Taxing foreign investment in real estate: Let's be open and honest

There is no question that home affordability in cities like Vancouver and Toronto has become unattainable for most of us.

There is a significant supply problem which has not been adequately discussed and resolved.

With the news that foreign investors will now be taxed an additional 15% of the purchase price on residential properties in Vancouver, it looks as though a Canadian “Wall” is being built against free trade and immigration, as even the Ontario Finance Minister is suggesting that he is looking very closely at what his British Columbia counterpart has done. This is in addition to the additional taxes of current land transfer tax of 1% to 3% of the purchase price and the yet-to-be-disclosed new tax that will be applied to owners of properties that are left vacant. What about our Canadian snowbirds who go south for 182 days per year? Should they now pay a vacancy tax on their homes?

Should we be concerned about what next our governments plan to tax? Perhaps a new tax on people whose surnames start with A, L or Z, or are under 5 feet 8 but taller than 6 feet 2? What happened to the free-market, laissez-faire capitalism?

This is clearly a confiscation of homeowner value shrouded in a costume of public policy. Is this really what we want our governments to do? Is this really going to address the issues of short supply of housing stock and fixed inventories of existing housing – or, more importantly, the crisis of unaffordable housing for younger generations?

Have policymakers really thought out the risks and concerns to current homeowners whose property values are clearly at stake by these restrictions on foreign investment? Remember that this tax is not for any specific service being provided, but is boldly and clearly stated as a penalty to stop foreign investment in residential real estate. Sure, countries like Australia, New Zealand, Britain, Singapore, Switzerland and Hong Kong currently have rules and taxes that restrict foreign investment. Do you not think that foreign investors can still navigate around any barriers to entry if they feel values are less than global prices in other comparable markets?

They can, after all, incorporate companies to purchase and own residential real estate and write off the new 15% taxes as a legitimate business expense. A new residential REIT could come to the market and buy up all of the residential properties in Vancouver legitimately and chose to hold them and/or rent them as they so saw fit based on their investment criteria. For every government action, there is clearly a natural and diverse counter-action.

Will this policy measure take foreign investors completely out of the market? Who really knows whether prices will still globally be considered low in our Canadian cities; they may still be. But we need to be honest and open about the consequences that might result, which could be worse than the actual cost of the new taxes. Will this affect the real estate market psychology? Will this lessen the real estate transaction volume? Will this impact the current real estate values and pricing? Will this reduce the real value of people’s homes? If so will this reduce the real estate market assessment values and ultimately lower tax revenues? Is this what we all want?