Carl Mortished is a Canadian financial journalist based in London.
Home ownership is probably the most powerful political totem among voters in free-market and democratic countries. Politicians mess with it at their peril, but we are coming to a wealth and demographic pinch point where even conservative lawmakers can contemplate mining the domestic real estate gold mine.
For governments, our lovely homes are mostly dead capital – money locked away in a pile of bricks and timber on overvalued land. It's a hoard, money that is desperately needed to pay for schools, hospitals, care for seniors. But politicians dare not touch it. Owning a home is an aspiration for young families, then it's your social status (how big and in what neighbourhood?) and your personal financial security and, finally, it's a gift to your children.
Therein lies the problem, because the nation's young people cannot wait for probate; they need the money now, and, more to the point, older people are becoming a burden. The number of Canadian seniors now exceeds that of the nation's children and, according to research by CIBC, within a decade, seniors will represent more than a fifth of the population. Caring for the elderly is becoming ruinously expensive; the cost is increasingly borne by the younger generation – about $33-billion in out-of-pocket expenses and time away from work, CIBC says.
In Britain, the cost of elder care is a burgeoning social and financial drama with frequent tabloid horror stories of aging parents left in filth in poorly staffed care homes. But the state has no spare cash to pay for more home help, which can cost up to £1,000 ($1,761) a week.
Theresa May's Conservative government published its election manifesto this week, and its big welfare budget idea is to grab the equity in the homes of people who cannot afford their own care. The state will pay for those without the money, but will recoup the expense by selling the person's home after they die. The proceeds above £100,000 will be allocated to repay the government for the cost of care. It's a retrospective death tax on the capital of a person's estate, and for most people, a home is their only capital.
This is a huge step for British Conservatives, for whom wealth taxes are anathema. Capital gains are mostly taxed at a fairly lowly rate of 20 per cent or less, and people's homes are exempt. The value of the average home in England is £233,000 but in London, it is twice that amount. For a parent who gives his home to his children, estate taxes don't kick in until the value well exceeds £400,000.
The middle classes in affluent market economies in the Western World have got used to the idea that, even if you can't take it with you, at least you can stop the government from taking more than a nibble. Most of that wealth is in real estate; the accumulation of wealth in homes has become vast. According to Savills, the realtors, the total British housing stock is now worth more than £6-trillion, or $10.5-trillion, four times the country's GDP. Rapid increases in the value of land, particularly in the crowded urbanized areas of the Southeast, have added £1.5-trillion to the value of the housing stock in just three years. It's a function of low interest rates, tight planning controls and lack of government investment in the housing market. The beneficiaries are mostly seniors, and the victims are those who cannot afford a home, mostly the young.
In Canada's more affluent cities, such as Toronto and Vancouver, young families struggle to pay rent, and their dreams of living among leafy streets, immaculate lawns and flower gardens are soon dashed by market reality. That is, until the old folks finally quit the family homestead for good.
The generation that now needs nursing care at home has lived through successive home price booms and stock market busts. Cheap money and meagre bond yields have only encouraged an obsession with the financial security of owning real estate. It is the only wealth most people trust, and it is the asset that absorbs most of our spare cash, whether in mortgage payments or maintenance.
The scale of the trillion-dollar treasure trove has now become so great that no government can turn a blind eye to the dead money that lines our streets and shores up the walls and roof of our home. It's simply too tempting for the taxman to refrain from dipping into that pot. The government needs only a good excuse. The cost of caring for asset-rich but cash-poor seniors is the political weapon that will break the lock on home equity for good.
Want to interact with other informed Canadians and Globe journalists? Join our exclusive Globe and Mail subscribers Facebook group.