'Painful no matter what happens': economists worried by B.C.'s financial reliance on real estate

Economic experts are raising concerns over the province's financial reliance on B.C.'s booming real estate market and the new government's promise to try and cool the market down.

The2016/17 public accounts released earlier this week recorded a$2.7 billion surplus.

Real estate revenue accounted for a bigpart ofthat high number, largely due to a 32 per cent growth in the Property Transfer Tax revenue, which brought in roughly$2 billion in total revenue last fiscal year.

While speaking on The Early Edition TsurSomerville, a professor of economics at the University of British Columbia,saidbeyond theProperty Transfer Taxthe income from the hot real estate market feeds several other government revenue streams.

He used examples likethepersonal income tax on ahomebuilder,the income tax of a real estate agent andthe tax on furniture or home appliances, all of which aretied to the strength of the market.

Somerville noted that in B.C. real estate accounts for a larger share ofgovernment revenues than it doesin any other province.

LindsayTedds,an economist at the University of Victoria, agrees that the current framework of B.C.'s economy relies heavily on the strength of the market.

"Much as we like to point to Alberta being so reliant on their oil revenues, we are very reliant on the real estate industry to prop up our economy," said Tedds.

Inherently risky

That is why Somerville is concerned that during the most recent provincial election campaign the B.C. NDPpromised to cool the hothousing market.

"If you slow down the real estate industry, because it's an overly large part of our economy, you're going to have some repercussions," saidSomerville.

"It's not a healthy situation to be that dependant on real estate, so the adjustment is going to be a little bit painful no matter what happens."

At this point however, Somerville said despitethe NDP'spromises of cooling the market,so far their strategies are more geared towards making it easier for people at the bottom end of the market to buy property.

"It's hard for government to come in and change markets. When you try to blow up a market, you really don't know where things are going to go," saidSomerville.

Amongthe NDP'scampaignpromises wasthecreation of114,000 affordable housing units, thecreation ofa Housing Affordability Fund and the introduction of a two per centabsentee speculators tax.

Somerville saidthese early measures won't change the dynamics of the housing market, but could generate more revenue that could be used to help people hurt by housing affordability.

With files from The Early Editionand Samantha Garvey