Rob Shaw: A titan of Vancouver’s real estate scene proposes a new fix for the Lower Mainland’s out of control housing sector.
Vancouver’s best-known real estate marketer may have made his career selling condos, but as property prices continue to skyrocket Bob Rennie is now trying to sell people on something else entirely: another, different kind of speculation tax.
Rennie is calling on the BC government to create a new provincial tax that would kick in if a person tries to sell a property within three years after purchase.
The goal is to deter short-term speculators who are outbidding locals on real estate, driving up prices at an unsustainable rate and creating too large of a divide between local incomes and property values.
“The net effect is it should slow down the rising prices,” Rennie said in an interview. “Because you’ve taken the intruder out of the equation.”
Rennie’s proposal would be different from BC’s existing Speculation and Vacancy Tax, which experts have said doesn’t actually deter speculative sales, and is meant to penalize owners of secondary properties who choose to keep them vacant.
Right now, with bidding wars on record low supply and prices rising sharply, there’s simply too much easy profit available for investors who want to play the real estate market like the stock market with quick flips, he said.
“If you were heavily taxed on that profit, whether you were going to move in, or you were buying it for investment… if you have to keep it for three years, we’ve now created stabilized rental product,” said Rennie.
“Once you’ve rented it out for three years, chances are you will just refinance, rather than you will sell it. So we’re creating badly-needed rental stock. And we’re kicking the pure speculator out of the lower end of the market.”
It’s an idea Rennie first pitched in 2015, after crafting it with former finance minister Carole Taylor, then an advisor to Premier Christy Clark.
But neither the development sector nor the BC Liberal government seemed that interested at the time – both were more focused on responding to voter anger over the idea of foreign buyers than the actual problems in the market.
Yet Rennie has quietly persisted, most recently resurrecting the speculation tax idea, lengthening its proposed timeline to three years, and pitching it directly to the current BC NDP government’s housing minister, David Eby, whom he thinks might just be the right politician to tackle the issue.
“The industry I think immediately will not like it,” said Rennie. “But when you dissect that, if we can’t get Canadians and first time buyers into housing, there is no industry.”
Much like when he first proposed the idea in 2015, Rennie said he doesn’t much care about the real estate sector’s reaction either. He said he’s mainly focused on crafting a solution to allow people with realistic BC household incomes to still get into a lower-end real estate market that is quickly pricing them out of their first homes.
“Am I hurting the industry talking about this?” asked Rennie, who runs Rennie & Associates Realty Ltd and has for many years been the dominant force in Metro Vancouver real estate and marketing. “No, because in those price ranges, I just kick the true speculator out of the box, so that a 25 year old couple can get in and buy.”
Many of the details need to be developed further.
Rennie said the structure would likely need to be something like a new provincial transfer tax, with a rate prohibitive enough to deter quick flippers. It would apply on top of the existing 50 per cent federal capital gains tax on secondary properties.
Perhaps controversially, Rennie suggests BC’s new three-year speculation tax should also apply to principal residences (exempt from federal capital gains) but with exemptions for hardship, moving, death, and other life circumstances that could be overseen by an Ombudsperson type figure.
But will investors just add the new tax into the cost of doing business, given the potential rate of return from record prices is so lucrative?
“It’s a punishment for selling early,” said Rennie. “I think the market that we think we’re affecting more with these conversations is the person who turned into a speculator because the market moves so quickly.
And if it moves so quickly, but they have a huge cost to get out and then to try and get back in, they will tend to leave it as rental stock.”
The Bank of Canada estimated recently that investors make up 20 per cent of housing purchases, and the fast-growing rush of speculative purchases is driving up prices.
But even defining an investor or speculator is not simple.
Rennie said there are two main speculators in BC’s lower-end real estate market today: Those who buy simply as a quick flip for profit, and those who buy a second property – often with family-held equity – for fear of missing out on rising prices and end up becoming speculators.
The first group can be addressed with the new tax, by cutting deeply into their profits during the three-year window.
The second group was probably going to rent their properties to pay their mortgages anyway, said Rennie, but the tax incentivizes them to keep it that way.
“If housing is supposed to be built to be lived in, the group that’s buying for sheer speculation will be hesitant to get in,” said Rennie. “The group that turns into speculators, we end up with rental supply.”
Many locals don’t consider what they are doing as actual speculation, said Rennie.
They are often older and have for decades owned single family homes that now on paper have enormous equity they could cash in, part of the $323 billion in clear title housing in Metro Vancouver that has quintupled over the last 16 years, he said.
Those families jump in as investors with vague ideas about a condo that perhaps the older parents could live in eventually, or might be available for kids and grandkids later.
“People don’t buy speculating,” said Rennie. “People become speculators when the market rises too quickly during the time of purchase and closing.”
Still, a new speculation tax alone would not solve the real estate sector’s problems.
Virtually everyone, including Rennie, agrees more supply is needed as quickly as possible, with some sort of fast-track through delays caused by municipal permitting.
Eby has said legislation to tackle that issue will be coming this fall, built upon recommendations made in previous expert reports.
Rennie said he supports the federal government incentivizing municipalities with cash bonuses if they get a development application approved and into construction within 12 months – $10,000 per unit for rental stock, $15,000 per unit for social housing and $7,500 per unit under $1 million in Vancouver or $750,000 across the region.
“I think probably to move this along properly we need a carrot and a stick,” he said.
“We need something to incentivize people to create more rental stock, housing stock, and then we need some sort of stick if they’re doing something that is contrary to meeting quotas, or contrary to what housing stock is under a million dollars. That’s where the heavier speculation is, in the lower end of the market.”
Whether Eby ultimately takes Rennie up on his idea remains to be seen.
Political allegiances appear to have little to do with it. Once a major donor to the BC Liberal Party, Rennie said he grew tired of watching the former government target cheap-vote solutions on foreign buyers rather than real issues. He said he’s hopeful the NDP takes a different path.
“I just find so much of what’s done is, ‘Will it get me a vote or lose me a vote?’” said Rennie.
“But who are we protecting? Not just to get elected, but to look after that entry level buyer.”
Rob Shaw has spent more than 13 years covering BC politics, now reporting for CHEK News and writing for The Orca. He is the co-author of the national best-selling book A Matter of Confidence, and a regular guest on CBC Radio.