Various proposals are looking at taxing price uplifts in primary residences – is that a step too far?
Last night, the City of Vancouver voted to approve the new Housing Vancouver strategy, which includes – among many other measures – a promise to look at increased taxation on some real estate sales and the closure of loopholes used to avoid such taxes.
It’s a popular move, as we live in a city – indeed, a region – that is deeply divided between the haves and have-nots. It’s true of many major cities, of course, but it is especially true in Metro Vancouver when it comes to homeownership.
The 63.7% of local households that own their home are, by and large, sitting all warm and cozy, their properties worth huge amounts more than a few years ago. And those homeowners didn’t do anything to earn that money – no overtime or second job required – values simply rose, due to blistering demand and low supply. Indeed, owning a home in Metro Vancouver generally pays a lot more than working in the region.
On the flip side, of the one-third-plus of people who rent – and around half in Vancouver proper – many are left out in the cold, unable to get into homeownership (unless they are fortunate enough to have family in the previous category willing to help out). These folk are forced to rent long-term, never building up equity, always paying off someone else’s mortgage. What’s more, rents are also skyrocketing, which means saving for retirement is impossible for many, and serious poverty is a risk, if not already a reality.
Taxing land-value uplift
That’s why the BC Government and Service Employees’ Union (BCGEU) wants taxation to go even further than the City is considering. The union last week released a plan outlining suggestions to improve housing affordability and find funding for transit improvements, which include, “Implementing a provincial land value capture tax to curb speculation and capture a portion of the value created in real estate by infrastructure projects paid for by the public.” Which is to say that if your home goes up in value because of local transit or other publicly funded infrastructure improvements, you’ll be taxed on that value uplift when you sell.
But there are huge problems with this approach. For one thing, it would be virtually impossible to assess such an increase, or the portion of the increase that is attributable to local infrastructure improvements. What constitutes an improvement? If there’s a new bus stop outside your building, would you be liable for additional tax upon selling?
Moreover, it’s a dangerous policy precedent to set. Why this tax, and not a tax on the value-gain of, for example, high-priced shares sold after a company is successful? Why take a socialist approach to some capital gains but not others? It could be a slippery slope.
Taxing home-value gains
The founder of Vancouver affordability advocacy group Generation Squeeze wants to take home-value taxation even further. Unlike BCGEU’s proposal, which is linked only to land-value uplift due to new infrastructure, Paul Kershaw advocates a tax on all home-value increases, in order to pay for better healthcare. In a Vancouver Sun column, he links decreasing levels of homeownership to rising levels of stress and mental illness among Canadians, and cites Canadians’ “below-average access to doctors, MRI and CT scans,” considering the amount Canada spends on healthcare.
While Kershaw has some very insightful points about housing and health outcomes, putting an additional tax burden on the average-Joe homeowner is not the answer. Taxing any value-gains would only discourage homeownership – or at the very least, make it more expensive. Considering homeownership is cited as the very thing that improves health outcomes, shouldn’t we be encouraging it? Such a tax burden would also cause many homeowners to hang onto their properties longer, likely opting instead to tap into their equity via financing or rent out their homes – thereby exacerbating our existing housing supply problem and denying even more would-be buyers the chance to get into the market. In fact, my guess is that the unintended outcome of such a tax would be lower homeownership and, following the same logic, worse health outcomes.
Taxing speculation and luxury homes
Discouraging speculation and property flipping is a perfectly fine intention, but we already have a tax for that – it’s called the Capital Gains Tax, and is applicable on the sale of all non-primary residences. And now the City is looking at adding a municipal speculation tax on top of that – say, if an investor flips a property within a year or two – and that money could go into public coffers. Further, the City’s new strategy is looking at increasing property transfer tax on luxury properties even more than the province already has, to tap the wealth of the super-rich.
But there’s a reason that there is currently an exemption from Capital Gains Tax on principal residences. Ordinary, non-speculating, hard-working homeowners have to be able to invest in their own homes and have their equity protected. For many, that equity makes up most of the funds they have to retire on. And let’s not forget, it’s easy for public officials and unions to propose such a measure, when they have a fixed government pensions to look forward to.
Rather than penalize homeowners, all levels of government must do all they can to encourage homeownership, lower barriers to entry, and ensure there is enough supply to support this. And for those who still cannot get into ownership, we need much, much more non-market social housing – and we need it now.