One solution to surging home prices in Canada may be to implement an annual progressive surtax on homes valued at $1 million or more, a new report suggests.
The report, authored by Vancouver-based advocacy group Generation Squeeze and backed by the Canada Mortgage and Housing Corporation (CMHC), said the surtax should be capped at one per cent and be deferred to when the home is sold or inherited to limit risks to homeowners with limited income.
The report also suggests any interest rate charged on the deferred tax payments should be comparable to market rates.
“The proposed annual surtax will reduce the tax shelter that incentivizes Canadians to rely more on rising home prices as a strategy for savings and wealth accumulation than they otherwise would,” said the report, which was released on Wednesday.
“Reducing the tax shelter will disrupt feedback loops that fuel rising home prices.”
The $1 million threshold was chosen because the tax would then only apply to nine per cent of households in the country, including 13 per cent of Ontario homes and 21 per cent of British Columbia households, according to the report.
Depending on how the surtax rates are structured, the report estimated it could generate between $4.54 billion to nearly $6 billion in revenue, which could then be fed into other housing initiatives that target renters, for example.
The affordability crisis has worsened in Canada throughout the pandemic and is not expected to ease anytime soon, with RBC Economics calling the outlook for Canadian homebuyers “grim” in a Dec. 20 report as rising interest rates further reduce buying power.
In its latest fiscal update, the federal government said any new housing measures would be unveiled in the upcoming spring budget. So far, the Generation Squeeze-authored report said government initiatives have “proven insufficient to restore affordability.”
The report also recommends aligning the Canada Infrastructure Bank (CIB) with CMHC to incentivize lending to purpose-built rental construction. That would simultaneously help the CIB meet its investment targets and supplement the National Housing Strategy to scale up affordable housing to sufficient levels.
Despite these suggestions though, the report acknowledged “there is no ‘silver bullet’ to restore housing affordability. Rather, we need a ‘silver buckshot’ approach that addresses the full range of policy tools that shape Canada’s housing system.”