New tax will only exacerbate the ill effects of rent controls on supply and ownership, according to a markets observer
The B.C. government’s decision to implement a new real estate speculation tax will only make current market conditions, which are characterized by inflamed price growth and tight rental supply, worse.
In a contribution for Maclean’s, Mark Milke – author of Tax Me I’m Canadian: A Taxpayers’ Guide to Your Money and How Politicians Spend It – said that British Columbians have long had to deal with the existence of rent control, as well as the resultant problems of artificial shortages and degraded-quality housing stock.
Milke argued that far from regulating the market, the recently-announced speculation tax – ostensibly targeted at foreign capital, which has been cited as a main contributor to current B.C. housing conditions – will only add collateral damage to already struggling British Columbians.
“Imagine a retired couple where the carpenter-grandfather built a cottage years ago and where the entire family visits every summer. Maybe the couple rent out the home for part of the year to garner some retirement income. Assume the cottage and property is worth $300,000. That 2% tax means in addition to property tax—perhaps $2,000 already, another $6,000 in tax will be applied courtesy of the B.C. government’s new speculation tax. Effectively, the province just quadrupled the existing property tax bill to $8,000,” Milke explained.
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“Even if B.C. tries to re-jig the initial proposal to not tax-nail British Columbians—evidence by the way, of tax policy made up in the NDP’s ideological kitchen and not processed through sensible economists—other Canadians (and foreigners) will be hit by the new quadruple-your-property-tax tax. And here’s where the new speculation tax is as dumb as the proverbial post,” he added. “The Ministry of Finance notes that ‘qualifying long-term rentals’ will be exempt from the new quadrupled property tax but that leaves a lot of ambiguity.”
All of these would have a net effect of making things more problematic for everyone except the ultra-rich, who could afford to throw away as much as $18,000 every year.
“The B.C. government may find the only people who will risk being caught in the combined thicket of B.C.’s rent control laws and new speculation tax net are the wealthy. After all, it is they who can endure the B.C. government’s class warfare-inspired speculation tax, not Canadians of more modest means.”
Ultimately, the market for lower and middle-income rental properties purchased by out-of-province investors might very well collapse amid the uncertainty and the existing restrictions on making a return, Milke concluded.
“It’s as if their investment money was illicit Russian or Chinese mob cash. So congratulations Premier John Horgan and Finance Minister James: Your new tax will kill affordable rental construction that otherwise would occur (from out-of-province buyers ponying up and adding to the province’s modestly-priced rental stock.”