As the sa国际传媒 Liberal government prepares to table its budget next month, Premier Christy Clark is pondering what to do about high housing prices. But people shouldn鈥檛 count on government intervention to help them buy homes 鈥� or keep them, if things go south.
Housing prices in larger cities are growing beyond the reach of the ordinary family, and there鈥檚 not much the government can do about it. Prices are determined by demand, supply and interest rates, factors beyond the province鈥檚 control.
A huge irritant in Vancouver is the number of high-end properties purchased by offshore investors looking for a secure place to park their money. Most don鈥檛 even live in sa国际传媒, and many luxury homes sit vacant. Vancouver Mayor Gregor Robertson wants the provincial government to bring in a speculation tax to 鈥渄iscourage investors who buy a home just to make a quick buck.鈥�
The need for a tax to prevent property-flipping is questionable 鈥� not much of that is happening these days 鈥� and it wouldn鈥檛 likely do much to affect affordability.
Besides, a tax to discourage flipping has been done before, and the result continues to hit sa国际传媒 homebuyers in the wallet.
The property-transfer tax 鈥� one per cent on the first $200,000 of a home鈥檚 sale price and two per cent on the remainder 鈥� was introduced by Bill Vander Zalm鈥檚 government in 1987 with the intent of taxing speculation and wealth. The average price of a home in Greater Vancouver then was $147,000.
Succeeding governments have tinkered with it 鈥� first-time homebuyers are exempt from the tax on homes valued up to $475,000 鈥� but it鈥檚 still a painful pinch for families buying homes over that threshold.
Clark has said the province will look at reducing the property-transfer tax when the budget is balanced, but don鈥檛 hold your breath 鈥� no government is about give up a billion dollars a year in revenues.
The rule of thumb for buying a home, according to the sa国际传媒 Mortgage and Housing Corporation, is that it shouldn鈥檛 cost more than three times a family鈥檚 annual income, and the total debt load shouldn鈥檛 be more than 40 per cent of gross household income.
According to the CMHC鈥檚 guide, a family buying a home at Victoria鈥檚 median price of $585,000 would require an income of $195,000, when the average income here is $88,000. The median price is more than six times the average income, double the CMHC guideline.
People can buy houses far beyond the recommended price range because mortgage rates are low. Some make payments by incorporating rental suites in their homes.
A drop in real-estate prices 鈥� which is inevitable, say analysts 鈥� would leave some owners with mortgages bigger than the value of their homes, but they could ride it out by continuing to make payments.
However, a rise in interest rates, also anticipated at some time in the foreseeable future, would create hardships for many homeowners, especially those whose debt load exceeds the 40 per cent recommended by the CMHC.
CIBC economist Benjamin Tal advises homeowners to leave enough room in the budget to allow for interest-rate hikes of a percentage point or two. And maybe buying a home under current circumstances is not for everyone.
鈥淲hat goes up must come down鈥� is not an ironclad rule in the housing market, but it鈥檚 a distinct possibility. It would not be a good idea to assume the government is there to help you if that happens, and it would not be wise for the government to help you buy a house you ultimately cannot afford.
