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BC Real Estate: How Government Policies Drive BC’s Housing Affordability Crisis

Portrait Andrew Schulhof

#303-1338 West Broadway
Vancouver
British Columbia
V6H 1H2

All levels of government have taken measures to address the housing affordability crisis. How exactly have these measures impacted real estate in Canada exactly?

Grab a coffee as this post is going to get deep! There is a ton to unpack to really  understand how did we got here and how can we solve it.

How Did We Get this Housing Affordability Crisis?

In researching this blog, I found that the housing affordability crisis across BC and many other provinces is anything but simple. One thing that has become apparent is that the fingerprints of all levels of governments are on it and has significantly contributed this very real and challenging dilemma.

Housing is a hedge against inflation, in other words real estate generally increases with inflation.

Milton Friedman famously said: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

The act of printing money out of thin air will create inflation and the Federal Government has been doing that for years and even more so in the last 7 years. Our national debt has gone out of control.

Let’s look at two images to see if there is any correlation between the money supply created in Canada and real estate average price values in Canada.

M2 Money Supply 2005-2023

Average R.E. Prices 2005-2023

Source: 1

Source: 2

Obviously, there is some correlation between the two charts but to get a full picture we need to dig further.

This article isn’t about the blame game, but in BC, that blame has been happening for years by the various levels of government and yet they say they are going to help fix it. BC is the canary in the coalmine and that is something all of Canadians should be concerned with.

First the various levels of government blamed the foreign buyers, then it was the investors/speculators (which are not necessarily the same), then it was the realtors, developers, and then foreign buyers again, recently investors with short term rentals, and now the finger pointing is directed at the speculators with BC’s latest tax on flipping homes.

The government has no choice but to address the housing affordability crisis issue with some “earnest” efforts from their perspective, as it is the #1 public concern. They are going to fix it. Yikes!

Just for fun, I did a search on ChatGPT on what are the root causes of the housing shortage and it was incredibly interesting for the headings. Here they are:

  • Supply Constraints and Urban Density,
  • Foreign Investment and Speculation,
  • Economic Factors and Income Disparities,
  • Lack of Affordable Housing Options,
  • Regulatory Framework and Land Use Policies.

While there is merit to some of the points, it doesn’t really address the issue. Heavy handed legislation and tax seem to be the only playbook that the various levels of government are willing to use to “fix” the problem.

So what does the above have to do with the housing crisis?

Everything! It comes down to the actual supply and demand of housing itself, and all the components such as the land, materials, labour, access, funding etc. in relation to the actual demand whether it is for homeownership or rental.

Lack of integrated government policies, uncontrolled immigration policies, excessive bureaucracy and high taxation at every level has brought us to this point. It is time that a mirror is put in front of our elected officials to realize that the housing affordability crisis is a systemic problem. It is going to take real fortitude by both the public and our elected officials to really look at the issue holistically and at the same time correct these systemic problems at each level of the government.

One step is look to Alberta and other jurisdictions around the world where affordability is less of an issue and what role governments play in contributing to the success or problems and learn what steps can be taken.

For affordable housing reform, we just need to look next door at Edmonton which could be the most progressive city in Canada and maybe even North America.

Below, we’ll examine key ways in which governmental actions have impacted the housing market in BC through legislation.

How the BC Government Restricted Housing Supply Through Regulation

Supply Constraints

If there are not enough homes being constructed or made available for the population growth, then there is more competition which drives up prices.

As stated above, it starts with the cost of actual housing developments, which is due to the cost of and access to land, cost of materials, cost and lack of labour, taxes, permits cost and length of time it takes.

The CD Howe Institute did a study of the cost barriers for single detached homes by census metropolitan areas from 2011 – 2021 which presented that Vancouver was at the highest at 60%.

Supply constraints must include the all the cost components, and in the case for Metro Vancouver it has one of the highest costs for construction in all types of housing structures across the country. Whether it is 30% in government costs of construction or even higher, the fact is BC provincial and municipal government regulations, fees, and taxes are a major contributor to the housing unaffordability.

When we compare BC’s government costs to Alberta’s maybe there is a lesson or two to be learned.

The situation of the slow and very costly housing construction process in BC may have finally come to a point where it could no longer be ignored by the higher levels of government with the introduction of new legislation in BC.

Lack of Affordable Housing Initiatives

The lack of affordable housing initiatives is among the biggest contributors to the housing crisis facing BC, so this section will be one of the longest in this post.

It is never just one aspect that is the cause i.e. supply and demand but how several policies at multiple levels of government collective contribute to the housing affordability we are facing here in BC and elsewhere in Canada and around the world.

Federal Impact on Housing Affordability

Critics argue that the federal government has not done enough to support the development of affordable housing, particularly in high-demand areas like Metro Vancouver. While funding programs like the National Housing Strategy (2017) aimed to address housing affordability and homelessness, the scale of investment has not be sufficient to meet the growing demand for affordable housing units.

The federal government’s decision to get out of housing at the federal level in 1987 has resulted in 30 years of underbuilt housing according to Sheila Copps (former Deputy PM). The Provincial Governments took over housing policy.

While this seems logical due to the variations from province to province, it also created what seems to be authority without responsibility. The federal government began looking at the problem in 2017, but until recently had not taken any real substantial action.

Federal immigration policies have had a massively negative impact on three of the major part of the Canadian society’s infrastructure Healthcare, Education, Housing.

It is all good to attract and seek people from other countries to fill the jobs that many Canadians don’t seem to want to do, which is a whole other story of entitlement, but there needs to be the ability to accommodate these new immigrants and their families in the realms of healthcare, education, and housing.

Inadvertently, the Federal government’s immigration policy has actually significantly contributed to the housing supply problem by adding over 1.5 million new immigrants in the last 3 years to Canada with its stagnating housing supply.

The Canadian immigration target of 500,000 per year for 2025 and 2026 is only going to continue to add to this crisis unless we can deal with the housing supply side of the equation.

BC’s population growth has been significant in the last few years and at its highest level of growth since the 1970’s. If housing doesn’t catch up quickly, BC is going to have an even greater housing problem that we already have. 

Source 1

Source 2

Federal Legislative Changes

So what is the Federal government doing now to step up? “To address other housing pressures, the federal government rolled out the Housing Accelerator Fund and allocated $4 billion to it until 2026-27 to encourage more home building in cities. The fund’s objective is to build 100,000 more units across the country by streamlining land-use planning and development approvals.”

After much attention to this unchecked immigration of foreign temporary workers and students, the federal government recently announced that it is creating cap levels for both immigration categories. BC has placed a two year ban on new colleges enrolling international students.

On February 21, 2024, the Federal Government announced a $2 Billion boost to BC to address the housing needs for the middle class by the increase the building of 8,000 – 10,000 middle-class rental housing units in the next few years.

British Columbia

Despite efforts by the provincial government to increase affordable housing supply through initiatives like the Building BC: Community Housing Fund, challenges persist in meeting the diverse housing needs of BC residents.

Delays in project approvals, limited funding, and regulatory barriers continue to impede the development of affordable housing options.

Provincial Legislative Changes

Similarly, the BC government has faced criticism for its slow approval processes, restrictive zoning laws, and bureaucratic hurdles that hinder the construction of new housing units.

The lack of available land for development, particularly in highly desirable urban areas like Vancouver, exacerbates the supply-demand imbalance and contributes to soaring home prices.

As mentioned above, BC has introduced several bills to try to deal with the supply issue.

Bill 35

Bill 35 The regulation and banning of most Short Term Rental of dwelling in most municipalities as a business with such targets of removing the minimum 30 days as the benchmark for short- term and replacing it with no rental of less than 90 consecutive days.

Again, great in intent on the surface, but with unintended consequences because it was not properly thought out. Everyone is in agreement to appropriately deal with those operating illegally, but once again take the board brush approach is not actually going to help.

In fact, the Conference board of Canada conducted a study on the impact of legislation and it won’t help the housing challenges.

It was estimated by the BC Government that there were 28,000 housing units that were suspected to be short term rentals and the BC Government feels that by introducing this legislation they can return 16,000 entire homes to normal/long term rental housing units.

Did you know between July 2021 and July 2022 there were over 106,000 new people that migrated to BC and between October 2022 and October 2023 the net population growth was estimated by the BC government at 177,599.

I am not really sure how eliminating 16,000 rental units is going to have any meaningful impact on the ballooning demand and subsequent unaffordability.

To delve into the situation on a more granular level, let’s look at Vancouver’s short term rental issue which already has a hotel shortage issue and dramatically escalating room rates (a whole other topic).

Andrew Lis, Director, Economics and Data Analytics for Greater Vancouver REALTORS® in his 2024 Resident Market Forecast reviewed the facts concerning short term rentals and these are his findings. At the time of his study he found 6,695 Short term rental units in the city of Vancouver, of those 5,419 were entire homes/apartments, of those only 1,915 were used as STR for 30 days or more, of those only 1,091 were used as STR for 90 days or more, of those, only 264 were used at STR for 180 days or more. (Click here for full 2024 forecast recording).

Finally, there are issues with properties that were developed with the proper zoning for short term rental, that are no longer available despite the municipalities, developers and property owners doing all the right things.

BC has large tourism and film industries which rely on access to these types of accommodations. With these potentially lost accommodations, what with be the impact to the local and provincial economy, tax revenue generation for the BC Government? What about people that have to travel for medical reasons, are they going to have to stay in hotels (if they are even available) and on whose dime or are they acceptable losses (collateral damage) in this broad brush legislative approach?

Bill 44

Bill 44 Ultimately transferring the control of municipal planning to the Provincial Government. The overall goal is to increase housing density on SFD lots to accommodate a 20 housing supply plan (no details yet) set out by the Provincial Government.

It is also intended to cut permitting process time by eliminating or restricting public hearings related to anything covered under the Official Community Plan.

While all of this is positive in intent, the implementation of the one size fits all to approach to increase the density of housing on the single family lot zoning will be less than easy for BC municipalities to adopt and submit a zoning plan by June 30, 2024 and subsequent timelines. Related issues of overriding strata and rental restriction that can now affect the owners’ quiet enjoyment of their own properties in these strata corporations.

Bill 47

Bill 47 This legislation was introduction to increase the housing density specifically around those Transit Oriented Development Areas (TOAs). This was intended to further support developments around transit hubs.

It targets municipalities where local governments are required to designate these areas near transit hubs and consider applicable guidelines pertaining to them.

These TOAs are defined as land within 800 meter of a transit hub like LTR stations and within 400 metre of a bus exchange where passenger would transfer from one route to another.

The Provincial Government released a TOA Policy Manual which outlines what are the requirements. The Province’s preliminary analysis indicates that Bill 47 could increase the number of housing units in TOAs by 100,000 over the next ten years.

While this legislation will help with the increasing housing density, it will not be without its growing pains including permanently changing the landscape and view windows of many areas in various cities.

Click Here is a link for further details on the TOA plans.

Source

Foreign Ownership and Speculation

Federal 

While foreign ownership and speculation have been perceived as significant concerns in the BC housing market, the federal government addressed these issues only after BC imposed its Foreign Buyer Tax.

Such measures included the introduction of the Foreign Buyers Ban on residential housing in 2023 was estimated to only impact about 2% of the housing purchases across the country. Recently the foreign buyer`s ban was further extended for an additional 2 years to 2027 in an attempt to aid in the housing affordability.

However, based upon the fact that housing prices haven`t decreased in any noticeable way, it is questionable whether this ban is helping the situation.

Some argue that these measures may have dampened foreign investment but also deterred legitimate buyers and contributed to market uncertainty.

BC

The BC government’s implementation of additional two new taxes.

First was the Foreign Buyers Tax in 2016, which basically amounts the foreign buyer paying an additional 15% (increased to 20% in 2021) of the fair market value of the residential property purchase price. Although at the moment, the Federal Foreign Buyer’s Ban overrides this for the majority of instances.

Also in 2018, BC introduced the Speculation and Vacancy Tax, which was expanded to include 13 more BC communities, many of which are tourist and vacation communities.

These two taxes were aimed at curbing speculation and stabilizing prices. However, these measures have been criticized for their ineffectiveness, unintended consequences, being insufficient to address the root causes of housing unaffordability, and for inadvertently impacting local investors and homeowners such as snowbirds and those who have second homes for recreation. These taxes will also be highlighted in a later section which reviews all taxes affecting the housing affordability in BC.

Mortgage Stress Tests

Federal

The federal government’s introduction of mortgage stress tests, which require borrowers to qualify at higher interest rates than the contract rate, has made it more difficult for some Canadians to obtain mortgage financing.

While these measures aim to prevent excessive borrowing and reduce the risk of mortgage defaults, they have also constrained purchasing power for prospective homebuyers, particularly first-time buyers.

This situation of declining buying power has become even more troublesome because of the rapid and significant interest rate hikes to levels we haven’t seen in some 20 years.

While the intent of the stress test is understandable, it makes housing even more unaffordable and when the interest rates are somewhat tied to the CPI inflation rate which includes housing as one of the 8 major components.

Calls for the stress test to be removed have fallen on deaf ears at this point. The Office of the Superintendent of Financial Institute recently rejected the recommendation from the competitions bureau to remove it from uninsured mortgage holders who wish to switch lenders.

Taxes and Legislation Directly Related to Housing

Many politicians forget that everything we pay for is done with after tax dollars.

We have already paid income tax on every dollar we have earned and now we need to pay for our food, clothing, and shelter with after tax dollars.

There is more we are taxed on just about everything else we buy or do. And every year many of these taxes are increasing due to the insatiable appetite of growing Federal government, their spending and the current BC Government spending.

Here is a list of taxes directly connected to housing in BC.

BC Foreign Buyers Tax

BC Foreign Buyers tax (20% additional to the property transfer tax, but basically none-existent for BC government Revenues due to the Federal Foreign Buyers Ban)

BC Speculation and Vacancy Tax

BC Speculation and Vacancy tax (0.5% of assessed value for residents, 2.% for foreign owners)

BC Property Transfer Tax

BC Property Transfer Tax is charged on every transfer of a property every time. Recently, there were some recent changes for first time buyers

    1. 1% on 1st 200K of fair market value plus,
    2. 2% of $200K to $2 Million of fair market value plus,
    3. 3% of fair market value over $2 million

BC Property Tax

BC Annual Property Tax include provincial, regional and municipalities portions to pay for various needed services and are increased annually. In recent years, homeowners have experience significant increases year after year.

Federal Underused Housing Tax

Federal Underused Housing Tax was introduced on 2022 and sets out an annual 1% property tax on the value of residential property that is considered to be vacant or underused. There are exemptions and significant fines for not filing the returns by the due date.

Vancouver Empty Home Tax

Vancouver Empty Home Tax was initiated in 2017 and is levied at 3% of the property’s assessed value. An increase to 5% was being considered but Vancouver’s City council voted down the increase.

BC Rental Controls

BC Rental Controls: In 2018, the NDP government made changes to the rent increase formula, tying annual rent hikes to inflation only. Previously, the B.C. Liberal government had set the rent increase formula at inflation plus two per cent. Then the NDP removed the connection to inflation and mandated the annual rate of rent increase, whether that was tied to inflation or not, which has negatively impacted rental housing providers ever since as the cost of almost all expenses have increased at a significantly higher rate than the maximum allowable rent increases mandated by the current BC government. This is causing a very real potential issue of deferred maintenance in rental properties.

BC Flipping Tax

BC Flipping Tax: The BC Government introduced this tax February 2024 and it basically taxes a sale of a property that is sold within two years of purchase. The provincial Government will essentially be charging at 20% tax on the gain of the sale of the property within one year or 18% for the property sold in the 2nd

This tax is going to be problematic due to various situations that can affect the very legitimate reasons for selling within a two year period and will not make a real impact to the actual affordability problem for which it was intended.

Federal GST on New Homes

Federal GST on New Homes: This tax means that in there is an additional upfront cost of 5% of the purchase price in most cases that will be rebated after the fact for the home owner if it is the primary resident. Click here for further details

BC Carbon Tax

BC Carbon Tax: This tax doesn’t get very much attention but for any home including detached or attached that is heated through a natural gas source, there is a carbon tax directly charged and indirectly through the various components of deliver and levies.

For an example in the strata corporation in which I live our December bill was $1,508. The actual cost of the gas was $281(19%), basic charges, deliver, storage and transport totalled $742(49%) and Carbon tax, GST, and clean energy levy added up to$485 (32%). And as of April 1, 2024 the BC Carbon taxes are set to increase by $0.15 per cubic metre, or from $60 to $85 per tonne or $0.17/litre of motor vehicle fuel for vehicle.

Consumer taxes also indirectly filter down to the homeowner and renter and what they can afford. Some people need a vehicle and cannot afford to buy a new EV, so they are stuck with a gas-powered vehicle when public transportation is not available as a main source of transportation.

Here is a chart showing the cost breakdown of a litre of vehicle fuel in Vancouver based upon $1.78 and before the $0.17/litre is added.

Are these taxes adding to the housing affordability or making housing more unaffordable?

Has Government Helped with Housing Affordability?

While both the federal and BC governments have implemented measures aimed at addressing housing affordability and market stability, challenges remain in effectively balancing supply and demand and supporting the development of affordable housing.

The problem is complex and it requires more than broad strokes of legislation. Addressing these issues will require coordinated efforts, innovative policy solutions, and collaboration between government agencies, industry stakeholders, and community organizations to ensure a more equitable and sustainable housing market in British Columbia.

The solution doesn’t lie in the black and white approach, or about government fiefdoms, but in a collective and inclusive approach for the betterment of the majority to accomplish affordable housing.

It must address the uniqueness of different situations and requires proper consideration. It is time to stop punishing the many for the sake of a few.

It is time to stop treating the symptoms and start treating the disease. It needs to be a “we” not a “them” i.e. public involvement, it requires open and frank dialogue between the all the stakeholders, developers, the construction industry, residents and the three levels of government.

It also requires well-thought out strategies that have realistic and tangible objectives and measurable results. It needs to be about cooperation, coordination and community, not control.

Engage the public in solution-based dialogues, coordinate with all levels of government to streamline processes to be more fiscally effective and efficient, provide tax Incentives for housing development, create legislation to deal with offenders.

This article is based on many of hours of research and checking facts. To hold our politicians to be accountable for affordable housing, we need to vote and write letters. It is time that we get some meaningful returns on the taxes we pay, which in turn pays our politicians.  

These policies and taxes on real estate are overwhelming and not well thought out. We need to hold the various level of government to be fiscally responsible as we are doing.

How? Voice your concerns and write letters to the ministers of housing at both the Federal and Provincial levels, to your representative members of parliament and the BC legislature, attend public meeting, and vote.

Get in Touch

If your are interested in investing in real estate, or looking to list your current home, I can help you form the appropriate strategy and answer any questions you may have. 

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