B.C.’s crisis of high real estate prices is largely self-inflicted, according to a leading housing expert who on Tuesday urged cities and the province to embark on major reforms to deter rich foreign buyers and support local workers.
“We’re the victims of overseas capital markets, but we’re inviting it,” UBC business professor Tom Davidoff told delegates at the Union of B.C. Municipalities convention in Victoria. “We have a big ‘Kick Me’ sign on our back.”
Davidoff argued city councils are too easily swayed by homeowners, particularly in affluent neighbourhoods, who oppose what he calls reasonable density in the form of townhouses that would provide much more housing supply.
The result is too much land locked up in single family zoning and those houses steadily being redeveloped into luxury mansions that are far beyond what’s affordable to a typical working residents.
He said current zoning that overwhelmingly allows only detached houses on most land in the Lower Mainland effectively means “you are banning by law 95 per cent of the Canadian population from most of the good land around Vancouver.”
Tax policy is also a big factor, and Davidoff contrasted B.C.’s “backwards” approach with U.S. jurisdictions.
U.S. cities with high real estate prices charge much higher property taxes than Metro Vancouver cities, he said.
Meanwhile Americans can deduct their mortgage interest and property taxes from their income and reduce their income tax.
The effect, Davidoff said, is those Americans are further ahead every year by roughly 1.5 per cent of their property value compared to a foreign investor who has no deductions against U.S. income.
“We don’t do that. We don’t provide the local workforce with a tax advantage relative to people who don’t make income here,” Davidoff said. “The tax system invites international demand because we barely tax property and we whack income.
“You are hurting land owners economically, you’re killing the work force and you’re rewarding rich people who bring in bags of money from outside.”
Helmut Pastrick, chief economist of Central 1 Credit Union and another housing market panelist at UBCM, said he expects a “mild price correction” as the housing market continues to reverberate from the 15 per cent foreign buyers tax now in effect in Metro Vancouver.
But he predicts the new tax will prove to be a “distraction” as a long-term uptrend in prices resumes.
“I predict that over the next 25 years, housing prices will more than double,” Pastrick told delegates, to gasps. “Over the long term, housing affordability will worsen.”
The accelerating trend in the years ahead will be higher density, smaller units and more people renting than owning as prices rise further, he said.
The federal government is worried about the hot Vancouver and Toronto markets and could try to cool them through further restrictions, such as higher down payment requirements on insured mortgages, he said.
But prices will continue to be driven by a lack of supply, and factors such as the limited land base in the Lower Mainland, and the projected 1.25 million additional people forecast to come to B.C. by 2041.
“The fundamentals are not going to change,” Pastrick said. “You can have this 15 per cent buyer tax and I predict prices will continue to rise after we get through this market disruption. Maybe it needs to be 100 per cent.”
Victoria city councillor Chris Coleman said cities must work to make housing more affordable or else “we will see the rise of tent cities across all our regions.”