Macleans article discusses taxation of windfall gains in housing
Steve Pomeroy
Executive Advisor and Industry professor at Canadian Housing Evidence Collaborative (CHEC) McMaster University
In this month's issue of Macleans, Paul Kershaw, Director of the UBC Generation Squeeze discusses a proposal, generated through a Solutions Lab led by UBC to tax the windfall gain of high home prices.
Coincidentally, in the Globe Aug 5th, Eric Reguly highlighted the record setting profits of oil and energy firms. “He opines that these eyepopping prices for energy are not right. Profits need windfall taxes”
If the topic of Reguly’s piece was home prices, the same phenomenon and remedy would apply: the eyepopping increase in prices of homes are similarly creating windfall gains for existing homeowners. And like the big oil companies, these excess profits are a windfall gain driven not by their efforts and ingenuity but arising as they sleep in their beds at night. By the same token, it is neither churlish nor outrageous to demand a windfall tax on excessive home prices.?????????????????????????????????????.
Just like taxing excess profits on oil, there is a sound case to be made for a similar windfall gains tax on excessive home price increases, gained but not earned. The August edition of Macleans describes a proposal to do just that – impose a modest surcharge on homes valued for over $1 million (initially 0.2% rising to a full 1% above $2 million). This would impact very few households as roughly 12% of homes are valued over $1 million, but could raise up to $5 billion to be directed to increased investments through the National Housing Strategy to build truly affordable housing.?
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When this idea was publicized early this year, there was public outrage and strong political reaction - to a 1% tax. By contrast, when CMHC released a report in late June calling for a massive increase in new housing construction, their analysis determined that to return home ownership affordability to the more affordable levels present in 2003, would require a reduction in home prices of 35%-40% from their 2021 levels. Yet there was no outrage, nor political reaction.
Clearly the notion of taxing windfall gains is a lightening rod for outrage, The much more dramatic oversupply solution generated no such response, perhaps because it was buried in a table and not highlighted (and more likely because its a completely unrealistic projection).
I suspect most homeowners, if asked, would choose a 1% tax over a 35% reduction in their equity, even if they didn't do anything to earn it.
Mental Health Advocate & Consultant | Leading Mental Health Initiatives
2 个月Steve, Always enjoy seeing your updates!
Vice President Strategic Partnerships & Community Relations Habitat for Humanity - Halton Mississauga Dufferin
2 年Excited to be joining Proffessor Steve Pomeroy"s Class through McMaster's CHEC Housing Policy.
Head of Financial Lines for HDI Global Specialty SE
2 年Windfall tax gains seem attractive, but the amounts you propose look rather light in my view. Has there been any consideration to add a proper taxation policy to the house flippers/investors who designate an investment as a principal residence? or what about a declining scale taxation system, where if you live in your house for 5 years, there would be no gains tax, but if you stayed for 1.5 years, you would be taxed at X% for the appreciation gain? Do the feds even track principal residences with efficiency? Obviously, the current tax treatment was intended for individuals that actually lived in their homes and for a reasonable time. It seems to me that house flippers and foreign investors have taken advantage of our system for too long.
Facilities Coordinator
2 年This is one of many actions the Federal & Provincial governments can take to bring some sanity back to the housing market.
Director, Facilities Management at Centretown Citizens Ottawa Corporation * Board Chair and President Options Housing, Vice President Daybreak Housing*
2 年Very concerning as the folks clawing their way into the market are the ones getting hurt again. I'm one of the lucky folks who has seen growth and diminution in my phantom equity, still ahead of the game. However if someone bought at the height of the market then they have a real problem. In Q2 2021 the standard banks issued around 123,500 insured mortgages around $42 Bn or average of $340k. With 10% down that means an average purchase price of $377k. If we adopt a price fall since the height of the market of 15% That means an average loss of the hard saved deposit of $37k and loss of "new equity" of $19k leaving the deal underwater by that amount. Apart from the unhappiness of these hard pushed buyers more importantly that means they won't be able to move without crystalizing a loss effectively "parking" those homes out of sales inventory for the foreseeable future. This then drives a coach and horses through the current "one trick pony" solution of "increase supply ! I think 1% on a true windfall (after indexation and costs) is not by contrast all that scary. Maybe we could explore beefing that up to offset lower purchase land transfer tax at lower value thresholds to help first time purchasers ?