Property value increase a bonanza for government
The massive property assessment increases are opening a lot of eyes as it relates to housing affordability. It’s a main mantra of politicians of all political stripes – affordable housing. It sounds so great, but they need to look in the mirror.
When house prices soar by 30 to 40 per cent you immediately disqualify many young families from ever buying their first house. A $500,000 home has suddenly become $650,000 to $800,000. And shockingly, that’s in the mid-to-lower end of today’s price scales.
That’s when prospective buyers start tabulating their mortgage requirements. So take the middle of the price range at $750,000. First, it’s 25 per cent down payment – $187,500 for the down payment alone. Mortgage rates are relatively low now, in the three-per-cent range. But three per cent on a $500,000 mortgage amortized over 25 years can be a daunting figure. You’re in the $2,000-per-month range, plus a lot of extras like property taxes, utilities, upkeep, etc.
Keep in mind, most mortgages are for specific terms, and when they expire your mortgage renewal can increase by multiple percentage points, thus much higher monthly payments. That’s when people start losing their homes.
Then comes the shock for many – the property transfer tax which was introduced by former premier Bill Vander Zalm in 1987. That’s when the average price of a Vancouver home was about $150,000 with a $1,500 transfer tax.
It is levied anytime changes are made to a property's title, beginning at a rate of one per cent for the first $200,000, two per cent on the fair market value between $200,000 and $2 million, and three per cent on the portion greater than $2 million.
Take today’s $750,000 example. The property transfer tax is one per cent of the first $200,000 – $2,000. Then two per cent on the remaining $550,000, for $11,000, bringing the total bill to $13,000 before you take possession. Rounded, that takes $200,000 up front, and that puts affordability out of reach for many people dreaming of owning a home.
Talking about buying a $1,000,000 home does not sound far-fetched any more. That’s just a little above average. If you were buying one of those the government would be there with the hand out for an additional $18,000.
I’ve been preaching about the property transfer tax and what it adds to the price of buying a home, putting many of them out of reach. But now comes the latest kick with the assessment increases, meaning house prices.
The government likes this tax no matter what is said about affordable housing. They have a conflict of interest. When assessments and house prices increase by this amount the government naturally collects more in transfer taxes, an additional two per cent on the increased amount.
You wonder how big the property transfer tax is, government figures show last year they contributed $1.58 billion (with a B). In comparison, lottery taxes brought in $1.36 billion and liquor taxes contributed $1.13 billion. This comparison won’t hold up in the next year when property transfer tax revenue climbs by 30 to 40 per cent. Liquor and gambling tax revenue will increase nowhere near that. Higher housing prices mean more money for government.
It certainly does not solve the affordability problem, it makes it worse, no matter how politicians try to spin the issue. In the end, they are the ones partly responsible for the lack of affordability.