BC Political Discussion: Election 2020 and Beyond

[WarrenC12]

Originally Posted by Changing City

Maybe I'm being particularly dense, but if a proportion of condos offered for sale are 'bought' by speculators with the intent to flip them to some other potential buyer in under 2 years, how does that encourage any new supply? They're just getting into the market and putting a deposit down, and gambling on being to pass that assignment on for more. If they're successful, then the price has risen, but whoever buys from them would otherwise have presumably bought a different unit.

Let's just start here. These investors are bankrolling new supply. Without them, less presales would sell, and less construction would actually take place. Can we agree on that?

[WarrenC12]

Originally Posted by Migrant_Coconut

And the ones benefiting from first come, first serve are the ones wanting to get rich, not the ones wanting a home; the latter end up with the table scraps. Short-term trading raises the value of a good/stock/etc when it would otherwise naturally decrease. This is not rocket science.

Today's pre-sale buyers are providing supply for the 2028 market. There are people out there that will want to buy a condo in 2028 but they don't even know it yet.

Presale investors are taking a risk that they will be able to make a return one way or another when that unit completes in 2028. Either a resale, assignment, or rent it out. Maybe they take a loss. At the end of the day, another unit is created for the market.

If we did not have punishing empty homes taxes, I could see an argument against speculators.

As it stands, this is yet another weak argument by people who don't want to admit that supply is our #1 problem.

[Changing City]

Originally Posted by WarrenC12

Let's just start here. These investors are bankrolling new supply. Without them, less presales would sell, and less construction would actually take place. Can we agree on that?

No.

I'm in the market for a new condo. I can buy from a developer, or I can buy an assignment from a flipper. If I buy an assignment, I won't buy from a developer, so their development can't proceed until there are enough buyers.

Zero sum game over time. You can argue that the flippers help grease the system, but as they're in the system for a profit, they're intent on pushing prices up in the process. Don't fprget they only have to pay tax if they 'own' the assignment for under two years. So if they buy when a property is released, and sell it three years later when it's close to completion (if it's that fast) the tax doesn't apply.

[whatnext]

Originally Posted by WarrenC12

Let's just start here. These investors are bankrolling new supply. Without them, less presales would sell, and less construction would actually take place. Can we agree on that?

No. If the developer sees no market for condos then they'll look at the incentives for building rentals and go for that instead. We've seen it happen in several cases.

[Migrant_Coconut]

Originally Posted by WarrenC12

Presale investors are taking a risk that they will be able to make a return one way or another when that unit completes in 2028. Either a resale, assignment, or rent it out. Maybe they take a loss. At the end of the day, another unit is created for the market.

If we did not have punishing empty homes taxes, I could see an argument against speculators.

The current year is 2024. If we're talking presales for a 2028 opening - so likely before/during construction - with intent to resell, that doesn't fall under a two-year flipping tax.
If we're talking presales in 2027/28 when the building is (presumably) already fully funded and nearing completion, with intent to resell, that does fall under a two-year flipping tax.

Again: you don't need to let a home sit empty to drive its price up.

Originally Posted by WarrenC12

As it stands, this is yet another weak argument by people who don't want to admit that supply is our #1 problem.

Did I ever say it wasn't? That's like saying the pro-flipping argument is only made by people with skin in the game... but I'd rather not play with strawmen today.

Last year, we managed 33,244 housing starts, against 305,340 total CoV homes (as of last census). In a vacuum, that'd mean the market drops roughly 0.91% per month, or 0.74% when adjusted for population growth... but if artificial demand also raises prices by 0.74%, then we're back to square one.

Even at something like a 0.1-0.2% raise, that's still reducing the effect of new supply on affordability; we'll either have to build a lot more homes per year (which'll eventually hit a ceiling due to apparent construction industry shortages), or we'll have to get used to the housing crisis sticking around longer than necessary.

[WarrenC12]

Originally Posted by Changing City

No.

I'm in the market for a new condo. I can buy from a developer, or I can buy an assignment from a flipper. If I buy an assignment, I won't buy from a developer, so their development can't proceed until there are enough buyers.

If the flipper didn't put down 20% 4 years ago you wouldn't have that as an option, just a new unit from a developer that managed to get financing. Less supply = less choice for you and higher prices.

[WarrenC12]

Originally Posted by whatnext

No. If the developer sees no market for condos then they'll look at the incentives for building rentals and go for that instead. We've seen it happen in several cases.

Now you're introducing outside incentives. To be devil's advocate, what are we subsidizing big corporations to provide rental housing? Why not let the market decide?

[Changing City]

Originally Posted by WarrenC12

If the flipper didn't put down 20% 4 years ago you wouldn't have that as an option, just a new unit from a developer that managed to get financing. Less supply = less choice for you and higher prices.

A flipper willing to speculate on house prices over 4 years doesn't have to pay the flippers tax. Having flippers in the market for less than 2 years doesn't increase the number built over a longer period, it's just likely to ratchet prices up. And the proportion of newly constructed homes being offered on the market as assignment sales is a relatively small part of the overall market. There will still plenty of homes available for anyone in the market for a condo.

[Changing City]

Originally Posted by WarrenC12

Now you're introducing outside incentives. To be devil's advocate, what are we subsidizing big corporations to provide rental housing? Why not let the market decide?

In many cases developers who have a rental portfolio are switching projects to rental anyway, like Wall and Bosa. Not all new rental projects are getting government loans. Because the federal and provincial funds are loans, they're not subsidies in the sense that they don't have to be repaid. That's just Whatnext's usual negative language.

Because construction mortgages are still expensive, and lenders are being cautious having government loans available for some projects means more new rentals will get built sooner. 'The market' on its own is being squeezed by higher interest rates, so governments are trying to ensure that the rental part of the market is still able to build.

[whatnext]

Originally Posted by Changing City

In many cases developers who have a rental portfolio are switching projects to rental anyway, like Wall and Bosa. Not all new rental projects are getting government loans. Because the federal and provincial funds are loans, they're not subsidies in the sense that they don't have to be repaid. That's just Whatnext's usual negative language.

Because construction mortgages are still expensive, and lenders are being cautious having government loans available for some projects means more new rentals will get built sooner. 'The market' on its own is being squeezed by higher interest rates, so governments are trying to ensure that the rental part of the market is still able to build.

The term I used was "incentives" is that negative?

Regardless, the fact that you, Migrant Coconut, GenWhy and I can all agree anti-flipping legislation is a good thing is pretty remarkable and an indication it has broad support.

[chowhou]

Originally Posted by Changing City

A flipper willing to speculate on house prices over 4 years doesn't have to pay the flippers tax. Having flippers in the market for less than 2 years doesn't increase the number built over a longer period, it's just likely to ratchet prices up. And the proportion of newly constructed homes being offered on the market as assignment sales is a relatively small part of the overall market. There will still plenty of homes available for anyone in the market for a condo.

The thesis is two parted as far as I'm concerned.

1. I still have yet to see a compelling case that flipping is harmful and until that happens I'm considering inhibiting flipping to have no positive value. Especially inhibiting assignment of presale contracts seems to have zero arguments whatsoever (no supply that anyone can live in is touched, no value-add can be done).

2. Time and flexibility are money. Saying "they can just hold for 4 years" ignores the fact that requiring investors to hold for at least 2 years reduces the viability of investment. Putting a time barrier in front of an investment is a barrier in front of an investment. Anyone saying "well they can just hold for 2 years" is handwaving away the fact that this is a disincentive to investors (no matter how small you might think it is).

So if #1 has zero positive value and #2 has some non-zero negative value, then this policy is a net negative.

[Changing City]

Originally Posted by whatnext

The term I used was "incentives" is that negative?

Regardless, the fact that you, Migrant Coconut, GenWhy and I can all agree anti-flipping legislation is a good thing is pretty remarkable and an indication it has broad support.

No, sorry, it was Warren who translated that to 'subsidizing'. Incentive is ok in my book - I'd probably call it 'support' for rental housing. Either way, it's not a subsidy.

[chowhou]

Originally Posted by Changing City

No, sorry, it was Warren who translated that to 'subsidizing'. Incentive is ok in my book - I'd probably call it 'support' for rental housing. Either way, it's not a subsidy.

Originally Posted by Changing City

...they're not subsidies in the sense that they don't have to be repaid.

Since when did subsidies have to be repaid? Economic incentives are pretty literally the definition of subsidies. Rentals in this province are subsidized in several ways, that's pretty inarguable.

[Changing City]

Originally Posted by chowhou

The thesis is two parted as far as I'm concerned.

1. I still have yet to see a compelling case that flipping is harmful and until that happens I'm considering inhibiting flipping to have no positive value. Especially inhibiting assignment of presale contracts seems to have zero arguments whatsoever (no supply that anyone can live in is touched, no value-add can be done).

2. Time and flexibility are money. Saying "they can just hold for 4 years" ignores the fact that requiring investors to hold for at least 2 years reduces the viability of investment. Putting a time barrier in front of an investment is a barrier in front of an investment. Anyone saying "well they can just hold for 2 years" is handwaving away the fact that this is a disincentive to investors (no matter how small you might think it is).

So if #1 has zero positive value and #2 has some non-zero negative value, then this policy is a net negative.

Except 'investors' holding for less than 2 years aren't required to hold that long. If they sell within a year, then 20% of their windfall profit is taxed. If they sell in the second year then a lower proporting goes to a windfall tax. It's intended to be a disincentive to (very) short-term speculating 'investors', because they're ratcheting prices up. So it has a positive effect.

[chowhou]

Originally Posted by Changing City

Except 'investors' holding for less than 2 years aren't required to hold that long. If they sell within a year, then 20% of their windfall profit is taxed. If they sell in the second year then a lower proporting goes to a windfall tax. It's intended to be a disincentive to (very) short-term speculating 'investors', because they're ratcheting prices up. So it has a positive effect.

So to summarize, it is a disincentive. And you can't just say "it has a positive effect", what is the positive effect? Stopping someone from doing something you don't like isn't inherently a positive effect.

If your thesis is that flipping raises market prices, well please provide a source to back that up. "Ratcheting prices up" implies that flipping multiple times raises a property's value each time, will flipping a 500k condo 10000x times make it worth 50M?

[Changing City]

Originally Posted by chowhou

Since when did subsidies have to be repaid? Economic incentives are pretty literally the definition of subsidies. Rentals in this province are subsidized in several ways, that's pretty inarguable.

Some rentals are subsidized, some rentals aren't. That was my point. For example here's Wall Financial's 498 Richards. It was built as a condo building, and completed in 2018, but they never sold any of the units. Instead, it's market rental. They even paid a CAC to develop it, putting $23.5 million into a non-market housing project on Seymour. Not every rental project gets a CAC break, or a DCL reduction to encourage them, although many do.

In a decidedly sluggish condo market, some developers are choosing to switch to rental even without incentives. And when the 'incentive' is a repayable construction loan, that isn't a subsidy - because they have to repay it. They pay interest on the loan - it's not a grant.

[Changing City]

Originally Posted by chowhou

So to summarize, it is a disincentive. And you can't just say "it has a positive effect", what is the positive effect? Stopping someone from doing something you don't like isn't inherently a positive effect.

If your thesis is that flipping raises market prices, well please provide a source to back that up. "Ratcheting prices up" implies that flipping multiple times raises a property's value each time, will flipping a 500k condo 10000x times make it worth 50M?

Oh come on, you're telling me flippers sell for the same, or less than they bought at? If it's more, how is that not 'racheting up' prices? Next thing you'll be arguing they should be considered as not-for-profits, and given a tax break.

[chowhou]

Originally Posted by Changing City

And when the 'incentive' is a repayable construction loan, that isn't a subsidy - because they have to repay it. They pay interest on the loan - it's not a grant.

They're low cost loans, i.e. subsidized loans. Not sure why this is an argument, I think it's perfectly fine to subsidize both rental and market housing.

Originally Posted by Changing City

Oh come on, you're telling me flippers sell for the same, or less than they bought at? If it's more, how is that not 'racheting up' prices? Next thing you'll be arguing they should be considered as not-for-profits, and given a tax break.

Flippers can only get market prices, so there's basically three ways to go about it in our discussion here, please tell me which one is "harmful":

1. Get in below market. This is the housing investor. They buy a presale contract below the expected market rate at completion and either see it to completion, or sell it along the way. There is no "ratcheting" here, they are making an investment that they may want to divest from at any time. A 2 year limit puts an economic barrier in front of this person. That's bad.

2. Value-add. This is the traditional flipper. They buy an existing housing unit and apply value-add to return a profit. There is no "ratcheting here", they are putting in additional capital on top of the market value to try to return a profit on that capital. Feel free to hate these people, but I don't see the harm here. Blocking people from doing things because you hate them is probably societally harmful.

3. Pure speculators. This is the new age Vancouver flipper. They are buying existing housing units at market value with the belief that in 1-2 years the market value will increase. Certainly the least productive of the three, but there is again no "ratcheting" here, they are speculating on the market value between now and the future. I don't see the harm here.

Unless you have a 4. what is the "ratcheting"? What is the harm? All three of these scenarios are neatly covered by the federal short term holding income tax regulation which I think is perfectly fine. Please explain why BC thinks a 20% flat tax on top is a good thing.

[Changing City]

Originally Posted by chowhou

Flippers can only get market prices, so there's basically three ways to go about it in our discussion here, please tell me which one is "harmful":

[snip]

Please explain why BC thinks a 20% flat tax on top is a good thing.

Why not look it up? The federal government changed the taxation system to get more taxes from flippers. The BC government agree that, on balance, speculators flipping homes in under 2 years negatively distorts the market, so they're taxing some of the potential profits too. Nobody has stopped flipping from happening. You don't see a problem with flipping. There's really nothing more to debate at this point, we're just arguing past each other.

[chowhou]

Originally Posted by Changing City

Why not look it up? The federal government changed the taxation system to get more taxes from flippers. The BC government agree that, on balance, speculators flipping homes in under 2 years negatively distorts the market, so they're taxing some of the potential profits too. Nobody has stopped flipping from happening. You don't see a problem with flipping. There's really nothing more to debate at this point, we're just arguing past each other.

I have looked it up, ad nauseum. I cannot find a compelling argument for this. If the BC government had some good evidence for that claim I'd be on board. I wish the BCNDP would make more evidence based policy instead of this sort of stuff.

Also just an FYI for you, the federal government changed the taxation system because flipping was always supposed to be business income, but it was impossible to track down so they're attempting to close the loophole with the 1-year short term holding rule. It has nothing to do with market concerns.