A new study looking to solve Canada’s housing affordability crisis has struck on a bold solution — tax all homes over $1 million.
According to the Generation Squeeze report, which received funding from CMHC’s National Housing Strategy's Solutions Labs Program, the surtax would start at 0.2 per cent of the value of homes worth between $1 million and $1.5 million, and rise to one per cent for homes valued at over $2 million.
The plan is meant to stall a scorching hot real estate market. It works out to an annual surtax of between roughly $400 for homes in the $1.2-million range to about $1,000 for homes valued at $1.5 million.
Together, the revenue would bring in $5 billion every year, money the report says could then be plowed back into affordable and co-op housing — and in the end would advance the CMHC 2030 target that “everyone in Canada has a home that they can afford and that meets their needs.”
The report’s author, Paul Kershaw, says he wasn’t surprised at the huge volume of hate mail he has received in response to the proposals.
When prices get out of reach for most Canadians, Kershaw says it’s easy to blame that foreign buyer, that shady real estate agent, that NIMBY or that bureaucrat reducing supply.
“All of those matter, but we need to realize that everyday Canadians are implicated,” he says, likening the status quo to a tax shelter for homeowners.
“Canada is kind of culturally addicted to high and rising home prices.”
But just as government has implemented a price on carbon to tackle climate change, it can put a price on rising housing equity to get the affordability crisis under control, he says.
Canada-wide, the surtax would affect nine per cent of homeowners, while in B.C. that proportion rises to 21 per cent.
That upper strata of homeowners as well as those who have used home ownership as an investment tool are the targets of the surtax, says Kershaw, founder of Generation Squeeze and a professor in UBC’s School of Population and Public Health.
Like a reverse mortgage program, the tax would be deferrable and wouldn’t be paid until the home is sold. That way people who are property-rich and cash-poor wouldn’t be left unable to pay.
Kershaw says similar tax regimes on high-value properties have been rolled out in Singapore as well as several European countries like Denmark, Finland, Germany and Ireland.
The recommendations aim to directly tackle the rising inequity driven by Canada’s housing market. But the report concedes deep divisions over how to solve the problem.
More than 70 housing sector leaders took part in the solutions lab that ultimately led to the report. And while not all of them saw it through to the end, they did mirror the divide in public opinion, according to Kershaw.
An April 2021 poll from Angus Reid found 60 per cent of Canadians want to see home prices fall, while 40 per cent wanted to see home prices escalate.
Acknowledging the plan as “provocative, and potentially uncomfortable,” the report comes a day after the assessed value of homes in British Columbia were updated.
The new data from BC Assessment shows major increases across the Fraser Valley — Chilliwack saw the average value of a single-detached home surge 40 per cent; in Abbotsford, such homes went up by 39 per cent and in Langley by 38 per cent.
“It is a type of suburban sprawl but not like we know it,” says Andy Yan, director of SFU’s City Program. “This is far deep into the Fraser Valley.”
Consider the municipality of Hope, where at 150 kilometres from Vancouver’s urban core, the price of a single-detached home skyrocketed 45 per cent this year.
“This is going to have some big impacts on the discussions around climate policy, in terms of transportation,” adds Yan.
What does that mean for Metro Vancouver’s regional growth strategy? Where should people live in the face of rising populations and pressures from climate change?
Those are the multi-billion-dollar questions, says Yan.
In Vancouver, the value of a single-family home averages $2 million, after climbing 16 per cent over the past year. Now, says Yan, most single-detached homes in Metro Vancouver are worth over $1 million.
If the surtax on all those $1-million-plus homes is applied in a fair way, Yan says there would have to be some mechanism to ensure the money collected made it back to the same neighbourhoods, helping to create denser, more affordable places to live.
But that presents another dilemma: the more affordable housing you bankroll in an expensive neighbourhood, the fewer units you get in the end.
“For the millions of dollars I’d collect in Vancouver for affordable housing, I could only put up say 100 units,” says Yan as an example. “But if I could put up 500 units somewhere else, wouldn’t I better be serving the population?”
On the other hand, if you don’t target skyrocketing housing prices in cities like Toronto and Vancouver then you never solve the problem.
Far from a silver bullet to fix the housing crisis, Kershaw describes the $1-million surtax as part of a “silver buckshot” approach.
The report also recommends scaling up lending to green co-ops and affordable purpose-built rental supply so that construction projects promote both a push towards affordable housing and net-zero carbon emissions.
“Anecdotal estimates,” says the report, point to a $200-billion gap in funding required for Canada’s National Housing Strategy to scale up affordable housing to “sufficient levels.”
Another necessity, says the report, is to create a Perpetual Affordable Housing Bond to transition low-density housing into a pool of permanently affordable rental units.
Finally, the Generation Squeeze recommendations call on Statistics Canada to report annually on how monetary policy is growing the gap between home prices and earnings.
“This is about culture change,” says Kershaw. “Right now, we’re putting these recommendations out in hopes we can grow enough public support for politicians to act courageously.”