Taxing Home Equity Would Be ‘Political Suicide,’ Says Real Estate Group CEO

A sold sign is shown on the lawn of a residential property on the west island of Montreal in this file photo. Graham Hughes/The Canadian Press

Taxing home equity would bring disastrous political consequences for the party in power, the CEO of the Canadian Real Estate Association (CREA) told the Senate finance committee on Dec. 6.

“It would be political suicide for anyone to suggest this,” said CREA CEO Michael Bourque, according to Blacklock’s Reporter.

“Those who do suggest it would probably preside at your political funeral.”

Even though the Liberal government said it is not interested in taxing the sale of primary residences, Canada’s housing agency recently funded a report that explored the topic.

The Canada Mortgage and Housing Corporation (CHMC) paid $450,000 to Generation Squeeze which suggested targeting housing wealth in its report released in January 2022.

Bourque told the committee many Canadians rely on equity paid on their residence for income after retirement.

“Most Canadians have assumptions about their retirement based on the value of their home,” said Bourque. “It’s why they can afford to sell their home and move into an old folks’ home or into some kind of care.”

Capping Home Prices

Generation Squeeze is led by professor Paul Kershaw of the University of British Columbia, who also testified before the Senate committee on Dec. 6.

He told senators the government should put a cap on home prices to deal with the issue of affordability.

“We need to recommit as a society and have our Government of Canada say, ‘Going forward our goal for the housing system is that home prices don’t rise any longer,’” Kershaw said.

The report he produced for CMHC, titled “Wealth And The Problems Of Housing Inequity Across Generations,” proposed imposing a $5.8 billion annual tax on home equity.

He said it is unjust that a widow in Fredericton would see her property take value slower than a widow in Vancouver.

“Think about the widow in Fredericton who is on a modest income and her home has not gone up very much in value,” said Kershaw. “Then think about the same income for a widow in Vancouver.”

Kershaw called for a “strident strategy” to allow home prices to stall indefinitely or fall moderately to let earnings catch up.

Government Stimulus

Some of the stimulus provided by the federal government during the pandemic ended up in real estate, which contributed to an increase in demand and record home prices seen in the past months.

Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI), told the finance committee in January that some of the billions the government provided to banks to offer mortgage relief to Canadians ended up in real estate investments.

“Has there been credit provided to folks who seek to invest in housing, maybe either buy a second home or buy a home to flip? The honest answer is yes, the banks have provided credit to those homebuyers, investors,” he said.

The excess demand has contributed to rising inflation, which led to a tightening response from the central bank leading to higher mortgage rates.

This has caused a slowdown in the housing market and a drop in prices.

CREA said in November that the national average price posted a 9.9 percent year-over-year decline in October.

But CREA senior economist Shaun Cathcart noted the slow down could be winding up with national home sales moving up 1.3 percent month-over-month in October.

“Sales actually popped up from September to October, and the decline in prices on a month-to-month basis got smaller for the fourth month in a row,” said Cathcart in a statement.

Different financial institutions have predicted in recent months a forthcoming sharp drop in home prices.

TD Bank forecast a drop in prices between 20 and  25 percent of the 2022 peak, and Desjardins also predicts a 25 percent drop off the peak of last February.