A recent study by two TRU researchers explains how Bill 28, BC’s foreign-buyer tax, helped fuel the booming real-estate markets in Chilliwack and Kamloops. Jabed Tomal, from the Department of Mathematics and Statistics, and Hafiz Rahman, from the Department of Economics, examined the tax and compared its impact on housing prices in both cities.
The BC government announced the hefty property transfer tax—also known as the Miscellaneous Statutes (Housing Priority Initiatives) Amendment Act, 2016 (or Bill 28)—on foreign home buyers in the Metro Vancouver area on July 25, 2016, to help cool off its hot housing market.
Comparing real-estate surge in both cities
“We often talked about housing prices in Kamloops,” says Rahman, “and then one day Jabed suggested we examine the impact of the foreign buyer tax on Kamloops. We agreed it would be interesting to compare it with Chilliwack, which is a similar-sized city, has a university like us, and is closer to Metro Vancouver.”
Their study revealed that the new property transfer tax in Metro Vancouver caused sudden rapid increases in housing prices, known as the threshold effect, in both Interior BC cities.
“We started our hypothesis with the idea that when the 15 percent additional property transfer tax was introduced to foreign buyers in 2016, it had a threshold effect in surrounding cities,” adds Tomal. “And we wanted to see whether the information in our data supported that hypothesis.”
The researchers analyzed data from monthly statistical reports issued by the Canadian Real Estate Association from January 2011 to July 2020.
“What we observed is that in Chilliwack, the price increase happened three months prior to the actual introduction of the tax because this was being widely discussed, which led to the speculation or expectation that Metro Vancouver would introduce the foreign buyer tax,” says Rahman.
“And so, buyers went to the nearby city of Chilliwack, which wasn’t a surprise. Chilliwack was affected a little bit earlier than Kamloops, which saw the impact a couple months after the actual introduction of the tax. It wasn’t a surprise, given that Kamloops is further away from Vancouver, so we knew it would take a little while to come. What we cannot tell, because we don’t have that data, is how many foreign buyers have actually come to Kamloops.”
In 2018, Tomal and Rahman identified another threshold effect, causing a break point, when the provincial government expanded the new tax, which increased from 15% to 20%, to communities outside of Metro Vancouver, including Chilliwack. Kamloops was not included in the tax’s expanded reach. While data shows housing prices in Chilliwack rose at a much lower rate after the tax was introduced, Kamloops housing prices skyrocketed.
“Before the threshold effect in 2018, the price increase per month in Kamloops was $407.87,” says Tomal. “And after the threshold effect, the price increase was $2,093.71 per month, which is an increase of more than 500 percent. This has a tremendous effect on home buyers.”
Both researchers believe that Kamloops home buyers will continue to pay more for their houses because of the 2018 bill.
“If the tax is introduced in Kamloops, based on what we’ve learned from our study, we would expect the price increase to slow down, but it is difficult to predict how pronounced that might be,” says Rahman.
“The impact of our work is making both the residents of Kamloops and the government aware of what is going on in the real estate market,” adds Tomal. “All of our findings show that the government’s introduction of tax policies has a statistically significant effect on home prices, so they might consider further expansion of the additional property transfer tax for foreign buyers to include Kamloops. We’ll have to see what they do.”
Rahman says their next steps will include expanding their research to obtain a more accurate picture of how the tax affects housing markets in other cities.
Read the report here.