices and rents) but I guess it will never happen :-( We used to have squatters as an incentive against vacant homes, but the current government severely cracked down on that to speculation with vacant homes is rampant again, and the politicians like it very much!

  5. Vooks
    July 27, 2016 at 2:51 am

    A master stroke

    Rent will plunge. This followed by prices

  6. George McDuffee
    July 27, 2016 at 4:00 am

    I wish good luck for our neighbors to the north, and hope that the US federal, state and local legislators/regulators are paying close attention to these efforts to control and limit yet another dangerous asset bubble, apparently driven by the excessively low/negative central bank interest rates.

    While the “solutions” to the Vancouver housing bubble seem Draconian, they are at least attempting to get the RE asset bubble under control before it explodes, which is much more than can be said for the major US cities where the residential/commercial “bubbles” continues to expand, even as some begin to collapse, and indeed many are incited, aided and abetted by the local governments and federal financial policy, e. g. deductability of mortgage interest.

    • CV5
      July 27, 2016 at 8:05 am

      A crash may occur due to this shock, yes. But it need not have happened…but did anyway. Big big money involved and being distributed and enormous tax windfalls. Nobody turns down the Chinese/local money laundering including the govt they all want their piece of the action.

  7. Lee
    July 27, 2016 at 5:25 am

    So who is going to get hurt more by this move?

    Local owners that have seen the value of their property soar are now going to see it fall.

    Almost everyone involved in the RE business is going to get hurt.

    If the tax really hits how much money will the government actually collect?

    All to stop a bunch of foreign buyers bringing in money to the area.

    Way to kill off the market.

    No wonder there is no such thing as free markets and real capitalism anymore.

    • d
      July 27, 2016 at 6:06 am

      “All to stop a bunch of foreign buyers bringing in money to the area.”

      They are not Foreign buyers ( Buyers Occupy) they a foreign speculators, driving the prices to the level of un-affordability for the working residents of the City.

      The negative effects of their speculation must be stopped from further harming the residents and the economy of the city.

      Vancouver is not the only city where Foreign Speculators have driven prices completely out of reach of the city’s worker’s it is one of the few doing something Serious about the issue.

      May Australia and New Zealand take note.

      This may be the sort of action required to rectify the Foreign Speculator problem.

      • nhz
        July 27, 2016 at 9:42 am

        What is the difference in practice between foreign and domestic speculators? Nothing IMHO, except that the foreign ones sometimes have a bit more options for money laundering and skipping taxes entirely.

        In the Dutch housing market we have very little foreign speculators but an epic housing bubble nevertheless. As Wolf says, it is all thanks to central banks who are destroying the financial system through easy money policies. The elites (who have far more money than they could ever use, thanks to the banksters) and the dumb subprime speculators (who can buy homes even if they have zero money, with zero risk for them because you can’t draw blood from a stone) are driving up house prices like crazy and making life hell for everyone who is financially responsible. And we all know what happens when these bubbles pop: the speculators will NOT be the ones who get the bill.

        I’m all for stopping speculators in the housing market through serious transfer taxes or taxes on vacant homes (with NO exemptions), but please don’t suggest that ‘foreigners’ are the problem. The problem exists almost everywhere in the Western world and has just one real cause: central banking policy.

        • d
          July 28, 2016 at 3:04 am

          In some country’s foreign speculators have been a curse long before ZIRP and NIRP were even discussed let alone a reality.

          So nations dont allow foreigners to buy land and these nations mostly do not have these huge residential property bubbles.

    • July 27, 2016 at 7:34 am


      When central banks create trillions of $,€,¥, RMB, etc. to inflate asset prices, and when they repress interest rates to create a tsunami of credit that will be used to inflate asset prices further, then there is no more “free market” and “real capitalism.” Now we have CB manipulated markets and crony capitalism.

      The distortions are everywhere, including the Vancouver housing market or steel-making overcapacity in China. As these distortions run into the wall of reality, they will cause a whole lot of pain for the real people involved in them.

      • CV5
        July 27, 2016 at 8:10 am

        CB’s …….the ultimate money laundering operation.

      • CV5
        July 27, 2016 at 8:50 am

        “The evil trinity of banks, RE industry and crooked politicians got rich over the decade now theyre just trying to cover their arses when the inevitable happens”

  8. Petunia
    July 27, 2016 at 8:51 am

    This tax will do nothing to end the real estate bubble in Vancouver. Having spent more than a decade living in the money laundering capital of America, Florida where they have no fear of the authorities, I will tell you that there are too many ways to get around the foreign buyers problem. The biggest problem will be the real estate agents, who will gladly front for any foreign buyers, by becoming the straw buyers and landlords. Vancouver will simply be creating a class of millionaire real estate agents. You can expect expect them to blow the bubble to even higher levels. This is only one of the easiest ways to subvert the tax.

  9. Paulo
    July 27, 2016 at 9:25 am

    It isn’t about the housing bubble or containing it, although the article is interesting.

    The new tax is about the next Provincial election in May, 2017. The lower mainland (Vancouver) real estate and development industry are the single largest grouped supporters of the BC Lib party, (a right wing coalition) currently in power. They have been basking in the high prices for years and have rewarded the Provincial Libs with cash and support for the last decade. Furthermore, there is a 1% property sales transfer tax already in place which this year raised the better part of 1 billion dollars for Provincial coffers, thus leading/producing a much vaunted ‘balanced budget’ as a set-up for the upcoming election. However, there are several lower mainland ridings that the Libs barely won last election and now the high prices and corrupt real estate industry were having a huge effect on the re-election possibility. As such, the Govt had to be seen doing something….anything, and last month the real estate industry ‘supposedly’ had thrust upon them provincial oversight and regulation as opposed to being self-regulated. The 15% sales tax on foreign buyers is a continuation of this action.

    When a tear-down shack fetches 1.5 million for just the lot in a dubious part of town, obviously something was due to change. I am sure the industry insiders were warned well in advance that this tax would soon be implemented. Usually, when ‘progressive’ policies are introduced the usual suspects go ‘ape sh!t’, and do so quite publicly. The fact that there are only faint murmurs suggests that people ‘who mattered’ were well and truly prepared ahead of time.

    If the Libs get re-elected in May, (God Forbid), look for a re-tweak of the laws to ‘adjust’ or ‘better reflect’ a new reality…….blah blah blah. Look, the ‘bubble’ was insane. It had to be popped. And if the Libs are to have any chance of squeezing out another term they had to be seen as actually doing something for residents.

    Many many intelligent homeowners in Vancouver sold their homes in the past few years, built new on Vancouver Island, got 10X the home and still put $500,000- $1,000,000 in the bank for their retirement. I live west of Campbell River and have watched McMansions going up for years and years. Most have beautiful ocean views, 3,000-4,000 sq. feet, and are outfitted with all the stainless doo dahs you could ever imagine. In fact, I sold my home on 1/2 acre in CR during the last bubble in 2007 to a refugee from Victoria, who was already being squeezed out by refugees from Vancouver. Now, I only return to visit friends or shop for groceries. Most residents from Vancouver Island never ever even visit Vancouver or express a desire to do so. As one person I know said, “They can freaking have it”.

    I am almost 61 years old. I have lived in BC for most of my life and only worked away for short stints when I had to. Except for the land and the weather, I don’t even recognize my Province anymore. I moved away to a place surrounded by Mountains on 3 sides and the ocean on the other. The surrounding land is what is termed ‘the working forest’ and cannot be developed. The large farm properties are registered in the agricultural land reserve and also cannot be cut up and developed. It is a virtual oasis and only a 45 minute drive northwest of Campbell River. It is perfect. Recently, a totally refurbished 2 bedroom home on 17 acres just sold for $220,000. The same home in Vancouver would fetch what, 50 million for just the property? In the local Village you can buy a view home and watch the cruise ships pass all summer long for the same price. Yes, you hear logging trucks during the day but at night the silence is deafening. At my place all I hear is the wind, 24/7, and I look out over the river as I write this.

    Why anyone in their right mind would move to Vancouver absolutely astounds me. I suppose the same could be said for many many places these days. I still say, as I have said before on this blog, if you live in such a place now is the best time to sell and move on before your own bubble bursts. You can always visit…if you want to.

    • chris Hauser
      July 28, 2016 at 9:20 am

      i’m ready to move. point me in the right direction.

      i promise i’ll buy something modest and be quiet.

  10. Reggie
    July 27, 2016 at 9:45 am

    Its pay me now or pay me later. This is a parabola in real estate. Simple as that. If they did not do this now interest rates or some other function of the market would have done it later. Lots of equity will be lost to people who bought with a mortgage and now you see exactly what would have happened with higher interest rates. Which will come anyway down the line and just hit it twice. But that may be years off but lets be clear. Low interest rates are a function of global central banks buying their own bonds. Nothing you see is sustainable. Nothing.

  11. Neil Modi
    July 27, 2016 at 10:44 am

    common Trudeau..lets bring more immigrant and screw the country, boost the demand for housing ( or lower CAD$ more to feel wealth effect).

    Toronto is the new vancouver…and they(ontario govt) need money as its highly debted province in entire north america…

    TAXes is the only solution that Govt of Canada understand. This country is good for nothing…except total screwups…at all level including CMHC, Bank of Canada, Govt. etc. etc….


  12. Shawn
    July 27, 2016 at 12:13 pm

    15% won’t make any difference. The Chinese are borrowing money hand over fist from crumbling Chinese banks then using relatives or ’employees’ to get it out of the country. Nice try though, BC gov is doing a lot more that what American cities are doing.

  13. Ehawk
    July 27, 2016 at 1:56 pm

    Now when need to pass that law here in the states where every major metro area has this law. Bay Area, LA metro, Seattle,… all these areas where people actually live and have jobs and raise families have to deal with BS crap of foreign chinese and Russians rich parking money in real estate close to job centers…

  14. roddy6667
    July 27, 2016 at 7:52 pm

    Lawyers will set up Canadian shell corporations to buy the homes. End of problem.

    • chris Hauser
      July 28, 2016 at 9:17 am

      does seem an easy end-around.

  15. Chicken
    July 27, 2016 at 7:53 pm

    And I’m under the impression Canadians just love levering a good asset bubble?

    The Specials: “Ghost Town”

  16. chris Hauser
    July 28, 2016 at 9:17 am

    To slow foreign demand the BC provincial government has added a 15% tax on houses purchased by foreigners. This translates into an extra $300,000 tax for a foreigner buying a $2 million house.

    it’ll feel good for a minute, and then it’ll……..slow demand into already slowing demand, no matter what the numbers say……..

    if you want toppish dollar, sell now.

  17. Smitty
    July 28, 2016 at 3:03 pm

    Is taxing foreigners differently allowed under NAFTA?

    If so the entire treaty is worthless.

    Or is some dollars better than others?

Comments are closed.