Steve Pomeroy is head of housing policy research firm Focus Consulting Inc., Industry Professor at McMaster University’s Canadian Housing Evidence Collaborative and Senior Research Fellow at Carleton University’s Centre for Urban Research and Education.
Many energy companies reported near-record earnings in the second quarter, good fortune that critics argue is not a result of management skills, but of the war in Ukraine and a supply chain mismatched with demand.
Given that reality, it seems neither churlish nor outrageous to demand that big oil companies pay a windfall tax. Most consumers and taxpayers would likely not oppose taxing wealthy oil companies (although they might prefer reduced gas pump prices).
One could and should make the same case for home prices, especially when these increases make the affluent and older better off by making the younger and poorer worse off.
The massive increase in home prices and real estate values through the pandemic has exacerbated inequality, both based on age and tenure. Older owners and existing homeowners gain, while young renters are precluded from the benefits of ownership.
One option to help address this is to implement a windfall gain tax on excessive home price increases. But when a modest form of this idea was highlighted in a spring 2021 University of British Columbia (UBC) research report, all hell broke loose.
Homeowners were outraged. Conservative MP Pierre Poilievre accused the federal Liberals of planning an attack on sacrosanct non-taxation of capital gains on people’s homes, prompting the Minister of Housing Inclusion and Diversity, Ahmed Hussen, to immediately tweet “this government will never remove this tax exemption.”
Such a response may be good politics, but it’s bad policy. And it might not even be good politics, as concerns about affordability mount. Polling commissioned by Generation Squeeze, UBC-affiliated advocacy organization on intergenerational inequity, found that when presented as a surtax on windfall gains – rather than a tax on capital gains – two-thirds of Canadians support the concept of this surtax.
The proposal, developed in a UBC Generation Squeeze Solutions Lab, was to implement a modest windfall-gains tax on high-value homes (over $1-million). This would be levied annually, but could be designed to be deferred, with interest. This is estimated to impact only 12 per cent of all households and impose a relatively small tax. It begins with a tax of 0.2 per cent on values above $1-million, peaking at one per cent for homes valued at $2-million and above. The first $1-million would be tax-free. So a home worth $1.1-million would require a surtax of only $200; at $2-million, the surtax would be $10,000.
The resulting revenues – up to $5-billion per year – could be productively used to help address the undersupply of more affordable housing, woefully underfunded in the National Housing Strategy.
In addition to helping to address inequalities, generating annual revenues of up to $5-billion could help manage the shifting tide of housing supply. Over the past several years, the financial media, including these pages, have asserted that the primary cause of large price increases and housing unaffordability is a chronic shortfall in new housing supply.
A provincial task force called for 1.5 million new homes over the coming decade in Ontario. Nationally, the federal budget proposed a $4-billion Housing Accelerator Fund with the goal of building three million homes, or 300,000 per year.
As inflation concerns cause the Bank of Canada to raise interest rates, the price trend has suddenly reversed, and headlines now speak of home sales and prices plummeting. Slower sales result in fewer housing starts, precisely the opposite of what these governments prescribed as critical.
So how can governments manage this dilemma?
If the market is reluctant to build and address the asserted chronic shortage of new homes, then public policy must intervene. Rather than trying to force the industry to build unprofitable, more affordable housing, there is a need to fill this supply void with publicly funded social housing at prices accessible to low-income, financially stressed households.
Funding this new public supply from a windfall tax on sales of high-priced homes would prevent governments from running up a deficit, thereby exacerbating inflation. This would also help address the inequality that is hurting young families.
As with revenues reported by big oil companies, the excess profits from the eye-popping increase in prices of homes are driven not by homeowners’ efforts and ingenuity but arising as they sleep in their beds at night.
So similar to the oil argument, it is neither churlish nor outrageous to demand a windfall tax on real estate gains.
Editor’s note: An earlier version of this article contained incorrect information about a proposed windfall-gains tax on high-value homes.
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