Sunday, July 31, 2016

A new tax on home buyers in Vancouver. A speed bump or pothole?

The purpose of some types of targeted taxes is two fold.  One is to raise revenue and one is to change the behavior of markets participants from doing something that is perceived as a societal negative.

The provincial government of British Columbia ("BC") has decided that the Vancouver housing market is a proper tax target:

The foreign buyer tax leaves us with the wrong kind of speculator

""This week, the B.C. government announced a new 15-per-cent property transfer surtax to be applied to all foreign buyers of residential property in the Greater Vancouver Regional District, effective on transactions closing on or after Aug. 2, 2016. The objective of the tax is to curb foreign speculators from investing in residential real estate in the GVRD and help to cool the rise of prices.""
The focus of the article is to suggest that this tax will create wrong incentives for market participants and will make the market more volatile and higher-risk.  It is a very interesting point and one I encourage you to read about.

However, with this posting I just want to look at the simple supply and demand issues the tax will/may create in the housing market there.

My overall sense is that the tax may slow down the increase in prices of house, at best.  But because of things OTHER THAN the price of housing in Vancouver, such as economic growth and increasing jobs/income, the price of housing will simply continue to increase.

This is a supply issue for the most part (or all part).

Here are the slides with explanations.

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