Yahoo Finance Vancouver foreign buyer tax causing some sleeplessness in Seattle
Many Vancouverites have loaded up the car for a road trip south to Seattle, but now foreign real estate buyers seem to be getting into the act as well.
Vancouver’s decision this year to implement a tax on foreign real estate purchases came amid fears that the ridiculous year over year gains in housing prices was setting the city up for a crash (as well as the reality that homes are all but unaffordable for anyone who doesn’t earn multiple six digits per year).
Thus far, the experiment seems to be working, with Vancouver housing activity down 37 percent year over year in November, and prices down slightly from October. It’s unclear how much of the decline is due to the tax or whether the market was already beginning to come off of its peak, as the softening activity began before the tax took effect in early August. But there are clear signs that that foreign buying activity has plunged since then.
“I think it’s scaring off the foreign buyers, which is what they intended,” says UBC associate professor of economics Tom Davidoff. “Whether that’s a nice thing to do or not is a separate question, and whether that was the best way to address affordability is a separate question.”
Other questions might be popping up in Seattle, where a market already considered among the hottest in the United States now sees a new set of buyers knocking at the door.
“There is no question that the tax in Vancouver is displacing some buyers to Seattle,” says Matthew Moore, president of the Americas for property website juwai.com.
According to Juwai, which connects Chinese buyers with international sellers, inquiries from the country about buying in Seattle jumped 140 per cent in November from the previous year. Inquiries have generally been higher in 2016, but have jumped sharply since the tax was implemented.
Of course, Seattle is not Vancouver, but it has seen property values shoot up in recent years, helped by the success of local companies such as Microsoft, Amazon, and Costco.
While growth driven by local economic fundamentals is considered generally healthy, the added upwards pressure on real estate from overseas investors can lead to trouble, says Peter Orser, acting director of the Runstad Center for Real Estate Studies at the University of Washington.
“My way of thinking is (recent growth) is not a bubble because it’s supported by a diversity of jobs and industries,” he says. “But if you layer over Chinese investment -‘I’m going to buy a house to park some cash’ – that’s bubble-making… it’s not fueled by good solid foundational economics. So it’s concerns me.”
Dean Jones, chief executive officer of Realogics Sotheby’s International Realty in Seattle, says colleagues have told him that both Toronto and Victoria have also been beneficiaries of increased investment interest since the tax was put in place.
“But I think we’ve seen a greater increase in Seattle,” he says. A former Vancouverite, Jones also says overseas investment in Seattle has been on the rise for a few years now, helped by the proximity to Vancouver and location on the west coast.
“What I’m seeing… is Vancouver deja vu in a way. It’s familiar; it’s just 150 miles south. The same conditions are present.”
While the impact on Seattle is largely anecdotal at this point, the sharp drop in investment in Vancouver is easier to quantify.
According to provincial dataseattle updated, foreign nationals accounted for 13.2 per cent of the sales in Metropolitan Vancouver between June 10 and Aug. 1. From Aug. 2, the day the tax was implemented, to Aug. 31, that number dropped to 0.9 per cent.
Davidoff notes that number is likely skewed higher in June and July by buyers wanting to get their purchases in before the tax took effect. But if nothing else, he says the experience will make a good case study.
“It will be one for the ages for economist to teach in class, that taxes really do matter, that people do respond to incentive when you put a tax in place,” he says.