The B.C. government unveiled a foreign-buyer’s tax last summer aimed at tamping down Vancouver’s runaway real estate market and making homes more affordable.
Eight months later, has home affordability actually improved?
Vancouver-area sales, listings and prices all dropped after the measure – a 15-per-cent property transfer tax on foreign national home buyers – went into effect Aug. 2.
But by then, the market was already cooling, Royal Bank of Canada senior economist Robert Hogue said last week in a report.
“The impact of the tax in Metro Vancouver was more evident on housing prices and purchases by foreign nationals than on home resale activity, which had been slowing for several months before the tax was even announced,” he wrote.
Indeed, prices took a step back for several consecutive months.
But while sales and new listings are still sharply lower from a year ago, prices have recently gone back on the upswing and now sit close to record levels.
Two measures of home affordability suggest the situation in Vancouver has yet to make any significant improvements – and in some instances, might even be worsening.
Detached-home ownership costs still outstrip household income in Greater Vancouver, figures from RBC Economics show.
For the fourth quarter of last year, ownership costs for an average-priced detached home amounted to 121 per cent of median pre-tax household income, a slight improvement from the previous two quarters. But the easing may be short-lived with prices back on the rise.
RBC’s affordability measure is based on a 25-per-cent down payment with a 25-year mortgage loan at a five-year fixed rate, and ownership costs include mortgage payments, property taxes and utilities.
Greater Vancouver’s aggregate measure was 84.8 per cent, “which clearly indicates that owning a home at current market prices – especially a single-detached home – is still out of reach for a typical area household,” RBC said in a March report.
Separately, economists at National Bank Financial have tallied the length of time needed to save for a minimum down payment in various Canadian cities.
On this measure, the situation in Vancouver is bleaker than ever.
It would take a median-income household 428 months – or nearly 36 years – to save for a down payment on a non-condo dwelling (detached or row housing), first-quarter figures show. Going back to 1990, this measure has never been higher and compares with a national savings timeline of 40 months. (NBF’s calculation assumes a household saving 10 per cent of its pre-tax income for a median-priced dwelling.)
Why the big spike at the outset of 2016?
Because the median price jumped beyond the $1-million mark. Above that threshold, buyers are required to put down at least 20 per cent of the home’s purchase price. Below that mark, buyers can get into the market with a lower down payment, provided they take on default insurance.
As Ontario implements its own foreign-buyer’s tax – the province last week unveiled a “nonresident speculation tax” as part of its 16-point plan for housing reform – the aftermath in Vancouver would suggest there are no quick fixes in markedly improving affordability
Tom Cardoso and Matt Lundy
The Globe and Mail