The B.C. government used its balanced budget Tuesday to address the high cost of real estate with tax incentives designed to spur housing construction and to address the controversy around foreign ownership.
Finance Minister Mike de Jong noted his province may be alone among Canadian provinces to post a surplus this year.
The $48-billion budget is based on “stable, steady but not spectacular” economic growth forecasts, and includes a three per cent increase in health care spending, and a long-awaited boost to child protection services.
But the budget’s focus on measures to address housing affordability in what he acknowledges is a super heated market dominated the measures.
In the first major overhaul of the Property Transfer Tax since its inception in 1988, Finance Minister Mike de Jong promised to make home ownership more accessible for entry-level homes by raising the exemption threshold, on new homes only, to $750,000. The new rules, only available to Canadian citizens and permanent residents, could mean savings of up to $13,000.
The changes will be funded by a higher tax on sales on properties worth more than $2-million.
“Is there anything more reflective of who we are as Canadians than the dream of owning a home, and the ability to make that dream a reality,” he said in his budget speech in the legislature.
However Mr. de Jong said the cause of rising real estate prices is not clear, and announced a string of disclosure requirements to address concerns about foreign ownership and the use of bare trusts to avoid taxation. Home buyers will be required to disclose their citizenship, but Mr. de Jong said he is not sure that data will lead to any changes.
“We encourage people to come to British Columbia to invest and we are going to continue to do that. . . We’ll see what the data shows.”
He said the province does not have enough information to tackle concerns about real estate speculation and shadow flipping that may contribute to spiralling prices, particularly in Metro Vancouver, but he intends to work with the regulatory body for realtors to ensure ethical practises.
Speaking to reporters, the finance minister said he can’t predict what impact Tuesday’s tax changes will have on the housing market, but said local governments will have to play a role in improving affordability for would-be homeowners.
He said he intends to sit down with the Union of B.C. Municipalities to negotiate changes on the “hidden costs” that local governments impose on new home construction. He said if an agreement cannot be reached, the province could use its legislative authority to impose changes.
Damian Stathonikos, spokesman for the B.C. Real Estate Association, said the measures do not provide enough relief for most home buyers. “The challenge is going to be, creating new housing supply doesn’t happen overnight,” he said. “We would have preferred to see more action taken on relieving the Property Transfer Tax that exists now to make homes more affordable.”
The province’s effort to cool the housing market will have a “relatively minor” impact, predicted Helmut Pastrick, chief economist for Central 1 Credit Union, and housing prices are likely to continue to rise. Overall, he said there are few changes in the budget to reduce the cost of living for British Columbians.
“Affordability is a growing issue and it will continue to grow.”
The budget also provides what the finance minister described as “very modest” increases for people with disabilities on income assistance, but shelter rates remain frozen for the tenth consecutive year. Changes to the Medical Services Plan premiums will result in relief for single parents and low-income earners but many individuals will pay more.
The budget also includes the creation of a “prosperity fund” with a $100-million contribution. The B.C. Liberal government promised the fund during the 2013 provincial election campaign, but that fund was supposed to a repository for a share of revenues from a liquefied natural gas industry that has yet to materialize.
“This is not a strong budget in any capacity for working British Columbians,” said Aaron Ekman, secretary-treasurer of the BC Federation of Labour. “Instead of investing today in people… the premier is diverting $100-million to create a fantasy future fund, based on fantasy LNG revenue.”
British Columbia is leading the country in economic growth - the economy is expected to expand by 2.4 per cent - and the province boasts the best credit rating among the provinces. Mr. de Jong said those circumstances translate into lowering borrowing costs and more fiscal room to increase spending.