Is Speculation Really The Problem Now?

Yesterday, Gregor Robertson called for a speculation tax to help bring down housing prices.

We definitely need taxation tools that discourage speculation on real estate,” a statement from Robertson says. “It’s clear that rampant speculation on real estate is driving up prices in Vancouver. Vancouver needs the B.C. Government to take action on creating a speculation tax and recognize that we need a fair and level playing field to make housing more affordable for residents in Vancouver, and throughout the province.”

However, later in the day the BC Liberals repeated their apparent desire to keep housing prices from falling.

The ministry of finance responded with a statement late Friday, saying that “governments need to be careful that any tax would have the desired effect, without undermining the equity that people may have built up in their homes.”

As pointed out in Mystery Solved?, price increases over the last five or six years are being driven by the high-end. This is not indicative of a speculative market since very few people have the means to flip multimillion dollar homes. Tsur Somerville of UBC’s Centre for Urban Economics agrees.

“Think back to 2006 when people would line up overnight to buy a pre-sale condo then flip it within 30 days. That’s the sort of thing one would be looking for as proof of rampant speculation. There is very little evidence that is happening in the market right now.”

Instead, recent price gains are most likely coming from a massive inflow of offshore wealth into the region. And unlike the condo flipping of several years ago, these recent high-end buyers are looking for a safe place to park their wealth for the long term. They don’t appear to be speculating.

The effect this flood of offshore wealth is having on the Vancouver real estate market is undeniable. The frustration of Vancouverites seems to be reaching a tipping point, and they are finally starting to demand action by their elected officials.

But since speculation doesn’t appear to be the driving force in recent price gains, why is Robertson proposing this speculation tax now? Could it be just a diversion to take the heat off foreign capital inflows? A way to appear proactive, without actually solving the affordability problem?

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