THE CHASM between the monetary and the social value of a home has never been greater than it is now. From considering a home as shelter, we have come to see it as just another commodity in the market place.
At least for now, it’s a red-hot commodity in an economy where a lot seems to revolve around the real estate industry. And just like any valuable commodity, gold, for example, it is vulnerable to invisible market forces. Low interest rates have only added to the fire, making us all believe that a glittering piece of the future can be ours and will only multiply.
But not everything that glitters is gold and this is where the prospect of speculation tax proposed by Vancouver Mayor Gregor Robertson and recently by a few university professors is worth looking into. The average price of a Vancouver home has surpassed $2.5 million, pricing it far out of reach of average middle-class Canadians. But that price tag certainly attracts those who think of homes as a commodity that can be flipped for a higher profit. And we are not talking about the mom-and-pop variety of flipping of the 70s and 80s we are so familiar with. This is flipping as a high-stake game where investors, both local and foreign, use homes to park their money and use fraudulent means to inflate prices, as a recent investigation by The Globe and Mail revealed.
Levying a luxury speculation tax on these properties as proposed by Robertson will deter the practice of flipping homes and ensure that there is extra funding available to put for affordable housing for those who are constantly being priced out of the market. I also agree with the Mayor when he says there needs to be better tracking data on international investment and absentee ownership from both federal and provincial government.
I believe we should take a good hard look at the tax-based housing fund proposed by a few academics recently. They propose the government identify offshore property owners who pay little income tax in Canada but keep properties vacant to park their money. The economists argue the government should levy a 1.5 per cent tax on those property owners which could leave the province richer by $90 million in Vancouver alone.
There will be naysayers but I believe such a tax can be one part of the solution. Of course, there are variables such as location and type of housing but all those fine details can be hashed out if the government is serious about finding a solution to the skyrocketing price of real estate in the province. If implemented diligently, such a tax would make people think twice about bringing in foreign money for the sole reason of buying a home. Perhaps, it will encourage diversified investments in other sectors such as technology and manufacturing.
The way real estate prices are headed we will no longer be immune to speculation in Squamish. It’s all the more reason our council is proactive and discourages speculation by opening up new supply of land. We need to, for example, open up the Cheema lands and other areas for development so demand keeps meeting supply. We also need more condos and apartments and rental units such as the new waterfront development.
The government should also find some financial instruments to fix the loopholes that make it easier for people to flip properties. Flipping homes is akin to trading insider information in the financial world. People in the real estate industry are privy to inside information on new developments which makes it easier for them to buy en bloc and later flip them for higher prices benefiting them and increasing unaffordability. Canada also lacks Zillow-like data transparency, which would make it easier to get historical and recent data on homes such as the historical price since a home was first built.
No one likes to pay taxes, but a properly implemented speculation tax will help cool off the real estate frenzy and perhaps help us collectively realise that home is more than just a commodity to be traded in the market.
Craig Cherlet is the co-founder of MarketingStream, a sales, marketing and web design company.