As house prices in Canada’s most expensive market rise at a breakneck rate, a Vancouver-based think tank proposes a new tax on homes valued at over $ 1 million to help close the gap affordability.
Although the Canadian housing market turned freezing when the pandemic began in March 2020, it quickly rebounded and spent much of 2021 on fire. Average prices across the country hit an all-time high of over $ 720,000 in November, and despite those high prices, the year also broke the annual sales record, with more than 630,000 homes changing from hands.
The breakneck pace has raised fears of a painful comeback if the market slips, but so far none of the targeted solutions suggested so far – taxes on vacant homes, pinball machines and foreign investors at the end of the auction. blind – only managed to slow the fleeing freight train where they were tried.
New numbers this week from Canada’s two most expensive housing markets, Toronto and Vancouver, show that market is growing further into the stratosphere.
The benchmark price for all housing types in the GTA reached $ 1,208,000 last month, up 31% from the previous year. Vancouver’s pace of increase was less scorching at 17 percent, but the overall figure was higher, at $ 1,230,200, across the region. Both figures are approaching double the national average.
In both markets, single-family homes under $ 1 million are becoming unknown, which is why Vancouver-based think tank Generation Squeeze used that figure as a benchmark for a proposal that raised eyebrows this week: a new tax on homes worth $ 1 million and above.
The group is proposing a progressive tax that would apply to homes valued over $ 1 million and gradually become larger for homes valued at $ 3 million and over. The group proposing it is based at the University of British Columbia, but has received some funding from Canada’s federal housing agency, Canada Mortgage and Housing Corporation.
Although the tax is calculated annually, it would be deferred until the home is sold, so it would work the same as a land transfer tax that many provinces and municipalities already levy.
Paul Kershaw, a professor at the University of British Columbia and one of the founders of the group, says more than 90 percent of Canadians would not pay a single penny in tax since it would only apply to those that sit at the very top of the real estate ladder, most of which are sitting on huge unexpected gains from currently tax-free earnings.
While policymakers spend a lot of time talking about how they want to crack down on various offshore tax shelters, “we have a property tax shelter that motivates us to bank on rising house prices to earn wealth. “he said in an interview. “It’s time to protect real shelters, not tax shelters.”
Starting at 0.2% on homes valued at $ 1million and sliding to over 1% on homes valued over $ 3million, Kershaw believes it could pay off about $ 5 billion a year – funds that could be used to support the goal – rentals built and other initiatives designed to discourage speculation. Only the portion of a home’s value above a threshold would be taxed at that level, so on a $ 1.2 million home, tax would apply to $ 200,000 of the value.
“If you have a $ 1.2 million home, we’re talking about $ 400 more per year, and you wouldn’t need to pay up front the sale,” he said. A $ 2 million home – enough to rank an owner among the richest two percent in the country, in terms of real estate, he notes – would incur a tax of around $ 3,500 a year.
Even at the high end, a home worth over $ 3 million would incur an annual tax of around $ 13,500. That’s roughly the same amount a person making $ 60,000 a year with their salary would pay, Kershaw notes, which is why the tax bill is “a very small number but a bigger political signal,” he said. he declared.
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However, not everyone is convinced that the plan would be effective or even achievable. Ryerson University professor Murtaza Haider is among those who think the Canadian real estate market is out of whack and needs fixing, but he doesn’t think adding new taxes on sellers either the best solution.
“It is one of those measures that we call demand reduction measures,” he said in an interview. He says the most effective way to address the market imbalance is not to try to suppress demand by making buying more difficult, but rather to build more homes to meet that need.
“If we don’t tackle the real problem, which is building new housing, and we continue to build or under-build, as we have done for the past five decades, then the problem will remain,” did he declare.
This ties in with the view of those who sell homes, who have long complained that Canada is not building enough homes to keep up with population growth.
“History has shown that demand-side policies, such as additional taxation on primary residences, foreign buyers and small investors, have not been long-term, sustainable solutions to housing affordability. or to supply constraints, ”said Jason Mercer, chief market analyst for the Toronto Real Estate Board. “The only sustainable way to moderate price growth will be to increase supply.”
Haider notes that while the measure clearly tries to target the overheated Toronto and Vancouver markets, it would do little to help fix affordability in parts of the country where million dollar homes are unknown. . “The unintended consequences of such taxes and measures could be significant,” he said.
In last year’s federal election, the ruling Liberals pitched a number of ideas to make housing affordable, but none of them represented anything similar to the tax that the group of Kershaw proposes.
In a statement to the Canadian Press this week, the government made it clear that it still has no appetite for new homeowner taxes. “The federal government has made it clear on several occasions that it will not introduce a tax on the equity of principal residences in Canada,” the Department of Housing said.