UBC prof behind Speculation Tax says it doesn’t actually target speculation
By Drew Penner
Ask University of British Columbia professor Tom Davidoff where the provincial NDP’s new housing tax came from, and he’s quick to take credit. Just don’t try to pin the “speculation” angle on him.
“I was like the big proponent,” he said of the tiered yearly charge levied on homeowners with with an un-rented second property in BC. “When we cooked it up we did not intend speculation at all.”
Davidoff is an American transplant who will pepper you with dozens of real estate concepts in rapid-fire succession, while explaining why he believes in raising some taxes and lowering others. So when he describes a flurry of 100+ emails pulsing back and forth between academics as he tried to come up with an idea the NDP could use to curb housing market pressures, well, you believe him. It’s what emerged this spring as the Speculation Tax.
After feeling the Christy Clark cold shoulder, when she was leading the province, he got a warmer response from David Eby. He’d also done time teaching at UBC and was at that point in opposition with the NDP, looking for ammunition.
“He was very receptive,” Davidoff said of the man whose government bio proclaims a love of yoga, band duties, and comedy – specifically of the local variety. “I got to know him.”
We can only surmise about backroom downward dog positions and half-baked jokes he may have had to take in to push the tax hike to the top of the heap. But whatever it took, when the NDP ascended in a too-close-to-call-until-recount election, they latched onto key elements of the idea as a centrepiece of their economic agenda.
After all, they needed something to win back popular support after grinning and bearing the Site C decision and operating tethered in a minority political environment.
Davidoff says the group of thinkers who generated the tax structure was made up of renters and homeowners, workers and retired folk. They were inspired by Vancouver’s Empty Homes Tax and wanted to see this concept applied more broadly.
However, the Speculation Tax looked different in its 1.0 version. The academics thought it would be a good idea to pool cash into a fund labelled as something to do with affordability.
“The idea was, well look you can’t just raise property taxes,” Davidoff said. “Of course, everyone likes a fund better than a tax.”
That was the group’s attempt to market the provincial revenue-generation pill to British Columbians. But the new NDP regime had a different idea. The name actually confused him for a bit.
“I thought we were off the table,” he said, looking back on his reaction to the Speculation Tax.
Then he noticed how much it resembled their plan: “It’s pretty similar.”
The new Speculation Tax is not without its critics, some because it will charge foreigners 2% per year on the value of their second empty homes, compared to 1% for non-BC Canadians and .5% for BCers.
Davidoff says the new tax doesn’t really target speculation. But he is a big proponent of the final version of it – even though he’s not crazy about the whole let’s-target-those-foreigners-for-ruining-our-housing-market aspect. He’s believed for a long time that BC was ripe for taxation in the housing department, partly due to geography.
“It’s as hard here or harder than San Francisco to get stuff built,” he said, pointing to the hills and ocean that complicate things. “Coming to Vancouver was like on crack.”
The economist in him loves the idea that policy could be applied to the terrain – making this a problem in search of a solution.
The way Davidoff tells it, the comparison goes like this: If you have a home worth $1.8 million you’re probably looking at about $6,000 in property taxes a year in Vancouver. That sounds like a lot. But someone not so averse to progressive taxation methods might see it a little differently.
He’s not comparing that to what you might pay in rural Saskatchewan or seaside New Brunswick. Looking at Vancouver as a global player, he compares the rate to what people in affluent Larchmont, New York would have to pony up on the same valuation – probably around $20-25,000. Down in California you might be looking at $18-20,000, he said.
“I always knew you should do something about it,” he said, noting he was kind of excited to watch Vancouver’s ability to extract value out of about 8,000 of its vacant residences. “That’s real money…Let’s try that angle.”
He’s full of all kinds of ideas. And that’s nothing new.
A few years before the US housing crash in a paper with Gerd Welke, he argued that reverse mortgages – a method of converting home equity into cash that appeals to seniors – are a beneficial way to transfer wealth from the future to a struggling present. But he pointed to “moral hazard concerns” that could arise in the development of the relatively new financial instrument.
Even though he published it in 2005, it’s cited more and more as time goes by. But not everyone is on the same page with the analysis. A recent Cambridge University study found Italians, for example, tend to view reverse mortgages not as a normal way to improve quality of life, but more as a way to fix the mistake of a bad financial decision.
In the same way, Davidoff is someone officials aren’t above sparring with.
In a tweet, former BC Minister of Health Mary Polak, a BC Liberal, joked that Davidoff’s ideas around taxation were so weak that she hoped he was on the team helping draft the NDP’s public Question Period responses. He fired back, asking where she would propose to squeeze the money out of. Apparently Davidoff is such a friendly guy you can’t stay mad at him for long.
“She said something that I found stupid and annoying,” he said, recalling that they made amends quickly. “I actually had a productive phone call with her.”
Just because he supports an Education Tax and the Speculation Tax, doesn’t mean he’s into all such governmental moves.
Most notably he’s not all about the Foreign Buyers Tax, brought in by the Liberals. Although, he does support what they were trying to do.
“I don’t love the idea of tagging people’s nationality if you don’t have to,” he said, balancing his status as an immigrant in his mind with the need to do something. “We don’t want to be a playground for the rich.”
[Photo Credit: UBC Media Relations]