The housing crisis in Canada is getting desperate. Prices for purchases and rentals are skyrocketing across the country and it’s becoming a hot political issue. Young people and citizens on fixed incomes are particularly vulnerable as the cost of living rises. As counterintuitive as it may sound, the Liberal government may be considering imposing an equity tax on primary residences to deal with housing costs.
It’s distressing enough to imagine the Liberals would even consider listening to Kershaw, and it’s terrifying to think they may implement some of his suggestions.
The Canadian Mortgage and Housing Corporation (CMHC) is a Crown corporation tasked with managing Canada’s housing market and home financing programs. It’s ostensibly an arm’s-length organization from the government, but the entire board is directly appointed by the government. The CMHC has repeatedly flirted with the notion of imposing a home equity tax on primary residences in the last few years. Every time it hints at supporting such a tax, it quickly retreats in the face of a public backlash. The organization just can’t seem to give up on the idea, however.
Most people have to save and scrimp for years to put together a down payment and qualify to make the leap into home ownership. They then invest in maintenance and improvements on the home along with personal sweat equity. If their home gains equity, it was earned. The language calling it a windfall and implying that equity grows as homeowners sleep and watch TV is not only grossly incorrect, but also insulting. Is this the language Kershaw used in his presentation to the Liberal cabinet?
Kershaw’s group feels if homes were taxed, it would somehow put downward pressure on home prices. Equity taxes may chill home investment, but that would only disincentivize the construction of new homes thus leading to less supply. Current homeowners would feel less inclined to sell or downsize their homes as the equity tax would hit them which, again, would crunch supply. The economic reasoning of Kershaw’s report is bizarre and would only make the home supply even tighter.
The Liberal government is desperate for a new source of funding. The largest capital pool in the country resides in the homes owned by private citizens. It is a resource plum that sits just temptingly out of reach of the government’s grasp. Even a small equity tax could amount to billions of dollars and could balance the budget. However, the backlash from homeowners would be immediate and harsh.
Does the Liberal government think if they redistributed the funds taken with an equity tax, they could ease pressures on people trying to find housing?
Do they think they could win enough political support from renters and young people by playing Robin Hood with a home equity tax to offset the loss of support from existing homeowners?
Many people are relying on their home equity to shore up their retirement. How much of a tax bite from that equity could they afford?
Surely the Liberals can’t believe Kershaw’s postulations that a home equity tax would actually somehow reduce the cost of housing, can they?
Housing will certainly be a top issue in the next election, whenever that may be. The party that can confidently express a plan to address the issue will be rewarded by the electorate.
If the Liberals want to find reasonable solutions to the challenge, they are barking up the wrong tree by inviting activists like Kershaw to speak to them. Taxing the equity of primary residences is a bad idea that the Liberals just can’t seem to let go of.
