BC Political Discussion: Election 2020 and Beyond

[chowhou]

Originally Posted by Changing City

Not many projects take under 2 years from initial sales to completion, so on new development projects it would only affect an investor buying and then selling again before two years pass (as an assignment). It's also only 20% of any profit made by flipping the property (although there's also a federal flipping tax), so it might put some investor flippers off, but they shouldn't be out of pocket.

I think you misinterpreted what he said. Projects typically take over 2 years, but the flipping law resets on taking ownership. If you buy into a preconstruction unit 2 years before completion but you don't/can't assign the contract before completion (and possibly get hit with income tax, remember) you now have to wait another two years before selling. So yes, this will affect investors buying into developments. Most developments won't let you assign the contract if certain sales targets aren't reached yet for example.

Also the idea that "only 20% of profit" is a throwaway amount is ridiculous.

I've yet to see a compelling argument for why we should disincentivize/ban flipping that doesn't reduce down to "they're profiting off something in a way I don't like".

[mcj]

Originally Posted by djmk

IVF is making big news in the US right now because of Alabama. Pretty wild the differences between here and there.

here - we need this, this is a right and the state will pay for it
there - this is murder.

So wild

The downstairs neighbours have such strange fights.

[Migrant_Coconut]

Flipping is artificial demand that unnecessarily inflates the amount of supply we actually need to build to reach affordability, thereby prolonging the housing crisis.

It was alright back when we (kinda-sorta) had enough supply, but for now we have to start treating housing like a basic need again, rather than a high-value stock. Same reason we don't like Nestle selling our own water back to us at $3/litre in the middle of a drought.

[chowhou]

Originally Posted by Migrant_Coconut

Flipping is artificial demand that unnecessarily inflates the amount of supply we actually need to build to reach affordability, thereby prolonging the housing crisis.

How? Flipping inherently returns supply back to the market equal to the rate it removes supply from the market. "Flipping" is also one of the number one ways new supply gets built in this province. A developer plans a billion dollar project, the project is backed by early investors and that backing is used to secure additional bank financing, then once the project is close to completion, the investors assign the contracts, or they see the contracts out to completion and then sell the units.

We're basically trying to ban that practice now for some reason.

[Migrant_Coconut]

Originally Posted by chowhou

... "Flipping" is also one of the number one ways new supply gets built in this province. A developer plans a billion dollar project, the project is backed by early investors and that backing is used to secure additional bank financing, then once the project is close to completion, the investors assign the contracts, or they see the contracts out to completion and then sell the units...

That may or may not be the legal definition, but the common definition would be "buying said completed units (that most early investors had no intent of purchasing) with intent to immediately resell rather than live in them," which is more akin to scalping. It returns supply to the market at a higher price, with intent of making the overall market more expensive.

[chowhou]

Originally Posted by Migrant_Coconut

That may or may not be the legal definition, but the common definition would be "buying said completed units (that most early investors had no intent of purchasing) with intent to immediately resell rather than live in them," which is more akin to scalping. It returns supply to the market at a higher price, with intent of making the overall market more expensive.

Flippers do not control what the market price of a property is. The hope is that they can sell for a higher price, but there's no guarantee of that. This is why traditional definition flippers will typically also renovate houses, for the value add that can be profited off of.

Also it doesn't matter what the legal or colloquial or moral definition is, what matters is what this policy is targetting. The BC government has specifically mentioned that contract assignment is considered "flipping".

https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax

The tax will apply to income earned from the sale of:

Properties with a housing unit
Properties zoned for residential use
The right to acquire the above properties, such as the assignment of a purchase contract

[GenWhy?]

Originally Posted by chowhou

How? Flipping inherently returns supply back to the market equal to the rate it removes supply from the market. "Flipping" is also one of the number one ways new supply gets built in this province. A developer plans a billion dollar project, the project is backed by early investors and that backing is used to secure additional bank financing, then once the project is close to completion, the investors assign the contracts, or they see the contracts out to completion and then sell the units.

We're basically trying to ban that practice now for some reason.

We way I see it is what you just described is "development". You're "flipping" an existing property, demolishing it, building a new bigger building, then selling portions of it to new buyers. This whole process, currently, can take 2-5 years depending on if it's a rezoning or not, size of the project.

"Flipping" I think as the tax is being utilized is on is on existing units where no permits are taken out to modify / redevelop it. I only really see this affecting flipping a property through renovations within a 2 year purchase-flip scenario, but anyone can renovate. You don't need an "investor" to renovate your future home for you.

[GenWhy?]

Originally Posted by chowhou

Flippers do not control what the market price of a property is. The hope is that they can sell for a higher price, there's no guarantee of that.

Also it doesn't matter what the legal or colloquial or moral definition is, what matters is what this policy is targetting. The BC government has specifically mentioned that contract assignment is considered "flipping".

https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax

Yes it'll be a tool too cool speculation. New condos are very susceptible to this. It's quite toxic (but good for developers!) and I personally find it disgusting and it creates a very inflated housing market with housing being scalped.

[chowhou]

Originally Posted by GenWhy?

Yes it'll be a tool too cool speculation. New condos are very susceptible to this. It's quite toxic (but good for developers!) and I personally find it disgusting and it creates a very inflated housing market with housing being scalped.

Cooling speculation while also cooling investment in new housing. I guess it's a matter of what you value. I'm not sure where all these comparisons to scalping are coming from, flippers buy properties at market price and sell at market price, the principle of scalping is to corner the market of a product being sold at below market to sell at market price. It's fundamentally different. Would scalping be a big deal if every single concert ticket and PS5 was sold at an auction?

Personally I still have not seen a single source that shows that house flipping raises property values (beyond value-add renovations). Saying it's "disgusting" and "creates a very inflated housing market" feels a lot like feeling-based policy to me. Feel free to prove me wrong.

[Migrant_Coconut]

Originally Posted by chowhou

...flippers buy properties at market price and sell at market price, the principle of scalping is to corner the market of a product being sold at below market to sell at market price...

What? Scalpers buy at-market all the time; in such a case, they're taking advantage of limited supply to sell above-market.

And flippers intentionally buy below-market to sell at-market - they even have a "70% rule" where one shouldn't buy at over 70% the post-flip price. It's a form of speculation: more sales at higher prices = warmer market.

At the very least, flipping should be taxed as business income, which it wasn't until last year.

[chowhou]

Originally Posted by Migrant_Coconut

What? Scalpers buy at-market all the time; in such a case, they're taking advantage of limited supply to sell above-market.

And flippers intentionally buy below-market to sell at-market - they even have a "70% rule" that says they should never buy at more than 70% the post-flip price. More sales at higher prices = warmer market.

At the very least, flipping should be taxed as business income, which it wasn't until last year.

Please don't conflate MSRP with market price. If you can buy a PS5 for $650 MSRP then post it on Craigslist and sell it for $800 that afternoon, then $650 was not the market price. If demand is higher than the manufacturer expected, then the MSRP is not the market price.

I'm not really sure how you can claim that flippers buy below market price. If a property is being listed for below market price, then logically there should be all kinds of people coming out of the woodwork to buy at a higher rate. This is kind of a fundamental rule of markets.

Also AFAIK flipping if it was being done as a business has always been business income. If it's done in a non-business like way it has always been capital gains (unless you have a PRE exemption, but why would we care if someone is living there?)

EDIT: I looked up the 70% rule and I really think you need to read up on what it means a little bit more.

[Migrant_Coconut]

Originally Posted by chowhou

- snip -

By that logic, when the market is so finite that people will pay anything (e.g. concert tickets or Vancouver housing), it effectively makes the market price near-infinite. That's obviously not the case... or if it is, then the housing crisis will never be over within our lifetimes.

No, because many people have a limit as to how much they'll buy a house for before they look for alternatives (renting, co-ops, subsidized housing, living in vehicles, etc etc).

Then why was it only taxed as such (at least re: properties held for less than 365 days) starting from January 1, 2023, under the Income Tax Act? Before that, it was a loophole.

Under (then) current rules, “the burden (was) on the [Canada Revenue Agency] to prove that your intention was to flip [a property],” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth. “Now, they don’t have to prove it anymore, because there’s a law that says, ‘If you flip it within a year, you’re going to pay business income tax.'”

I think that if you want to separate flippers from scalpers, you need to do more than pick nits.

[chowhou]

Originally Posted by Migrant_Coconut

By that logic, when the market is so finite that people will pay anything (e.g. concert tickets or Vancouver housing), it effectively makes the market price near-infinite. That's obviously not the case... or if it is, then the housing crisis will never be over within our lifetimes.

No, because many people have a limit as to how much they'll buy a house for before they look for alternatives (renting, co-ops, subsidized housing, living in vehicles, etc etc).

Yes. This is literally true (however price and demand will always reach an equilibrium). If demand grows and grows and supply remains constant then yes, prices continue to grow and grow. Hence why the fundamental issue that must be resolved is supply outpacing natural demand. We can try all sorts of tactics to try to elimate the "bad demand" but until we start mass executions the number one thing we need to do is allow our housing supply to match our population.

Then why was it only taxed as such (at least re: properties held for less than 365 days) starting from January 1, 2023, under the Income Tax Act? Before that, it was a loophole.

I think that if you want to separate flippers from scalpers, you need to do more than pick nits.

Personally I'm okay with classifying short-term capital gains as income, same as how the US does their capital gains. I have a big problem with classifying personal residences disposal as not only capital gains but business income, and I have a minor problem with the BC government jumping on the bandwagon to apply an additional tax on top.

Again, no one has ever shown me a convincing argument why we should disincentivize flipping, especially if the same policy will disincentivize housing investment which we desperately need.

[GenWhy?]

Originally Posted by chowhou

Cooling speculation while also cooling investment in new housing. I guess it's a matter of what you value. I'm not sure where all these comparisons to scalping are coming from, flippers buy properties at market price and sell at market price, the principle of scalping is to corner the market of a product being sold at below market to sell at market price. It's fundamentally different. Would scalping be a big deal if every single concert ticket and PS5 was sold at an auction?

Personally I still have not seen a single source that shows that house flipping raises property values (beyond value-add renovations). Saying it's "disgusting" and "creates a very inflated housing market" feels a lot like feeling-based policy to me. Feel free to prove me wrong.

I call them scalpers because they take the product off the market to simply re-sell at a controlled rate. When you take a limited product off the market (or consolidate who the product is available to, controlling access) you artificially increase its scarcity. If more units in new buildings were publicly available to folks that had to live in them, or own them and sit on them for 2 years, you'll notice a market shift - for the better IMO.

[chowhou]

Originally Posted by GenWhy?

I call them scalpers because they take the product off the market to simply re-sell at a controlled rate. When you take a limited product off the market (or consolidate who the product is available to, controlling access) you artificially increase its scarcity. If more units in new buildings were publicly available to folks that had to live in them, or own them and sit on them for 2 years, you'll notice a market shift - for the better IMO.

Every property bought by a flipper had an equal opportunity for anyone else to purchase it, it's just not comparable. It's not like concert tickets or graphics cards or PS5s where people are trying to capitalize on the first come first serve policy of retailers to make a quick buck. By this logic all homeowners are "scalping" their property when they sell it later down the road because they took the product off the market when they bought it and are going to resell it at their own rate.

I think you'll also find that new contruction which depends on investors buying in at a lower rate and selling at market rates once it's completed will be affected - for the worse IMO.

[Migrant_Coconut]

Originally Posted by chowhou

... We can try all sorts of tactics to try to elimate the "bad demand" but until we start mass executions the number one thing we need to do is allow our housing supply to match our population.

So by capping artificial demand, all that's left is natural demand. Eliminate the variables and solve the actual problem; I don't recall ever saying "we have too much/enough supply.

Originally Posted by chowhou

Personally I'm okay with classifying short-term capital gains as income, same as how the US does their capital gains. I have a big problem with classifying personal residences disposal as not only capital gains but business income, and I have a minor problem with the BC government jumping on the bandwagon to apply an additional tax on top.

Again, no one has ever shown me a convincing argument why we should disincentivize flipping, especially if the same policy will disincentivize housing investment which we desperately need.

If a homeowner wants to improve said home because they want to live in it for the rest of the decade, then eventually sell it for more when they want to move on? By all means, nobody's wanting to tax that.

And I don't see why redevelopment would ever be categorized as "flipping" (which happens after redevelopment). That's apples to oranges.

[GenWhy?]

Originally Posted by chowhou

Every property bought by a flipper had an equal opportunity for anyone else to purchase it, it's just not comparable. It's not like concert tickets or graphics cards or PS5s where people are trying to capitalize on the first come first serve policy of retailers to make a quick buck. By this logic all homeowners are "scalping" their property when they sell it later down the road because they took the product off the market when they bought it and are going to resell it at their own rate.

I think you'll also find that new contruction which depends on investors buying in at a lower rate and selling at market rates once it's completed will be affected - for the worse IMO.

This is actually not true, unfortunately. It is common practice to host an exclusive pre-sale launch for real estate companies and "investors" to get first picks. These are then flipped.

[chowhou]

Originally Posted by Migrant_Coconut

If a homeowner wants to improve said home because they want to live in it for the rest of the decade, then eventually sell it when they want to move on? By all means, nobody's wanting to tax that.

Not talking about that.

And I don't see why redevelopment would ever be categorized as "flipping" (which happens after redevelopment). That's apples to oranges.

Redevelopment investors are quite explicitly targeted by this policy. If you invest in a housing developement by purchasing a unit during the preconstruction phase and you assign that contract within a year for a profit you could be looking down the barrel of a 70% tax rate on the profits. Or, if you see the contract out to completion and you purchase the property, you have another two years of tax penalty time tacked on. I think it's a pretty obvious cooling affect on housing investment.

Originally Posted by GenWhy?

This is actually not true, unfortunately. It is common practice to host an exclusive pre-sale launch for real estate companies and "investors" to get first picks. These are then flipped.

There seems to be some confusion in this thread, others don't agree that this is flipping and I don't either. I call this real estate investment which we desperately need in this province. We should be happy that these people are funding the development of real estate in our province, this is a good thing. However, this practice is targeted by the province with this tax.

[Migrant_Coconut]

Originally Posted by chowhou

Redevelopment investors are quite explicitly targeted by this policy. If you invest in a housing developement by purchasing a unit during the preconstruction phase and you assign that contract within a year for a profit you could be looking down the barrel of a 70% tax rate on the profits. Or, if you see the contract out to completion and you purchase the property, you have another two years of tax penalty time tacked on. I think it's a pretty obvious cooling affect on housing investment.

They're obviously not the target and both of us know that. BC will make exemptions (if it even applies to them), just like with the Empty Homes Tax.

Originally Posted by GenWhy?

This is actually not true, unfortunately. It is common practice to host an exclusive pre-sale launch for real estate companies and "investors" to get first picks. These are then flipped.

As of the Christy Clark administration, there were also pre-sales in East Asia for prospective owners. So no, it hasn't always been equal-opportunity.

[chowhou]

Originally Posted by Migrant_Coconut

They're obviously not the target and both of us know that. BC will make exemptions (if it even applies to them), just like with the Empty Homes Tax.

I said it once and I'll say it again, the government has already indicated who this is targetting.

https://www2.gov.bc.ca/gov/content/taxes/income-taxes/bc-home-flipping-tax

Relevant properties
The tax will apply to income earned from the sale of:
Properties with a housing unit
Properties zoned for residential use
The right to acquire the above properties, such as the assignment of a purchase contract