BC Housing Affordability Fund
Frequently Asked Questions about the B.C. Housing Affordability Fund (BCHAF)
1. What are you proposing?
We propose an increased tax only on properties whose owners aren’t contributing to Canadian public finances through their income taxes, either now or in the past. The revenue will be immediately paid out evenly to all local residents.
2. Why are you doing this?
To help make it a bit more affordable to live and work in the Lower Mainland of B.C. There is enormous value in B.C. real estate. This proposal leverages that value to make it more feasible to live, work, and raise a family here.
3. Is this just a back door tax increase or revenue grab?
No. The proposal is extremely clear that all of the funds raised in each community should be directly distributed to residents of that community. Everyone who files a tax return and declares their residence in, say, Vancouver will receive an equal share of the BCHAF revenue from Vancouver properties.
Alternatively, the revenue could be used to reduce income taxes. This could be accomplished either by lowering BC income tax rates or by changing the tax brackets. An increase in the personal exemption, or in other bracket levels, would allow people to earn more money at lower tax rates and have less of their earnings taxed at higher rates. Politicians will ultimately have to decide how best to distribute the BCHAF revenues.
4. What if someone can’t pay?
If someone has a vacant property that is subject to BCHAF payments, they can always obtain an exemption by renting it out. This would benefit the local housing market, by increasing the availability of rental units. It would also benefit the property owner, since they would avoid BCHAF payments and also earn the high rents that B.C. real estate currently commands. Thanks to the many exemptions, no homeowner is required to lose money through the BCHAF.
5. Is this going to cause property values to fall?
Demand for real estate in the Lower Mainland seems to be extremely strong, as reflected by its high prices. Furthermore, most residents will be exempt from the tax. So we don’t expect large effects on prices. If the proposal has any effect on the property market, it is likely to be by making property more affordable to people who plan to work—so won’t be subject to the tax—relative to owners who would leave properties vacant. At any given home value, the property ownership costs will be lower for income tax payers, who are exempt from the BCHAF surcharge, than for owners of vacant units.
Furthermore, existing property values benefit when we make it more affordable for workers and families to live and work in the Lower Mainland. Improving the affordability situation will attract people who generate large positive spillovers. For example, they increase local amenities and make firms here more productive. Anything that makes Vancouver more attractive is good for existing homeowners.
6. Are you trying to target certain groups of the population?
No. Our proposal applies equally to everyone, regardless of nationality, ethnicity, visa status, or any other characteristic. The exemptions apply for anyone who qualifies. For example, income taxes can be fully credited against BCHAF payments, at a rate of one dollar per dollar, regardless of the taxpayer’s visa status.
7. Is your estimated revenue of $90 million in Vancouver too optimistic?
No, in fact it’s a conservative estimate. It is a baseline estimate based on non-reporting in a 2011 government survey. It does not allow for the possibility that non-exempt rates might be higher in high value neighborhoods, and that non-response may understate non-eligibility.
8. How does this compare to proposals for a grant to home buyers?
Our proposal is grounded in economic principles, and is a targeted solution for the situation facing the Lower Mainland right now. It ameliorates the affordability problem, whereas homebuyers’ grants require a tax increase and make the affordability problem worse!
- A grant to new home buyers is unfunded, so it will ultimately require raising tax rates on working families in B.C.—rates that are already very high. In contrast, our proposal is fully funded.
- The affordability problem is particularly severe for people who can’t afford to buy a home. A home buying grant does not help those people.
- Our proposal reduces vacancies, while a buyers’ grant does not.
- Our proposal makes it more affordable for working families to live in Vancouver. It only targets investment properties and asks for fair contributions from such investors. Thus our proposal likely has little impact on property values. In contrast, research has shown that subsidies like a home buyers’ grant actually worsen the affordability problem and reward speculation.
- Our proposal provides a way to learn the extent of such investment, while a home buyers’ grant does not.
9. Is this the solution to the housing affordability crisis?
This is a modest proposal, so on its own will not dramatically reshape B.C. housing markets. The fundamental drivers of local housing prices are high demand and limited supply. The only way to have a decisive impact on affordability would be to weaken the building restrictions that sharply restrict new housing supply in most of Vancouver and the Lower Mainland. Major improvements in affordability are only possible by allowing supply to respond to changing demand. This proposal is a modest step to help out, but won’t address the underlying problem of supply restraints.
10. If housing supply is still restricted, how can your proposal help?
Limited land availability, combined with strict zoning make it hard to build homes in and around Vancouver. Every unit left vacant thus reduces the number of units available for owner-occupiers or renters. By discouraging vacancies, our proposal helps to expand the supply of units available for actual residents to live in. Our proposal also gives a cost advantage to local residents over investors when competing to purchase homes that are for sale. Finally, the rebate check helps to reduce the overall income tax burden of living in B.C. This makes the province more business friendly.
11. Would this proposal hurt real estate investment in Vancouver?
No. Investment is limited by the supply restraints pervasive in Metro Vancouver, not by a lack of demand. Any effect on demand for holding vacant units would not reduce construction or adversely affect the real estate industry, since the industry is limited only by supply constraints, not by a lack of demand.
12. How much money will I get?
In order to calculate the BCHAF taxes and individuals’ rebate, we would need to know the exemptions that property owners are likely to claim. No currently available data provide the information that we would need to determine how many exemptions will be claimed.
13. When will the province pay out this rebate?
The provincial legislature and government will have to work out the implementation details. They will probably wait until each year’s BCHAF revenue is collected before determining how much is available for rebates in each municipality. They would then observe, or estimate, how many eligible recipients are in each municipality based on tax returns filed April 30 of the following year. The amount of the rebate will be the first number divided by the second. It could be paid out together with tax refunds, or in a separate payment.
14. Isn’t this going to be expensive to administer?
No. It relies on existing assessments. These assessments are then multiplied by 1.5%. The exemption information is easy to report. And, while we expect people to be honest, the exemptions are also easy to verify since almost all of the necessary information is already on income tax returns.
This structure makes the BCHAF proposal much easier to administer than other proposals that rely on determining personal characteristics of the owner, such as citizenship or days of residency.