Metro Vancouver real estate board suggests property transfer tax changes

A single-family neighbourhood backdropped by the transit-oriented development towers around SkyTrain Marine Drive Station in South Vancouver. (Google Maps)

The Property Transfer Tax (PTT) put in place by the provincial government is in need of reforms to ease the burden on residents upgrading their housing arrangements from renting to ownership, according to the Real Estate Board of Greater Vancouver (REBGV).

In its submission to the provincial government earlier this week, REBGV states a review of the PTT is needed, as it has not been examined since it was first implemented in 1987.

The Board is urging the removal of the PTT on any home costing under $755,000 for both new construction and resale, the increase of the exemption threshold of the First-Time Home Buyers’ Program on resale homes from the existing ceiling of $525,000 to $750,000 to match the newly built homes exemption, and a new PTT exemption on pre-sales.

You might also like:

Additionally, PTT thresholds would be indexed using the consumer price index, with annual adjustments for the 2% and 3% thresholds on a sliding scale tied to BC Assessment’s assessed values.

REBGV suggests renters who are able to save enough for a downpayment and move to a relatively affordable home are “often shocked to discover the added costs of the PTT.

It provided the theoretical example of a renter buying in the Metro Vancouver outskirts of Maple Ridge, where home ownership is relatively more affordable compared to the central areas of the region. In such a scenario, a renter will pay a benchmark price of $747,000 for a modest resale townhome, with the PTT adding about $13,000 in costs even if the renter is a first-time homebuyer. This is due to the existing PTT exemption price threshold for a resale home being $525,000.

For the April 2023 benchmark price of a townhouse in Maple Ridge, the renter would have a down payment of $49,700 and a total loan of $697,300, with a mortgage rate of 6.49% and a monthly principal and interest of $4,667.

In the provincial government’s 2023/2024 budget, it was noted a new PTT incentive would be introduced in January 2024 to encourage the construction of new purpose-built rental homes. Such new buildings would be exempt from the further 2% PTT that is applied to the fair market value of the residential component of a taxable transaction that exceeds $3 million.

It was also noted in the budget that the fiscal year is expected to see a 20% drop in PTT revenue due to a slower housing market.

Another key recommendation in REBGV’s pitch to the provincial government relates to the framework for BC’s new flipping tax, which is expected to be implemented in late 2023. They suggest the regulations for the flipping tax should include exemptions so the tax does not penalize those who are most likely to move. Additionally, the framework should ensure new homes are exempted from the tax, and that it is designed in a way that does not discourage investment in secondary suites.

“Younger households tend to move most frequently according to Statistics Canada, and this is most often due to changes in life circumstances such as a new job or new family member. Younger households are also most sensitive to expenses such as mortgage costs and taxes. The flipping tax would create a significant disincentive for younger households to move,” reads the submission.

“The flipping tax will exacerbate a dire scenario for renter households who already face among the lowest vacancy rates and highest rental rates in all of Canada, effectively locking out many from the ownership market forever. If the flipping tax is applied to presale units, it will discourage vitally needed investment, slowing down the pace of new construction and creating other negative distortions in the housing market.”

The third key recommendation is to have the provincial government lobby the federal government to exempt new not-for-profit rental housing developments from paying the federal Goods and Sales Tax (GST). It suggests the provincial government could also create its own provincial rebate program for the GST payable on new rental construction, and implement a program of ultra-low-cost loans to developers who are building rentals by using funds from existing revenue streams, including the PTT and BC Housing revenue streams. It further suggests that requiring such new buildings to meet affordability standards will render the projects financially unviable.

“The housing affordability challenges we face in this region disproportionately impact younger generations,” said Jeff King, CEO of REBGV. “Taxation is a big part of the housing affordability equation. To make progress, we need our governments to take a more holistic view of how housing is taxed to ensure that we are not impeding efforts to increase housing supply and improve affordability.”

REBGV’s jurisdiction covers Vancouver, Burnaby, New Westminster, Richmond, Pitt Meadows, Sunshine Coast, Whistler, and all of the Tri-Cities and North Shore. Other areas such as Surrey, Langley, Delta, and White Rock are part of the Fraser Valley Real Estate Board.

You might also like: