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FEBRUARY 2019 BCBUSINESS 21 SOURCES: LANDCOR DATA CORP.; ANALYSIS BY WILL DUNNING INC. (LEFT); BC STATS, STEVE SARETSKY (RIGHT) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 Grown-up Problems Per-adult residential property sales in B.C., seasonally adjusted 2001 2004 2007 2010 2013 2016 SALES RATIO AVERAGE A s expected, the B.C. government forged ahead with its specula- tion and vacancy tax, which took effect on January 1. This politically controversial yet publicly supported levy will penalize foreigners who don't pay income taxes and leave a home empty for more than six months of the year with a 2-percent tax on the property's assessed value. After some blowback, the government lowered that rate to 0.5 percent for Canadian citizens and per- manent residents. In late November, Finance Minister Carole James took to social media to announce the passing of the tax. "This is an important step forward that will curb foreign ownership, tackle speculation and return empty homes to the housing market for British Columbians to actually live in," James said. "The last government looked the other way as the housing crisis spiralled out of control and an entire generation was priced out of the housing mar- ket. Today marks a change in direction." The NDP's effort to drive home prices down is unconven- tional, given that governments typically aim to raise prices because they're hooked on the associated tax revenue. That makes it all the more fascinat- ing and perhaps highlights the fragile state not just of B.C. but much of the world. As the rich-poor divide grows, the rise of populism is spawning radical leaders and government policies, from Donald Trump to foreign buyer taxes. The B.C. move also comes at a time when the province's property market has already slowed to a crawl. Residen- tial sales through the first 10 months of 2018 fell 22.8 per- cent year-over-year, the British Columbia Real Estate Associa- tion reports, while dollar vol- umes slipped by 22.1 percent, to $49.7 billion. To put that in context, sales on a per-adult basis dropped to 2.59 percent in the third quarter of 2018, according to New Westminster– based Landcor Data Corp., 23 percent below the long- term average. Tighter lending—thanks to a federally regulated mortgage stress test and higher interest rates—has much to do with the slowdown. But it looks like foreign buyers have pulled back, too. Last January through October, they accounted for $2.2 billion worth of residen- tial home purchases, B.C. land transfer figures show, a 28.5-percent plunge from the same period in 2017. Foreign buyers could retreat further with the debut of the speculation and vacancy tax, plus provincial measures to stem tax-free profits from the presale condo market by launching a mandatory regis- try to track property flippers. The desire to rein in an out-of-control property market is understandable, but it will come with major fallout. The economic boom that B.C. has been enjoying largely flows from housing construction. As a share of total B.C. employment, construction sat at a near-record 27 percent of provincial GDP at the end of 2017, estimates Ben Rabidoux, president of Ontario-based research firm North Cove Advi- sors. Meanwhile, much of the province's recent population and wage growth has come from the building sector, which created 71 percent of all new jobs that year. At the risk of speculating, B.C.'s property and labour markets will face serious head- winds in 2019. • Running on Empty The new speculation and vacancy tax strikes one more blow to a B.C. housing market on the ropes by Steve Saretsky ( the informer ) P R OP E R T Y WAT C H Feb 2017 Mar 2017 Apr 2017 May 2017 June 2017 July 2017 Aug 2017 Sept 2017 Oct 2017 Nov 2017 Dec 2017 Jan 2018 Feb 2018 Mar 2018 Apr 2018 May 2018 June 2018 July 2018 Aug 2018 Sept 2018 Oct 2018 $25 20 15 10 5 0 Offshore Funds B.C. foreign buyer tax revenue by month ($ millions) Jan 2017 5.5%