Two years ago, the federal and British Columbia governments struck an expert panel to examine B.C.’s overheated housing market. The goal was to drum up ideas to improve housing supply and affordability.
One might guess political leaders would be keen readers of a report on solutions for a housing market gone awry. And that this would be especially so, given the tornado that has torn through housing across Canada in the past year, as a buying mania hit a supply shortage and shot the Canadian Real Estate Association’s national average sale price 38 per cent higher.
Instead, the political reaction to the report – an immediate dismissal of the more controversial recommendations – is indicative of how tough it is to address the housing crunch.
The panel had six members: a senior business economist; the chief executive officer of a private real estate developer; the CEO of B.C.’s non-profit housing association; a tech industry executive; a credit union economist; and a former B.C. NDP finance minister, who served as chair. This was not a group of radicals, and the six were unanimous in their recommendations.
Some ideas were straightforward. The panel said the myriad rules that restrict new housing – “governing how much housing gets built, where it gets built and how quickly” – must be reconsidered. It also wants levels of government to work together, and urged for a redoubling of efforts to build affordable housing.
Two proposals, however, were too much. The panel cited the large tax breaks given to homeowners, such as B.C.’s homeowner grant, a partial property tax refund worth about $850-million a year, or the non-taxation of capital gains on the sale of principal residences, worth more than $6-billion a year nationally. The panel proposed a review of the capital gains rule, something a Royal Bank of Canada economist also suggested in late March – and called for the homeowner grant to be phased out, with the money invested in social housing.
B.C. Finance Minister Selina Robinson and federal Finance Minister Chrystia Freeland rejected the panel’s talk of the tax breaks within hours of the report’s release last week. The panel foresaw this. Sure, it is ever more difficult to rent in Canada. Yes, young people’s hope of owning a home grows dimmer by the day. But in a country where roughly two-thirds of households own their home, elected officials cater to those voters.
“Homeowners, who stand to benefit from both rising housing values and the tax advantages they are granted, also have considerable political influence,” the panel wrote. “Elected officials may be reluctant to take actions to significantly boost the supply and affordability of housing or change tax policies that favour incumbent homeowners because of the potential political backlash. This, in turn, is exacerbating housing shortages.”
The key here is not these large tax breaks. It is well known that such changes are a near political impossibility.
What is more important, and most worrisome, is how this episode reveals the challenge to making any real difference in the future of housing in Canada.
Political leaders talk about doing big things. B.C. put out a 30-point plan three years ago. Ottawa’s national housing plan is supposed to build 16,000 new affordable units a year over a decade. Sounds good – but it’s well below a peak of about 25,000 a year that were built a half-century ago.
Meanwhile, too many current homeowners don’t want to see their neighbourhoods change, and city halls are too often beholden to their interests. And so, a chronic shortage of housing – Scotiabank in May said Canada has the fewest homes, adjusted for population, of any Group of Seven country – keeps getting worse.
The panel clearly saw the political puzzle. One of the most interesting things in the report was the call to reduce the negative influence of city councils on housing. The panel, looking at B.C., said, “It falls on the provincial government, which is ultimately responsible for local governments, to enact many of our most impactful recommendations.”
Canada has a basic, long-term challenge: The population is growing; housing has not. Our political systems prevent more from being built. These are fundamental problems to address. There are plenty of good ideas out there, as the B.C. report makes clear. What’s lacking is the political courage to implement them.
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