Taxes on Non-Resident Homebuyers and Investors

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Game-Changing Government Policies & Drivers

By William Hillis

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William Hillis

Broker & Research Editor, Realogics Sotheby's International Realty

"Other means might still be employed to tax purchases by non-resident buyers." 

 

It has been 14 months since the BC government imposed a 15 percent transfer tax on purchases of property by foreign buyers in the Lower Mainland. The initial result was a plunge in purchasing contracts, although it was noted at the time that sales had already slipped in the four months before the tax was imposed. Within a few months more, Vancouver’s market rallied, and sales were above the ten-year monthly sales average by July 2017.

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Real estate finance professor Andrey Pavlov at Simon Fraser University said that “in all likelihood [prices] would have been even higher without the tax.” Yet he and other experts were agreed that the tax was politically driven and that a principal cause of high prices in Vancouver—the lack of supply in the region—remains unaddressed.

This is an important lesson to be learned by officials who are tempted to try this scheme elsewhere. Observers note that in Washington or any other state of the U.S., “even if authorized, a foreign buyer tax could be susceptible to federal constitutional challenges related to either the 14th Amendment Equal Protection doctrine or right-to-travel and the Commerce Clause.”

Other means might still be employed to tax purchases by non-resident buyers. These could include taxes imposed generally with exemptions for proof of occupancy, such as the vacancy tax imposed by Vancouver last November. The idea of a vacancy tax appeared to be a point of agreement between mayoral candidates Jenny Durkan and Cary Moon in their first debate on 12 September 2017.

However, public officials in Puget Sound and statewide are well aware that focusing on a foreign source of funds, a lack of citizenship, or certainly a buyer’s national origin is a nonstarter here or anywhere else in the country for controlling the trajectory of home prices.

Impact: There is no political nor any legal basis for a tax on foreign buyers in Washington state or anywhere in the U.S.