Evil

Don’t be surprised real estate’s collapsing in BC. Sales have fallen by 40%. Prices in some hoods are down by a third or more. Realtors are retraining as payday loan guys, trying to improve their image. What lies ahead for markets in Van, the LM, Victoria or the Okanagan could be spectacular.

Unique to that troubled province is a government made up of political amateurs, ideologues, socialists, financial illiterates and incompetents. The Dippers, led by Comrade Horgan, have embarked on a campaign to destroy the real estate market because, inherently, they equate property ownership with being rich. And rich is, like, evil.

The trouble is, it’s backfiring. And the biggest mess is about to happen.

On top of a withering 20% anti-foreign buyer tax, the empty houses tax and the big-house tax is a ‘speculation’ tax which has nothing to do with speculating. It’s just a tax on wealthy people who might own a second home, for business or retreat. This affects almost two million residents and covers Victoria, Van, Nanaimo, Kelowna and some surrounding turf. There’s nothing else in Canada like it, forcing people to pay .5% of the assessed value of their property every year. If you happen to live in Alberta or Ontario and have a BC retreat, the hit is an astonishing 2% annually. The message: don’t come here. You’ll regret it.

The majority of people affected are BC residents, however, who already pay income tax, sales tax, property tax and bought their second properties with after-tax dollars. In this wealth redistribution scheme, they’ll now hand over more – $5,000 extra every year on a $1 million residence. It might be a traditional family cottage owned for decades, a condo in downtown Van used for business, or a future retirement home in the Okanagan. No mercy. All taxed.

The NDP logic is nobody should own more than one house, so people with two must be punished, to”help identify speculators and empty homes, allowing the government to crack down on speculation and make housing more affordable.” Seriously. They believe that. Or perhaps it’s just a ruse to raise money.

After all, the BC Assessment Corp. just finished sending out notices across the province indicating a big surge in property values at the same time market prices are falling. And now a tax bill is about to be mailed, based on that inflated assessment. Makes you wonder…

But there’s something else rotten here. This isn’t just a tax. It’s a tax trap.

The Dippers have chosen to use a negative-option implementation, likely for the first time in Canadian tax history. Every single property owner in all of those municipalities will have to pay the assessed tax unless they apply for and are granted an exemption by the end of March. So citizens have to swear their real estate is a principal residence or leased out for at least six months of the year (or they are disabled, or sick or being divorced) in order to escape.

“Good grief! I shudder to think of the huge number of applications that won’t be submitted by the less savvy part of the population wrt gov’t forms and applications,” says blog dog Susan. “I particularly feel this will marginalize the less-well educated and those whose first language is not English. Huge bureaucratic mess.”

You bet. As planned. Negative-option billing has largely been banned in Canada for exactly these reasons (see the federal legislation here). Ontario has strict laws against it. When telecommunications giant Rogers tried to use negative-option marketing a few years ago, it was slapped down and publicly humiliated. This is the sleaziest of methods to force products onto unsuspecting or inattentive consumers. It’s unconscionable to implement a tax in such a fashion.

But, this is BC. Run by people with an agenda, and scant experience and thin ethics. To date the NDP anti-house campaign has toppled property values in more affluent neighbourhoods, done nothing to increase the vacancy rate or reduce rents and  helped make affordable entry-level homes less affordable. With local real estate markets now suffering serious sales declines and a flood of listings about to hit in the next six weeks, falling equity is a threat to middle-class families, many of whom have put all their net worth into those homes.

Now every one of them has to be vigilant to ensure they get the Speculation Tax notice, complete it correctly, submit it on time and gain an exemption – or face a fat tax bill due on July 2nd. Imagine what that will do to the market.

And, even worse, homeowners must go through this exercise every single year, to ‘prove’ to the government the real estate they own is being used for purposes the government favours. Yes, in Canada.

“Vancouver is in full-blown correction mode,” RBC economist Robert Hogue said this week. “Prices are poised to depreciate more — potentially a lot more considering the degree to which they are still unaffordable to average buyers.”

No doubt the Dippers and their eat-the-rich rabble of supporters will cheer this. But forcing a market collapse in a province where a third of the GDP is real estate-related, where the savings rate is negative because people strained their finances to buy, and families have gambled everything on one asset, is not exactly progressive. Nor will it ever mean the average worker will afford the average house in Vancouver. It just means overall economic collapse, in which the little guy always gets squished.

Thank God there are mountains.