From bad to crazy

Canada has a national Underused Home Tax (UHT). There’s also a federal anti-flipping tax. BC has a widespread speculation tax. Vancouver has a withering vacant home tax. And as of next week, the province has a new flipping tax.

Toronto’s empty house tax moves to a blistering 3% of assessed value in a few days – three grand a month on an average downtown condo. There are VHTs now in the GTA, Hamilton and Ottawa with other cities mulling it. Toronto has its own land transfer tax, too, doubling the hit. That’s an extra $150,000 on a three-million pile.

Foreign buyer taxes remain in place and range as high as 20% of the purchase price. But they’re irrelevant in most of the country, since a national ban is here for years yet to come. Of course property taxes are exploding. In the Niagara region of southern Ontario increases of 14% are coming. Atop 9% last year. Meanwhile the development charge in Toronto on a two-bedroom condo as hit the $80,000 mark.

All of this taxing is the way our political class deals with the result of bad policy enacted by… the political class.

It was the genesis of yesterday’s discussion about the financialization of residential real estate. Every year more of our national GDP comes from selling each other houses. And each year housing costs rise. An argument this blog made was that because only one asset class – housing – has been removed from capital gains taxes, it’s been the target of over-investment, speculation and public lust. The result has been $2 million Vancouver Specials and Toronto condos at $1,400 a foot. Now an entire generation is being disenfranchised, forever shut out of ownership.

Yes, by bad policy. And thus we have a complex web of conflicting, uncoordinated, kneejerk, badly-understood policies that make everything worse, elevate conflict and fail to reduce prices. If we just treated houses like ETFs or real estate investment trusts, the web would be unneeded. Life simpler. Homes cheaper.

A good example of tax crazness is what BC’s about to do.

The new anti-flip law will tax folks who buy and sell within two years. Death, divorce, bankruptcy, natural disaster or job loss (but not if you quit) would allow a sale without the tax. But if you bought, then discover the neighbours run a meth lab or host biker gang BBQs, or hate the hood, or realize you couldn’t afford the place, or have triplets unexpectedly – tough. Sell and hand over 20% of any gains in tax during the first year, then on a sliding scale for another. In fact anyone who bought back in 2023 and wants to sell in 2025 would be caught in the web.

The intent of the tax is to dampen the speculation caused by making housing profits tax free and thereby encouraging that speculation. Finance Minister Katrine Conroy says this is “taking action against investors who use the housing market as a stock market,” Housing Minister Ravi Kahlon adds: “Homes are meant to be lived in by people in our communities, not used for speculation.”

Well, tell that to the CRA and the federal government. Residential real estate is Canada’s ultimate and ubiquitous generator of speculation. The PR exemption has turned homes into financial strategies, given us $2.2 trillion in home loan debt, created a housing affordability crisis and now engendered generational warfare.

And junk like BC’s anti-flip tax just makes it worse.

The realtors (no angels, but more practical) point out that people who bought one or two years ago – and need to sell – may not list now for fear of the tax clicking in on closing. Fewer listings, they say, may well raise prices by limiting supply. The province admits only 4,000 properties (at best) may be hit by this next year, while the BC housing industry figures the new levy will drop overall sales by about 2%.

“Because the government has now implemented a disincentive to sell within a two-year period after purchasing, there will be some potential sellers that are prompted to delay listing, resulting in a lower level of listings’ inventory than without the tax,” it says “As a result, home prices may increase with the flipping tax compared to a no-tax baseline.”

Meanwhile many people who value freedom and personal liberties are bothered when local, provincial and federal politicians tell them what they can or cannot do with owned real estate. Cottages and cabins, held for decades, can fall under the scope of a spec tax. Secondary properties used frequently in a city are deemed to be ‘vacant’ because they are not principal residences. And now government seeks to prevent people from listing and selling – until it deems the moment is correct.

It underscores the fact Canadians do not have enshrined property rights. We are wide open to the capricious actions of the ill-informed whom we have elected.

Let’s just treat houses like the assets they are, consistent with all other assets. Nobody tells you when you can sell your RBC stock, how much you can own, who you can sell it to, or at what price.

Face it. The housing break is Faustian.

About the picture: “Rudi passed away at 7 years old of DCM last Christmas.  We had 2 amazing and beautiful years together,” writes KV. “He didn’t believe in limitations.  He often did jumps and acrobatic maneuvers that would make my heart stop. People always commented on how beautiful he was. He loved driving with me, and watched every move I made, like he was going to drive my beetle one day. I will Always love and miss Rudi.  He was my very bestest friend ever. Thank you Garth.”

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Source: https://www.greaterfool.ca/2024/12/23/from-bad-to-crazy/