Vancouver real estate market unfazed by foreign buyers' tax one year later

The foreign buyers' tax, introduced by the previous Liberal government, has done little to improve affordability a year after it was introduced, say observers of Metro Vancouver's real estate  market.

Analysts say home prices have continued to escalate, sales are on pace with pre-tax expectations and houses are largely still out of reach for most residents.

"Maybe it's changed the composition of sales a bit, some fewer luxury sales ... but as far as shaping the overall Vancouver market, it really hasn't done that much," said Brendon Ogmundson, an economist with the B.C. Real Estate Association.

Last summer, then-premier Christy Clark introduced a 15-per-cent-tax on foreign home buyers in Metro Vancouver in response to the region's skyrocketing housing prices.

Many critics suggested that foreign capital was one reason real estate had become increasingly unaffordable, with locals unable to compete with foreign investors.

It worked! Or did it?

A month after the tax came into effect, Clark pointed to the dramatic impact the tax had on the market. The number of transactions involving foreign buyers plunged, from 2,034 deals in the seven-week period before the tax, to 60 in the four weeks after.

The number of sales recorded by the Real Estate Board of Greater Vancouver that August fell sharply by 19 per cent.

While the effect of the tax was more immediate and dramatic than Ogmundson had anticipated, he said home sales had already been declining in the four months prior. 

The association had projected an 8 per cent drop in sales even before buyers were "spooked" by the introduction of the tax, he said.

But by the beginning of 2017, Ogmundson said the market stabilized. In July, sales were 0.7 per cent above the 10-year July sales average.

The Multiple Listing Service Home Price Index composite benchmark price for all residential properties in Metro Vancouver is $1,019,400 — an 8.7 per cent increase compared to July 2016 and a 2.1 per cent increase from June 2017.

'Politics over public policy'

Andrey Pavlov, a professor of real estate finance at Simon Fraser University, said that while the markets appeared to only cool temporarily from the tax, there is still likely a long-term impact.

"I realize that prices have come back to previous highs, but in all likelihood they would have been even higher without the tax," Pavlov said.

Both analysts agreed the tax has had little impact on affordability.

Pavlov said the dearth of housing in Vancouver is a much bigger factor that "hasn't been addressed at all."

What's needed, Pavlov said, are higher density allowances in order to create more housing, and greater freedom to build on undeveloped land such as the agricultural land reserve.

He also noted the growing gap between Vancouver-area incomes — which are lower than in many major North American cities — and housing costs.

Andy Yan, director of SFU's City Program, said fixing Vancouver's housing affordability problem requires all three levels of government to work together.

Yan noted that the foreign buyers tax was introduced last August, roughly six weeks after the B.C. government began collecting data on foreign buyers. That short span, Yan said, is proof the tax represented "politics over public policy."

Meanwhile, the president of the region's real estate board, Jill Oudil, said a tax on foreign buyers did not address one of the chief causes she believes is responsible for high housing costs — the low supply.

"It most certainly hasn't changed supply which has been our driving force in our market right now," said Oudil.

Demand for condos and townhouses

The most significant shift since the foreign buyers' tax was implemented is that demand for condominiums and townhouses has outstripped free-standing homes.

Ogmundson attributed this change to the need for more affordable housing.

In June, Oudil said the number of condominium listings was near an all-time low.

"Detached home listings have increased every month this year, while the number of condominiums for sale has decreased each month since February," she said.

The MLS Home Price Index benchmark price of apartments has grown to $616,000, an 18.5 per cent increase compared to July 2016.

The benchmark price for townhouses is $763,700, representing an 11.9 per cent growth also over last year.

All of it is evidence to Yan, that more work needs to be done.

"The expectation that this was about a single event, that it was about just foreign buyers by themselves creating unaffordability in the region, I think really fails to recognize the issue of a failing housing system."