This year marks half a century since the Government of Canada created the home ownership tax shelter. This shelter exempts increases in the value of principal residences from taxation. No other wealth windfall enjoys such favourable tax treatment.
Just like offshore tax shelters motivate moving money out of Canada to preserve assets, the home ownership tax shelter motivates Canadians to bank on rising home prices to gain wealth. Treating home ownership as an investment strategy means many regular Canadians benefit when home prices rise beyond local earnings – despite these same prices crushing affordability for younger generations, newcomers of any age, and older renters. In the mid-70s, it took the typical young person 5 years of full-time work to save a 20% down payment on an average priced home. Now it takes 17 years.
Polling by Research Co. for Generation Squeeze shows that a majority of Canadians are now ready for governments to soften the sharpest edges of the home ownership tax shelter. Canadians are just as likely to blame this tax shelter for decreasing housing affordability as they are to blame “unethical behaviour by real estate agents,” “developers building the wrong kind of supply,” and “criminal activity (such as money laundering).”
This poll shows many Canadians would support politicians to act courageously to reduce the home ownership tax shelter, because this policy sustains housing unaffordability and wealth inequality. We’ve seen home prices stall as a result of the six interest rate hikes recently made by the Bank of Canada. But prices have stalled at unsustainably high levels, leaving a massive gap between home prices and earnings. More needs to be done.”
— Dr. Paul Kershaw, policy professor in the UBC School of Population Health and Founder of Generation Squeeze
Since Ottawa created the home ownership tax shelter in 1972, home values have increased hundreds of thousands of dollars across Canada – more so in BC and Ontario. One result is that many owners have gained substantial housing wealth, largely tax-free. This is especially so for the ~10% who own homes valued above $1 million. Owners don’t need sell their homes to access tax-sheltered wealth gains, because home equity lines of credit are now common in the finance industry.
Finance Canada reports that the home ownership tax shelter costs Canadians $10 billion annually at the federal level. It costs provinces another ~$5 billion. This makes the home ownership tax shelter by far the largest housing subsidy offered in Canada. At a time when politicians are decrying Canada’s housing affordability crisis, it may come as a surprise that we chose to subsidize so generously many of the most securely housed Canadians.
So far, federal and provincial politicians keen to tackle housing unaffordability have steered clear of fixing the home ownership tax shelter because they fear any change would be unpopular. Our poll results show just the opposite: 62% of Canadians support “implementing a modest surtax paid by Canadians who own homes valued above $1 million.”
This includes a majority among voters for each of the big three political parties: Conservatives (55%); Liberals (63%); and NDP (64%).
Support for a modest surtax on home above $1 million is especially high in Atlantic Canada (73%), Saskatchewan and Manitoba (72%), Alberta (68%), and Quebec (66%) where typical home prices are below the national average, and relatively few households own million-dollar homes.
A majority of Canadians (55%) agree that “the rise in housing wealth inequality is unfair to retirees in the Prairies and Atlantic Canada. They pay taxes on their pension income just like the retiree does in Vancouver or Toronto, but don’t gain the large amounts of home equity that many retirees in Vancouver and Toronto do. By failing to tax the wealth gained by owners in Vancouver and Toronto, we expect retirees in the Prairies and Atlantic Canada to pay more than their faire share of taxes.”
In BC and Ontario, where roughly 25% of households own homes valued above $1 million, one in two respondents supports the surtax.
Perhaps most interesting is the finding that 57% of million-dollar home owners – the only people who would have to pay more – support the proposed levy if it is described as a “modest price on housing inequity.” Their support drops to 15% when it is described as a “surtax.”
A modest annual price on housing inequity would raise approximately $5 billion per year. Many poll respondents indicated their support for this proposal would increase if the tax change:
- Pays for income tax cuts for middle- and lower-earners (43%)
- Pays for more affordable housing (40%)
- Pays for more medical care, long-term care and pharmacare (39%) or child care (32%)
- Helps slow home price increases, so earnings have a chance to catch up (38%)
- Reduces wealth inequality (37%)
- Reduces inequality between owners and renters (32%)
- Reduces wealth inequality between homeowners in high value markets like Vancouver and Toronto, and homeowners in places where prices are not rising as quickly like Atlantic Canada, Quebec, and the Prairies (30%).
Raw poll data, more details, and data visualizations can be found here. The poll was conducted among 1,010 Canadian adults, and the margin of error for the results is +/- 3.1 %age points, 19 times out of 20.