Some of the money raised through a potentially higher property transfer tax on luxury homes could be funneled into incentives to build more rental housing, Finance Minister Mike De Jong says.
De Jong said earlier this month he’s considering a third increment of the property transfer tax to collect more when high-end homes change hands, and use the proceeds to help combat unaffordably high housing costs.
But he has been cautious about how to go about dispensing relief, noting that aid to entry-level home buyers could backfire and simply push prices even higher.
“If all you do is create more demand and supply remains constant you’ll have the opposite effect of what you want – you’ll drive the cost up,” de Jong said Wednesday in an interview with Black Press.
He said rental construction incentives could be one piece of the puzzle.
“Is there a way to also encourage the construction of more and new rental housing – that’s very much a part of this conversation,” de Jong said.
He made the comments after a panel discussion at the Union of B.C. Municipalities convention, where he asked mayors and councillors whether relief should be focused on first-time home buyers, and whether it should go towards the purchase of any housing, or be targeted to increase the supply of new housing.
He said most community leaders seem to support the idea of reforming the property transfer tax in a way that helps young families get into the housing market.
De Jong reminded municipal politicians that they control zoning and therefore have the power to increase density and the number of homes available, applying downward pressure on prices.
The property transfer tax charges one per cent on the first $200,000 of the price and two per cent after that. When a $600,000 home sells, $10,000 flows to the government.
De Jong noted the $200,000 threshold where the tax rises to two per cent hasn’t been changed in 30 years. Increasing that would reduce the bite of the tax at the lower end of the market.
Another potential lever is the exemption for first-time home buyers – they don’t pay the tax on the first $475,000.
Greater Vancouver Home Builders Association CEO Bob de Wit said he’s concerned the government’s idea of a luxury increment on the transfer tax could disrupt the housing market.
“It really depends on the changes they make at the higher end and how they define higher end,” said de Wit, who urged the province to proceed very carefully.
“To a lot of one- and two-income families, a $1 million or $2 million home is not super luxurious. It depends where they charge the premium.”
Home builders and realtors would prefer to see the province dismantle the property transfer tax altogether.
And although Premier Christy Clark earlier this year floated the idea of phasing it out over time, de Wit doubts that will happen, because the tax has grown to become a billion-dollar-a-year cash cow for the province.