Vancouver’s luxury markets may further cool in 2018 if the city’s proposed measures to quell its housing affordability crisis take effect.

A group of curbing measures, as part of a new "Housing Vancouver" strategy and three-year action plan, were approved by Vancouver’s City Council at the end of last month.

Among the measures in the new strategy are:

Increasing the tax rate on luxury homes Imposing a speculation and flipping tax Closing capital gains tax loopholes Restricting foreign buyers and investors

"Housing Vancouver builds on measures the city is already taking that are the first of their kind in Canada—the empty homes tax, temporary modular housing for our most vulnerable residents, and regulating short-term rentals," Mayor Gregor Robertson said in a news release Nov. 29.

The proposed actions, most of which will need approval from either provincial or federal governments to turn into law, could mean more bad news for the luxury segment in one of the world’s hottest markets, especially in light of the impact of previous curbing measures, experts say.

More: What Areas of Canada Have the Highest and Lowest Property Tax Rates?

Homes sold above C$2 million have already been taxed 3%

"We’re concerned about the drive to increase the ‘luxury tax,’ or Property Transfer Tax, on top of the ‘luxury tax’ imposed by the previous provincial government," Anne McMullin, president and chief executive of Urban Development Institute, a nonprofit association comprising members of the development industry, told Mansion Global in an email.

In February 2016, British Columbia introduced a 3% luxury tax for homes sold for at least C$2 million (US$1.55 million) on top of the 1% already taxed on the first C$200,000 (US$155,000) and the 2% taxed on the portion between C$200,000 and C$2 million.

In the three decades prior to the so-called "luxury tax," all homes sold above C$200,000 had been taxed at a 2% rate.

The luxury tax applies to more than 40% of all detached homes in Vancouver, according to estimates by the country’s leading brokerage firms.

Real estate fees and taxes contribute 25% of the provincial gross domestic product, according to Ms. McMullin. She cautioned that the government should be more discerning about the new housing taxes.

"These may appeal to some voters but will not address affordability, given the housing supply shortage has yet to be tackled," she said.

The Vancouver city council didn’t specify how much they want to raise the luxury tax.

More: Penthouse at Bjarke Ingels-Designed Tower in Vancouver Listed for C$11.9M

Foreign buyers’ 15% tax has slowed down luxury market

Last year, British Columbia imposed a 15% foreign buyers’ tax to those who are not Canadian citizens or permanent residents, to appease public outcry over ever-growing foreign investment in the area—particularly from Asian buyers.

Additionally, the City of Vancouver began to implement a 1% empty-home tax to entice absentee landlords, many of them foreign, to rent out their homes rather than keep them vacant. Robertson has touted the empty-homes tax as the first of its kind in Canada.

These cooling measures, together with other political and economic factors, such as the Chinese government’s curbing of capital outflow, have resulted in a softening luxury market, though the impact on the overall Vancouver market has been negligible, insiders say.

"These measures no doubt are aimed very heavily at Asian buyers, who often buy luxury detached homes," said Wayne Ryan, managing broker at RE/MAX Crest Realty.

Since the foreign buyers’ tax was imposed, detached home prices have dropped almost 20%, while prices for condos—mainly driven by local buyers—surged 15% during the same period, according to Mr. Ryan.

In terms of luxury properties, during the first seven months of 2017, sales of C$1 million-plus (US$780,000-plus) homes declined 22.5% in Vancouver year-over-year, according to a RE/MAX report in September.

For homes over C$3 million (US$2.33 million), the number of sales from January to July dropped 40% compared to the same period last year, the firm’s latest data show.

More: Sales of Vancouver Luxury Homes Decline As a Result of Foreign Buyer Tax

The expensive detached market has softened disproportionately to the overall market so far this year, according to Steve Saretsky, an agent of Sutton West Coast who runs a blog that covers the Vancouver residential market called Vancity Condo Guide.

Total transaction volumes in single-family detached homes, favored by wealthy, foreign buyers, dropped 28% year-to-date in 2017, after experiencing 25% growth in 2014 and 30% growth in 2015, Mr. Saretsky said.

Largely due to the slowdown in the detached market, the total volume of closed sales in Vancouver fell 12.4% year-over-year, to C$12.8 billion (US$10 billion) in November, according to Mr. Saretsky, citing data from The Greater Vancouver Real Estate Board.

Detached market likely to continue softening in 2018

"Detached properties will have further downward pressure in 2018, while the condo market will continue to heat up," Mr. Ryan predicted.

It’ll be the result of existing cooling measures and the psychological effects of new proposals to restrict foreign buyers, who are concentrated in the detached market.

"Vancouver, like Manhattan, will likely see continued softening in the luxury market for another two or three years," said Tina Mak, an agent with Coldwell Banker Westburn Realty and founding president of the Asian Real Estate Association of America, Vancouver Chapter.

She attributed the luxury softening mainly to the 15% foreign buyers’ tax and a lessening of foreign funds in Vancouver market. The Chinese government’s control over economic outflow, for one, has deterred some purchases, she said.

But most of her Chinese clients still find Vancouver an attractive market, Ms. Mak said, thanks to a weak Canadian dollar, higher rankings of colleges in and around Vancouver, as well as the city’s beautiful scenery and close proximity to the Asia-Pacific region.

"Once the Chinese government loosens control over money flight, Chinese buyers will return to the Vancouver market," Ms. Mak said.

More: For Foreign Buyers, Times Are Getting Tougher

Vancouver could restrict foreign buyers from purchases

The city council is considering "restricting property ownership by non-permanent residents," possibly following Australia and New Zealand’s lead and "limiting new home sale and resale to local buyers," according to Housing Vancouver’s action plan.

In October, newly elected Prime Minister Jacinda Ardern announced that New Zealand will ban foreigners, excluding Australians, from buying existing housing stock beginning in 2018.

And Australia has already banned foreign buyers from buying existing housing stock. And any residential purchases in the country by foreign non-residents have to be approved by Foreign Investment Review Board beforehand.

Vancouver’s proposal seems to be focusing on new developments, though. According to the Housing Plan, the city will work with developers to prioritize buyers who work and live in Vancouver. These measures will include requiring developers to market pre-sale units to Vancouver residents before they are marketed and sold nationally and internationally, as well as to limit "bulk sales" and potential flippings.

But not everyone thinks these plans are realistic.

"They are talking about banning foreign ownership, levying more property taxes on mansions. I don’t foresee anything happening," Mr. Saretsky said.

Faith Wilson, founder of an eponymous West Vancouver-based agency agreed. "The foreign buyer ban is not likely to proceed," she said, "But [we] expect to see higher taxes for luxury home buyers and owners."

To Ms. McMullin at Urban Development Institute, blaming foreign buyers for Vancouver’s housing crisis "is not productive," as they account for less than 5% of total residential real estate purchases in British Columbia.

"Telling them they are banned from buying a home and can only rent in a city that has had a chronic less-than-1% vacancy rate for some years seems discriminatory," she added.