British Columbia’s Proposed Home Flipping Tax

British Columbia is grappling with housing affordability challenges and the government is facing a record $7.9 billion budget deficit. In order to kill two birds with one stone, the province has introduced a new home-flipping tax that could help alleviate these problems.

In February, the BC government introduced a 20 per cent home-flipping tax that will apply to income from the sale of a residential property owned for less than two years. Under the current proposal, the tax will be highest for individuals who own these homes for the shortest period, and then on a sliding scale, the more extended the property is owned.

The tax rate will start at 20 percent for income generated from homes sold within 365 days of the purchase. The levy will then decline toward zero between 366 and 730 days.

It will go into effect on Jan. 1, 2025.

Additionally, there will be exemptions if there are unforeseen life circumstances, such as a death, involuntary job loss, divorce, or disability.

“The purpose of this tax is to support housing supply, not impede it. Exemptions will be provided for those who add to the housing supply or engage in construction and real estate development,” the provincial government says on its fact sheet.

Premier David Eby conceded that this is not a “silver bullet” to British Columbia’s housing woes.

“Anything the government can do to shorten the list of competitors for that home is going to be welcome,” he said at a news conference in February. “The flipping tax is not a silver bullet. If it was a silver bullet, it would have been fired a long time ago. It’s just one piece of the overall strategy to deal with housing.”

Provincial officials were unclear about the number of residential properties being flipped. However, the BC government noted that seven percent of homes purchased between 2020 and 2022 were resold within two years. In addition, officials project that the tax could generate approximately $40 million a year in revenue.

“What that says is it’s pretty considerable,” Housing Minister Ravi Kahlon told reporters. “And our hope, over the coming years, is that that number actually drops because we want to see more of these homes available for people in our communities and more of that land available for our home builders.”

British Columbia has introduced other housing measures in the 2024 budget, including an expansion of the First Time Homebuyers Program, a newly constructed home exemption, and a rental home construction exemption.

Will the Home Flipping Tax Work?

The reaction to the proposed flipping tax has largely been frowned upon, with many arguing that the public policy measure is symbolic as it will not add to the province’s housing supply.

“I don’t expect this tax to make a great deal of difference either way,” said Tom Davidoff, director for UBC’s Centre for Urban Economics and Real Estate, in an interview with CBC News, adding that vacant homes are “an attractive target for taxation.”

Alex Hemingway, a senior economist with the Canadian Centre of Policy Alternatives, warned that the flipping tax could reduce housing transactions. If this happens, there would be less money in the provincial coffers since it would trim property transfer tax revenues.

The British Columbia Real Estate Association (BCREA) noted that the tax might not even garner as much revenue as the government projects as it will only affect a small number of homes.

In addition, the BCREA forecasts that the flipping tax will reduce home sales by as much as two per cent over a three-year span.

“Given the relatively small impact, prices and housing attainability are essentially unchanged by the tax. This is unsurprising, given that short-term flipping represents a low share of sales activity (less than two per cent in both Vancouver and Victoria),” the report stated.

At the same time, because the government is disincentivizing homeowners to sell within a two-year window after buying the place, some sellers will wait, which leads to lower listings and possibly higher prices.

“As a result, home prices may increase with the flipping tax compared to a no-tax baseline,” the association explained. “Ultimately, the only way to prevent harmful short-term speculation in the housing market is to ensure housing is abundant.”

Heading into budget season, British Columbia’s housing stocks had improved. According to the BCREA, active residential listings ballooned more than 20 per cent year-over-year in February, exceeding 27,000 units.

“The BC housing market is in a period of relative calm entering the spring,” said BCREA Chief Economist Brendon Ogmundson in a statement. “While activity is picking up, home sales remain below normal, and home prices have been essentially flat since last summer.”

In February, the average residential price in BC was $987,798, up 4.7 per cent from the same time a year ago.