B.C.’s two biggest political parties have both made big promises to address housing affordability—the top issue in the provincial election.
Though different, the BC NDP and BC Conservative plans share a common thread: Using significant public funds to move the needle on housing costs.
How will these pre-election funding models affect provincial housing affordability?
The "Rustad Rebate," at least as described, is actually not a rebate at all but a tax credit tied to either rents or mortgage payments.
It’s estimated to provide approximately $1,600 per year in tax relief to B.C. households, though it would be phased in with a first-year maximum credit of $900 per year.
There are several issues with the plan as currently described.
First, the size of the tax credit grows with housing costs, incentivizing taking on extra mortgage debt and favouring higher income households. The BC Conservatives have noted the credit would not apply at some high-income thresholds, but again the details of the plan have not been spelled out or costed in detail.
Second, the policy will potentially be a demand stimulus for the ownership market at a time when the BC Conservatives say they will cancel zoning reforms. As a result, there is a not insignificant risk that growth in home prices would accelerate. Moreover, this policy leaves out those who have paid off their mortgage and those who earn an income but, because of challenging affordability, are still living with family. We estimate that as much as 37 per cent of the adult population may not be eligible for the “rebate.”
Finally, it’s a deficit-financed tax cut that likely does very little to stimulate economic growth. Overall, if you want to cut taxes, then the better route is to simply cut income taxes and allow the recipients of that tax cut to spend or save as they see fit rather than have the tax linked to housing costs.
The BC NDP, meanwhile, have promised to open the doors to home ownership.
The structure of their economic model offers funding for 40 per cent of the cost of market housing for 25,000 future units, committing an estimated $1.29 billion per year for five years. Government would supplement a buyer's mortgage with parallel financing to offset the purchase cost.
David Eby described the funding model as a “loan.” The buyer would pay interest on the government funding portion and owe the outstanding balance plus 40 per cent of the capital gains upon a future sale. In many ways, this plan looks like a souped-up version of prior equity partnership plans conceived by a past provincial government and a more recent federal plan that failed to garner sufficient uptake from consumers.
The main issue with this measure is basic return on investment. As announced, the proposal is likely to cost taxpayers the extremely sizable sum of well over a billion dollars a year. This is also modelled around incurred savings due to the use of cheap land. But there isn’t any proven structure in terms of pre-established land partnerships that would achieve these cost savings in an ongoing manner.
While any new supply measures are encouraging, this particular plan is very expensive and does not create enough units to justify the price tag. Indeed, it would only be a small sliver of the nearly 600,000 units the government is targeting to complete over the next decade. That target already has significant challenges, as outlined in the BC Real Estate Association’s most recent report, Building the Future: Unlocking the Production Potential of B.C.’s Housing Sector.
The budget allocation for this project could arguably be used in more effective ways to overcome those challenges. This includes options such as offsetting development cost charges, incentivizing developers to build non-market housing, tax cuts and more that would likely have far more of an effect on provincial housing affordability.
Why not just cut taxes?
If the desire of both parties is to apply a housing-specific tax break to incentivize buyers and improve affordability and market entry, our recommendation is to consider a revision of the property transfer tax (PTT), which has become a massive source of government revenues and has drifted far from its original mandate as a wealth tax.
When initially conceived, the PTT charged a one-per-cent levy on homes up to $200,000 and two per cent on any amount above that threshold. The PTT’s higher tax threshold was only supposed to apply to five per cent of transactions. However, because it was never indexed to inflation, nearly 100 per cent of home sales in the Lower Mainland are now above the original $200,000 threshold, and 70 per cent of homes are above the $200,000 threshold in more affordable regions like the Cariboo and other markets in Northern B.C.
This has left B.C. residents paying, on average, more than $11,000 in PTT per home transaction—double what they were paying in 2010.
While this tax should provide reasonable revenues for government, it should not do so at the cost of making homeownership an even more distant dream for B.C. families. It’s time for a smarter, fairer approach. A review and reform of the PTT could result in a streamlined tax measure that would be logistically far easier to apply than either of the above frameworks.
Trevor Hargreaves is the senior vice-president of government relations, marketing and communications at the British Columbia Real Estate Association, and Brendon Ogmundson is chief economist of the BCREA.
