Price shocks to the housing market could translate into some significant financial impacts for homeowners and the economy, according to a report from the BC Real Estate Association (BCREA).
The report notes that a minor 10 per cent negative shock could ‘extinguish’ $90 billion of provincial homeowners’ wealth, or roughly $70,000 of homeowner equity.
Looking at price shocks of 10, 20 and 35 per cent, the report predicts a number of consequences.
For a 10 percent home price shock, the report says there could be an average equity loss of $70,000, 26,000 in job loss, 10,000 fewer housing starts and a $3 billion loss to the economy.
On the more severe end of the scale, a 35 per cent decrease could mean up to $245,000 in average equity loss, a loss of 64,000 jobs, 19,000 fewer housing starts, and put the economy into recession.
However, Darren Close, the president of the Kootenay branch of the BCREA, notes that the report — indeed most reports on the provincial housing market — are heavily influenced by activity in the Lower Mainland.
“The marketplace down there is a world unto itself and they almost operate, sometimes, in a different world,” Close said.
There has been much sound and fury over the provincial speculation tax, which was announced in February, but was recently updated and clarified by Finance Minister Carole James.
While announced as a policy tool to help drive down the skyrocketing problem of housing affordability in the Lower Mainland, the tax cause a furor in more rural areas of the province that were concerned about the impacts to recreational properties from local and out-of-province owners.
“Our market has a tendency in certain areas throughout the Kootenays to be very absentee-owner,” said Close. “There’s a ton of recreational and secondary homes, vacation homes, for a lot of people and they choose not to rent them out because they want to keep them for themselves.”
Part of James’ update included identifying the areas applicable for the tax, which include parts of southern Vancouver Island, Metro Vancouver and the Okanagan. Also, secondary homes owned by a BC resident would only be taxed at 0.5 per cent, while an out of province resident would be taxed at 1 per cent and 2 per cent for foreign buyers.
The update also included a tax credit for British Columbians who own a secondary home with a value up to $400,000 as well as some exemptions such as owners who are undergoing long-term medical treatment or if absent for long periods of time for work reasons.
The Regional District of East Kootenay raised the issue of the speculation tax during a recent board meeting, coming out in unanimous opposition to it.
But elsewhere, there has been some fallout from the speculation tax announcement as sales are slowing in Vancouver, said Close.
“Here, we haven’t seen that decrease in activity. We’re still maintaining very good demand and our prices are very stable and very strong where they are,” Close said. “These policies haven’t had much of an affect where we are in the East Kootenays by any means.
However, there is still uncertainty about whether it could affect the southeast corner of the province, he continued.
“The question being asked directly was could it eventually capture certain areas in our marketplace and essentially that question went unanswered,” said Close, “so as far as being completely satisfied with what we’ve seen — no, absolutely not. I’m not, anyway.”