Speculation and the BC PT surtax (PTST)

I have just written a piece for the Globe and Mail about the BC foreign buyer property transfer surtax. You can read it here.

I’ll add a few comments here. Many have pointed to the Ontario land speculation tax from the days of yore to argue that the BC PTST will be effective at deterring speculation. However, these are not similar taxes. The Ontario tax taxed capital gains realized on the disposition of real property that was not considered to be a principal residence. The BC tax instead taxes the transaction, the purchase of a residential property by foreign buyers, including principal residences. The former dissuades selling, the latter dissuades buying. While anecdotal stories suggest the capital gain tax was successful, the research tells a very difference tale.

There is no clear evidence that foreign buyers are the cause for the rise of housing prices in Vancouver. Examination of past bubbles in Vancouver, where foreign speculators were also blamed, show that the rise in house prices was due to speculation of all home buyers.

Speculators are very important players in markets. Why are noise or uninformed speculators not deterred by transactions taxes? Because they are not making decisions based on market fundamentals and are not deterred by price and market instability as informed speculators are. This clearly links to the previous paragraph.

The immense public support for the PTST is based on lack of knowledge and information not only on the problem, but also the impact of the solution. Policy should not be based solely on public opinion and it is unfortunate that BC politicians so eager to please in the run up to an election have allowed the policy agenda to be shaped in this way. I hope Ontario heeds these words.