Expanding the foreign buyer tax won’t solve the problems in BC’s housing market, writes Kam Brar
British Columbia has arguably felt the brunt of Canada’s housing affordability crisis. Each year, more regions of the province become less affordable to the people who live and work in those communities. As mortgage brokers, we are faced with that reality every day as we work to make people’s dreams of homeownership come true.
It comes as no surprise that the BC government’s 2018 budget focused heavily on housing initiatives. In addition to increasing the province’s foreign buyer tax to 20% of the property purchase price, the government also expanded the tax to include the metro areas of Victoria, Nanaimo and Kelowna, as well as the Fraser Valley. Along with Vancouver, where the tax has been in effect since August 2016, these regions are among the 10 least affordable places to buy a home in Canada.
But will an expanded tax on these buyers really stabilize the market and curb demand? Looking at 18 months of data from Vancouver, Realtors’ and economists’ opinions on the tax’s effects range from “zero impact” to “minimal and temporary.”
In the lending world, we have seen minimal effects on deals involving foreign buyers, who are usually coming with cash and purchasing properties that fall well outside normal lending parameters. After a brief dip in sales following the introduction of the foreign buyer tax, it appears the people making these purchases have decided this is simply the cost of doing business in their desired location.
In Victoria in particular, the data just doesn’t support foreign buyers as being the source of unaffordable housing. Although all levels of government have only recently started looking at homebuyer data with respect to residency, their findings have shown that non-residents generally make up only 4% to 6% of property purchases, both in number and value of sales. The proportion of foreign buyers also seems to keep pace with overall market trends.
Since the provincial government seems to be ignoring the other 94% of home sales, that’s where our focus needs to be in the mortgage industry. The affordability crunch is partly coming from existing homeowners who are seeking to move up the property ladder. Housing prices bounced back in early 2017 and just kept on climbing. Unable to qualify for a mortgage large enough to finance a property that suits their new needs, existing residents can’t move, leading to a lack of resale supply – and the sky-high prices and bidding wars seen through most of last year.
The majority of prospective homebuyers in BC will continue to face property prices that far exceed their income. They will continue to see a shortage of entry- and mid-level properties on the market. And they will continue to feel the pressure of more stringent lending guidelines, combined with unaffordable rental situations that drive a desire to buy.
As even B lenders become unable to meet the needs of these buyers, more of them will be pushed into the realm of private lending, which comes with its own challenges in BC. The recent Globe & Mail investigation into money laundering through real estate in Vancouver has spread misinformation and led to fears about taking on a private mortgage.
The need to educate our clients will continue to grow, which can only happen if we have a solid understanding of the range of lenders and products available. It’s no longer enough to find financing; we must also reassure clients of the legitimacy of that financing.
The ability to find lending solutions tailored to a local client’s situation will be the next thing that differentiates a merely competent broker from one who provides exceptional client service. One gap I identified locally was a lack of short-term financing solutions for borrowers facing the unique situations that come with a hot market and low inventory. Over the past two years, we have been able to complete deals for many homeowners who otherwise would have failed to find a mortgage they could afford, all while keeping our investors happy and excited.
While BC’s foreign buyer tax is making headlines, most people won’t feel any effect from its expanded scope. The real fix is madein- BC solutions that will allow people to continue to qualify for financing to purchase the property they love.
Kam Brar is the founder and owner of Victoria-based Auxilium Mortgage Corporation, along with his wife, Michelle. Brar has been a mortgage broker in the area for more than 10 years.
