When developers build new, for-sale housing, they are incentivized to sell that housing. That’s the business. If developers are sitting on unsold inventory — there’s an estimated 4,000 newly-completed unsold condominiums in the Vancouver region — it’s typically indicative of market conditions; meaning developers are sitting on inventory because they have no other choice, not holding inventory because they’re trying to price gouge.
Last week, BC Premier David Eby announced that, if re-elected, his government would impose a new 2% tax on recently completed condominiums if they sit empty for more than 1 year. This would be levied against the assessed value of the property and increase by 1% for each additional year. So, by year three, the tax would be 3%.
This would be a punitive tax that seems to suggest developers are not already incentivized to sell their housing inventory. Eby positioned the tax as a way to encourage developers to further lower their prices and sell homes at price points that people are willing to pay. While it would certainly be a “stick” for developers, why punish home builders? That’s less than optimal for long-term housing supply.
A valuable indicator of current market conditions can be found in Ontario’s new enhanced HST rebate. It represents a meaningful cost reduction on the price of new housing and all signs point to this rebate being passed through to purchasers at or close to 100% of the value. It’s a sign that developers are not looking to price gouge. They’re trying to balance competing objectives and ultimately move their inventory.