Premier Christy Clark has thrown cold water on Vancouver Mayor Gregor Robertson’s call for extraordinary tax measures to cool speculation in the housing market, saying they could wipe out billions of dollars in peoples’ home equity.

With Finance Ministry data suggesting there is little evidence wealthy or foreign investors are driving housing unaffordability, there is little reason to institute a tax on luxury housing, she said in a letter to the mayor.

Instead, the premier turned the tables on the mayor, noting Vancouver’s civic fees and levies add more than $76,000 to the cost of a new condo worth $450,000. The city has the ability to increase housing supply through better land-use planning, she added.

The premier’s letter, dated Thursday, is a response to a letter from Robertson.

In it, the mayor argued that wealthy investors in luxury housing and property speculators are a driving force behind the escalation in housing prices. He asked the province to consider a tax on luxury homes, to penalize speculators who flip properties for profit and to give the city tools to fine property owners who keep units empty for investment purposes.

While saying she wants to work with the city to find solutions, the premier rejected Robertson’s requests. She attached an analysis done by the Ministry of Finance and the B.C. Real Estate Association that said the key factors driving the real estate market have little to do with rich investors or speculators.

“There is a perception that foreign investors and speculators are driving an affordability crisis in residential real estate — particularly in Greater Vancouver. The data we have does not support this perception,” the Finance Ministry analysis said. “However, industry experts estimate that foreign buyers likely make up less than five per cent of home sales activity in Greater Vancouver.”

On Wednesday, acting mayor Raymond Louie said the city has to counteract the effect of “a very limited set of individuals of extreme (wealth)” who he said are pushing up housing prices. The city released figures Thursday suggesting that the top one per cent of houses are valued on average at $6 million. It said the top five per cent of housing in Vancouver is valued at $3.4 million. Those are the ranges in which Robertson was hoping the premier would institute a “luxury housing” tax.

The finance ministry report says if the government were to drastically reduce foreign investment, it would have little impact on general housing prices but would cause the loss of about $1 billion in residential real estate sales and 3,800 jobs in construction and real estate sectors, and knock $350 million in nominal gross domestic product out of the economy.

If the government’s actions were to cause a 10-per-cent fall in house prices, roughly $60 billion in home equity would be lost, equivalent to about $85,000 per Greater Vancouver homeowner.

“It is important that we consider any actions carefully to make sure we are helping first-time home buyers get into the market while protecting the equity of existing homeowners — not just simply raising more taxes for government,” the premier said in her letter.

Robertson was at the Big City Mayors Caucus at the Federation of Canadian Municipalities convention in Edmonton Thursday, but Louie said he didn’t see any solutions being proposed in the premier’s letter. He noted that the city is already doing many of the things the Finance Ministry suggests municipalities can do to increase housing affordability, and that the Mayor’s focus has not been on foreign ownership but on housing speculation.

Cameron Muir, the chief economist for the B.C. Real Estate Association, said there is no evidence to show that foreign buyers or aggressive speculators are skewing the market.

“It doesn’t really pass the smell test. We hear the stories of the $51-million house being bought by a Chinese (investor) … . This is not in the category of a first-time buyer or housing affordability,” he said.

With 32 per cent of homes in Metro selling for less than $400,000, and 82 per cent priced below $1 million, it is hard to argue that speculators are driving up the market, he argued.

“There are no data points that are showing us that this is an issue … that needs some sort of policy action,” he said. “With the lack of any data telling us there is an issue or problem, it doesn’t make any sense to be designing solutions to a problem that we have no evidence exists.”

The government’s analysis looked at actions taken or proposed by a number of other jurisdictions, including Hong Kong, Singapore, Australia, New York and Ontario. It said some of those measures haven’t met with good success, and noted that if adopted, they could cause rents to rise and lower vacancy rates even more.

Instead, it argues that encouraging densification, increasing the supply of housing and streamlining development approval processes would likely have a greater effect on improving affordability than taking “drastic and immediate measures to curb demand.”

jefflee@vancouversun.com

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Premier Christy Clark's reply to Vancouver Mayor Gregor Robertson