This article was written and submitted by Mark Goodman and Ian Brackett, brokers at Goodman Commercial and authors of the Goodman Report.
Whether you think it is “the most beautiful word in the dictionary” or a punitive obstacle to free enterprise, tariffs have become all anyone wants to talk about. But now that we’re paying attention, it’s worth considering whether we are setting a double standard and glossing over the impacts of our own bad tariff policies.
In simple terms, a tariff is a sales tax on foreign goods. Long before they became a tool to punish or gain leverage over another country, tariffs were primarily used to raise government revenue and to protect domestic businesses from foreign competition – it was always politics, not economics.
After World War II, tariffs fell out of favour because, more often than not, the negative impacts on business and consumers in the country imposing the tariff outweigh the benefits. Governments generally don’t last long when their policies reduce choice and raise prices for their own voters.
So, no surprise, when faced with additional taxes on Canadian exports to America, that NDP Premier David Eby was among those proclaiming that he would fight them at all cost. Canadian companies, he said, should be able to sell products to US consumers without facing unfair taxes.
It was an ironic bit of theatre.
For the past decade, BC has imposed a punitive, politically motivated sales tax on foreign residents buying local residential real estate.
Implemented as a 15% tax in Metro Vancouver by the BC Liberals, the NDP increased the tax to 20% and expanded it to the Fraser Valley, Vancouver Island, and the Central Okanagan.
It’s proven to be good politics. The polls show that BC residents support using tax policy to make it harder for foreigners to buy residential properties.
But many don’t know that the tax applies to all BC Assessment-designated Class 1 properties, which, in addition to single-family homes, townhouses and condo units, also includes apartment buildings, nursing homes, daycares, and residentially-zoned development sites.
When applied to single family homes, the 20% tax on foreign buyers has an understandable, if protectionist, rationale. When it prevents foreign individuals and companies from investing in multi-family housing and development sites, it is no different than the hated tariffs.
Let’s call it what it is: a tariff on apartment buildings.
As with any tariff, the inevitable result of a foreign buyer tax on apartment buildings and development land is negative. In this case, it reduces capital flowing into the local rental housing industry. Regardless of its place of origin, that capital investment is needed to build new homes and finance upgrades to existing stock. Without a deep enough pool of well-capitalized investors to buy completed buildings and finance new construction, local developers are more likely to hold off on projects, driving up rents and worsening affordability.
Whether you agree with him or not, Donald Trump has done the political calculus that stifling trade and making new enemies is a worthwhile trade-off if he can secure more favourable trading terms or force manufacturers to move production to America. Perhaps naively, he has been less willing to acknowledge that a punitive tax on imports is likely going to raise domestic prices and hurt the US economy, as well.
In British Columbia, long before tariffs were threatened on Canada, our government did the same political calculus, deciding that blaming foreign buyers for the affordability crisis was a winner. Despite affordability being worse by all measures a decade after the foreign buyer tax was first implemented, our leaders have yet to admit the tax hasn’t helped. The fact that the tax reduces much-needed investment in rental properties and seniors’ homes, making affordability worse for those most in need of help, is more nuanced and unlikely to win votes, therefore easy for politicians to cast aside.
To be clear, we don’t support tariffs. We believe in free-trade and reduced red-tape. The proposed tariffs are needlessly destructive and, if implemented, will cause real pain.
The same is true for the foreign buyer tax on apartment buildings and development land.
If this government really wants to show leadership, instead of largely symbolic finger-wagging, it could start by removing its own destructive tax, clearing the way for investors and actually helping the rental housing industry.