Home ownership is expensive and is slipping further out of reach for too many Canadians. Located within the Regional Municipality of Waterloo, Cambridge’s real estate market has increased dramatically over the last two years with the average cost of a residential property surpassing the $1 million mark in February 2022.
A report backed by Canada’s national housing agency released at the beginning of the year, aimed to tackle the existing housing crisis by calling for a home equity tax on houses valued at $1 million and more. A tax that would range from 0.2% for homes valued between $1 million to $1.5 million, and up to 1% on homes valued over $2 million, which would be calculated annually with the option of paying it each year or deferred until the sale of the home. Akin to a capital gains tax, this would affect seniors and middle-class families who have played by the rules and are relying on their homes as a financial nest egg for retirement or as a down payment for a bigger home if choosing to upsize as their families continue to grow throughout various life stages.
According to the report, such a tax would impact about 10% of Canadian homes and raise between $4.54 and $5.83 billion for government coffers, which the author says could be used to provide benefits to renters, such as “portable housing benefits” or investments in new green co-op and purpose-built rental units.
OREA CEO, Tim Hudak, published a statement in response to the proposed home equity tax and stated the following: “The Government of Canada should distance itself from this report and state that they have no interest in a new tax on home equity. It should also direct the CMHC to stick to its core mandate, focus on increasing housing supply and choice, and refrain from this kind of political activism.” Hudak then stated, “A new tax on homes will add yet another barrier to Canadians putting their home up for sale, further restricting housing supply.”
The Canadian Taxpayers Federation also criticized the report, arguing that higher taxes could have the opposite effect in addressing home prices. “They’ve got it backwards. Higher taxes won’t make homes less expensive, higher taxes make everything more expensive,” the group said.
So far in 2022, Cambridge’s average price of a residential property costs nearly $1 million. Cambridge is currently in an extremely hot real estate market due to its thriving economy and prime location along the Toronto-Waterloo transit corridor, therefore, the report’s claim that their proposal would only apply to the top 10% most valuable homes in Canada is vastly underestimated when referring to our local residents. Additionally, a home equity tax will likely disincentivize existing homeowners and older generations from selling their homes and thus stay in their homes for even longer and further restrict housing supply for newer generations and those looking to enter the real estate market.
If there’s a housing problem, then we need to build more homes and governments should be reducing the red tape and fees to build such homes. We are not going to tax our way into increasing real estate supply.