Experts are questioning B.C.'s incoming flipping tax after the release of new figures that show about three per cent of B.C. homes were flipped between 2019 and 2021.
According to Statistics Canada, 2.8 per cent of all residential properties had been owned by their sellers for less than one year between 2019 and 2021, with the share being the largest in 2021 with 3.3 per cent.
The report finds property flipping most prevalent in urban B.C. In 2021, 3.2 per cent of all sales in the Vancouver Census Metropolitan Area (CMA), representing 2,095 properties, flipped within one year of possession. This share was similar in Kelowna (3.4 per cent) and Victoria (3.3 per cent). Abbotsford–Mission (CMA) had the highest share with 6.5 per cent. The share was lower in the rural areas of the province with 2.5 per cent in 2021.
Brendon Ogmundson, chief economist with the British Columbia Real Estate Association, said these figures line up with Bank of Canada findings. They show 2.5 per cent of all sales were of homes purchased within 12 months with the number for Vancouver and Victoria being around 3.1 per cent.
"It's really clear that flipping isn't a problem," Ogmundson said. "Hasn't been a problem in quite some time and isn't really a major driving force behind affordability challenges in B.C."
Leo Spalteholz, a Victoria-based housing analyst, agreed.
"The reality is, flipping has a net-zero impact on prices, and cracking down on it doesn't solve any of the underlying issues with the housing market," he said.
While flippers may reduce available supply and slightly increase prices by temporarily removing one property, they will increase supply and decrease prices by same amount once they sell it, Spalteholz said.
"There is no long-term positive price effect. Excessive flipping is at best a symptom of an overheated market, it is not the cause."
Spalteholz also pointed out many sales appear to be flips are actually buyers that had intended to hold on to their properties for longer, but were forced to sell because of changing life circumstances such as starting a family, the death of a spouse, or divorce.
B.C.'s flipping tax will kick in on Jan. 1, 2025 and applies to profits from the sale of residential properties held for less than two years. The rate will be 20 per cent for properties sold within one year of purchase, then decline on a graduated scale before hitting zero after two years. The tax includes exemptions for life events such as separation or divorce. The addition of another housing unit to the property will also trigger an exemption.
Profit from property flipping is also fully taxed as business income if residential properties are sold within the first year of possession under federal legislation effective since Jan. 1, 2023.
Both Victoria and Ottawa introduced these measures to curb speculation as part of a catalogue to improve housing affordability.
Ogmundson said the best way to combat speculation is to increase supply and questioned the effectiveness of the tax.
"So it's one more ineffective tax that we can add to a pretty long growing list of ineffective taxes on housing," he said.
In fact, BCREA this summer published a report that found a "significant" risk that the tax would cause potential sellers to delay listing their homes, leading to lower resale supply and tighter market conditions.
"While this policy may help reduce harmful speculation during over-heated markets, defining a flip with a long horizon of up to two years is counter-productive when accounting for the policy's supply-side effects," it reads.
B.C.'s Finance Minister Brenda said the flipping tax is one of many actions government is taking to help people find homes they can afford and build a good life in the community they love. "We know part of the reason the housing market has slowed is due to higher interest rates, but it could become more vulnerable to house flipping speculation when interest rates decrease," she said.. "That’s another reason we need to take action now...(we)'re sending a clear message that speculation doesn’t pay like it used to.”
Government said that the Statistics Canada report is broadly consistent with estimates that show about seven per cent of residential real estate transactions were properties owned for less than two years between 2020 to 2022.
