The BC government’s April 2023 Homes for People (HFP) plan marks an important step forward towards better managing and regulating housing in the province. With a headline commitment of $4.2 billion over three years (and $12 billion over 10 years), the plan includes new measures to support renters, some loosening of zoning restrictions, new speed bumps on flipping of real estate and new public investment in non-market housing.
Read with a broader historical view, however, the 2023 plan is still playing catch up on BC’s worsening affordability and also with the government’s own promises from its previous (and similar-sounding) Homes for BC housing plan in 2018. BC’s housing market, particularly from the perspective of renters, remains extremely unaffordable. And the crisis of homelessness is arguably worse than ever.
This post reviews the key planks of the new plan and outlines what’s still missing. While the new plan contains some key new measures, many of the proposed policies are still under development and fall short of what’s needed to make a significant dent in the affordability crisis. In particular, there remains a need for much bigger fiscal commitments to support and develop non-market housing if we are to make a real dent in affordability.
Slowing speculative investment
The Homes for People plan includes a “flipping tax”—a tax on the short-term resale of housing. A flipping tax will add to the arsenal of property tax reforms introduced in 2018 to place speed bumps on investor demand for housing in BC. Those tax changes have been relatively successful in reducing foreign demand, adding more rental housing and making the property tax system more progressive. The 2018 tax changes are reviewed in detail here and included:
- Higher provincial property taxes (Additional School Tax) for homes assessed at more than $3 million.
- New 5% top rate above $3 million for the Property Transfer Tax.
- Increased foreign buyers’ tax (Additional Property Transfer Tax) from 15% to 20%.
- A Speculation and Vacancy Tax (SVT) of 2% of assessed value for foreign owners and 0.5% for Canadians with vacant properties. Despite its name, this measure does not address short-term flipping of properties. It is both an empty homes tax and a tax on “satellite families,” households that derive most of their income outside Canada and therefore pay little income tax.
The details of the newly proposed flipping tax will come in the fall. The tax will likely be applied using the existing Property Transfer Tax system but the key policy questions are what tax rate(s) will apply and over what time frame(s). For example, profits on sales under six months could be taxed at 75%-100%, with descending rates for sales under one year, two years and going to zero by year three. Such a system could severely penalize short-term speculation. Conversely, if the rates are set low the tax may not have as much impact but will raise revenue that could be used for affordable housing elsewhere.
A flipping tax would bolster the SVT and other tax measures by targeting domestic speculators. The 2018 tax measures were largely aimed at foreign owners and satellite families but it is not at all clear why domestic speculators should pay a much lower SVT (0.5% of assessed value compared to 2% for foreign/satellite). It has been too convenient to blame foreigners for BC’s housing woes while ignoring local sources of speculative investment, a tendency that feeds racism and anti-Asian sentiment in particular.
Together with other demand-side policies—like the City of Vancouver’s Empty Homes Tax and rules on short-term rentals—the SVT and other property tax reforms have played a role in bolstering rental market supply. From 2019 to 2022 inclusive, some 22,783 condo units were added to the Metro Vancouver rental market, a total increase of 49% over 2018 levels. Going forward, a larger share of new condos completed will enter the rental market due to the SVT and other measures.
It has been too convenient to blame foreigners for BC’s housing woes while ignoring local sources of speculative investment.
In addition to taxing flipping, the province’s new plan calls for better enforcement of regulations on short-term rentals like Airbnb. Short-term rentals shrink the housing stock available to long-term renters. By creating a rent gap between what landlords currently earn and what they could charge through platforms like Airbnb, the short-term rental market creates a powerful incentive to get rid of existing tenants.
Details on what better enforcement would actually mean in practice will be tabled later in 2023. This measure could assist local governments like the City of Vancouver, which has the most developed policy on restricting short-term rentals but has been criticized for lax enforcement. That said, the vast majority of BC local governments do not have such by-laws. Provincial guidelines and regulations could be helpful here by banning or restricting short-term rentals in areas of the province where vacancy rates are exceptionally low.
If the BC government wanted to more aggressively shape demand, it could look to Singapore, which has been using property transfer taxes (called stamp taxes) more intensively and progressively than BC in order to quell investment beyond one’s principal residence. No stamp duty is payable for a Singapore citizen’s first property but the rate jumps to 20% of assessed value for the second and 30% for third and subsequent properties. Foreigners pay a flat 60% on any purchases and corporate entities pay 65%. Housing developers pay 40% but most of this can be avoided by meeting certain conditions. Moreover, Singapore has long had substantial public development of housing as the country’s main property developer.
New supports for renters
The province’s new housing plan includes a Renter’s Tax Credit, delivering on an election campaign promise for a “renters’ rebate”. The credit of $400 per year partially closes the gap with the Home Owner Grant (HOG) that reduces property tax on principal residences. HOG amounts are $570 per owner in the Lower Mainland and Greater Victoria and $770 for owners in rural and northern areas, plus an additional $275 provided to seniors, eligible veterans and people with disabilities.
In 2023/24, the BC government will spend about $910 million on the HOG compared to only $310 million for the renter’s credit. This is due to the greater base amounts for the HOG as well as the fact that homeowners represent about two-thirds of BC households, compared to one-third renters. In addition, the renter’s credit will be income tested: households with up to $60,000 of income will get the full amount, with the credit phased out by $80,000 of income.
In contrast, the HOG is not income tested, and because the eligibility threshold is so high, only the owners of the most highly valued BC homes do not receive it. The full grant is provided up to an assessed value of $2.125 million and is phased out completely by assessed value of $2.334 million.
Going forward, the province should develop a harmonized and income-tested housing grant for renters and owners alike to better level the playing field.
Homes for People also includes a new Rental Protection Fund, to be made available to non-profit housing providers for purchasing existing rental buildings. At $500 million, the initial fund is fairly small in comparison to all real estate in BC and the urgent need to protect existing rental stock from predatory landlords and real estate investment trusts (REITs). Details are still forthcoming about how this fund will work in practice, including the extent to which non-profits need to take on new mortgages for any purchases of rental housing. This policy could be strengthened if non-profits were given a right of first refusal over any sales of rental apartment buildings.
The housing plan commits new funds to the Residential Tenancy Branch to speed up landlord-tenant disputes, and restates previous policy to prevent strata corporations from limiting or banning renters. Missing for renters are any improvements in rent control policies, such as vacancy control to limit rent hikes between tenancies, or supports for renters who are displaced from affordable housing through redevelopment. The City of Vancouver’s 2022 Broadway plan brought in new tenant protections that could be emulated more widely, including a right of first refusal to return to the new building with rent at a 20% discount to city-wide average rents or at their original rent (whichever is less), a moving allowance and top-ups for rent while waiting for new accommodation.
Upzoning for greater supply
In recent years there has been increasing tension between the provincial and local governments on housing and density. Local governments shape urban development and housing significantly through zoning—the rules about what can be built where, in particular, the amount of buildable area per parcel of land. The vast majority of land in Metro Vancouver is zoned for low-density, detached housing, leaving 80% of the land base reserved for 30% of households.
The BC government already passed a Housing Supply Act that will require binding new housing supply targets from local governments, while shoring up the provincial powers to override local zoning decisions. The new housing plan will allow three to four units per lot (depending on lot size) across the province. This change would essentially make province-wide the current baseline in the City of Vancouver of four units (via a duplex with two secondary suites).
In Vancouver, however, there has been no accompanying increase in buildable area: new units must be within the same floor-space ratio (or FSR, the amount of buildable area divided by the area of the lot) of the single-family home they replace. The City of Vancouver is in the midst of public consultations for a “missing middle” proposal to allow up to six-unit multiplexes city-wide with a modest increase in buildable area (from 0.7 to 1.0 FSR).
The new BC housing plan does not state whether the permitted increase in the number of units will be accompanied by an increase in buildable area, only a vague commitment that higher densities will be permitted in areas well served by transit. The plan also includes $394 million for land acquisition towards 10,000 new units near transit over the next 10-15 years, also with further details to come.
Allowing higher floor-space ratios would enable a wider range of missing middle housing to be developed, including small apartment buildings. In my research on density and upzoning in Metro Vancouver, I looked at how the region could double to triple existing densities (1.5 to 2.2 FSR), which would allow 8 to 12 units per lot while still fitting in well within surrounding neighbourhoods.
Another positive supply measure in the Homes for People plan is the legalization of secondary suites province-wide. This should enable new capacity (such as existing unconverted basements) to come online. The plan also commits to a 3,000-home pilot program starting in 2024 that will offer a 50% forgivable loan for renovating suites while meeting certain affordability targets.
While the new plan aims to speed up permitting through a one-stop, single-window application system for provincial permits, it falls short of the more comprehensive reform of the rezoning system (including public hearings) that accounts most of the delays in getting new projects approved.
By allowing up to four units without requiring a rezoning, the plan will reduce delays though any larger developments would still face a lengthy rezoning process (as in this story on delays at the City of Vancouver). A more comprehensive upzoning framework across BC, or at least in the areas where housing supply constraints are more acute, should be considered. New Zealand provides a potential model for upzoning with promising early results.
Building new housing that is genuinely affordable for low- to middle-income households is not profitable for developers. Even with ambitious upzoning measures, the incentive for for-profit developers is to sell what the market will bear: condos aimed at affluent buyers or rental properties that command market rents.
In contrast, non-market housing can pay for itself over time while charging much lower rents. Over three or more decades, rents can be set at “break even” rates that cover only the cost of the development. High land and construction costs make this more challenging but with some cross-subsidization many below-market units could still be generated within a non-market, break-even framework (and even more with upfront public subsidies).
The BC government can support non-profit developers and cooperatives by providing land and better financing options for new housing. The province can also act directly as a public developer. The Homes for People plan takes steps in each of these areas, but ultimately the effort needs to be an order of magnitude greater given current needs.
In its previous 2018 housing plan, the government promised 114,000 new affordable units over 10 years. As of 2023, the province claims that almost 75,000 units are already completed, under construction or otherwise in progress. Of these, 40,263 are “directly funded and financed units”, of which 18,659 are completed.
The BC government can support non-profit developers and cooperatives by providing land and better financing options for new housing.
To get to 75,000, the new Homes for People plan does some hand-waving by citing 34,405 “policy created units” (a novel term), which include more than 20,000 units credited to the Speculation and Vacancy tax (likely overstated, as noted above), 2,600 units from changes to strata rental and secondary suite regulations, and 11,000 units due to federal rental financing (not the BC government, a puzzling inclusion).
Of note, the BC government has met or exceeded its 2018 commitments for supportive and modular housing for people who are homeless and other at-risk populations with more than 4,200 units completed and almost 2,000 units in development. In addition, more than 6,000 units of post-secondary student housing have been supported through loan programs.
However, the 2018 plan remains unfulfilled for other key housing funds (my analyses of progress toward the 114,000 unit promise based on government briefing materials available here and here.) As of March 31, 2022:
- For the Community Housing Fund, only 711 units were completed with another 3,737 under construction—compared to the 2018 promise of 14,350 units over 10 years.
- For the Indigenous Housing Fund, only 388 units were completed and 562 were in development—out of a promised 1,750 units.
- For the Women’s Transition Housing Fund, 155 units were completed and 457 were in development—out of 1,500 promised units.
While the new housing plan trumpets $7 billion in commitments made in 2018, that was a 10-year total. As of 2022/23, just over $2 billion has actually been expended. In other words, the new housing plan is still trying to catch up to promises made in the 2018 plan —we’re still owed almost $5 billion based on 2018’s promises. Seen this way, when it comes to the core task of creating affordable housing units, the Homes for People plan is largely reannouncing previously planned units.
New commitments for non-market housing cited in the Homes for People plan include:
- 3,900 supportive units and 240 complex care units for people who are homeless and others at risk of homelessness;
- 6,000 units through the Community Housing Fund;
- 1,750 units for the Indigenous Housing Fund;
- 1,500 units for the Women’s Transition Housing Fund;
- 4,000 student housing units;
- 6,100 units through redevelopment of BC Housing properties (including Single Room Occupancy [SRO] hotels); and
- 2,000 units through developments in partnership with the Metro Vancouver Housing Corporation (MVHC). A first wave of five MVHC redevelopment projects will receive $158 million in provincial funding over the next three years, which will create 660 new affordable rental housing units.
While new investments are most welcome, these are once again 10-year totals that are modest on an annual basis and are far from what is needed. Broadly speaking, a comprehensive program for non-market housing should aim for 25,000 new units per year, ideally as a 10-year commitment of 250,000 units. Yet, BC Housing’s current service plan anticipates completing only 3,000 units of affordable and supportive housing per year, a number that includes low-cost financing initiatives like the Housing Hub program as well as actual capital grants in support of new units.
It is now widely agreed that the market cannot solve our affordability problems and non-market housing needs to be a much bigger part of the solution. There are some positive steps in the provincial government’s new plan, but they are only an echo of the heyday of publicly supported non-profit and co-op housing development during the 1970s and 80s. This lack of urgency in the face of an affordability crisis is puzzling, in particular since the resulting housing generates a stream of rental income that pays off the upfront investment over time.
One major outstanding piece is a promised BC Builds program, which could help close the gap. Little information is available about the size and nature of this program, only that it will involve “public lands, low-cost financing, faster provincial and local government approvals, and innovative tools.” Until we get more details on BC Builds and on many other measures proposed in the new housing plan, it is still a work in progress.
This post is a part of an ongoing research project into affordable housing funded by the Vancouver Foundation.
Topics: Housing & homelessness