New York Times
Home Prices in Canada Strain Affluent Budgets Even as Market Cools
By Ian Austen Oct. 8, 2022 Vjosa Isai contributed research.
Excerpts:
HAMILTON, Ontario — Even with a budget of 1 million Canadian dollars, Ritu Choudhary and Nippun Goyal, a newly married couple living in Toronto, discovered that buying a house there would be impossible.
Canada’s housing costs are already among the highest in the world, driven, in part, by robust real estate markets in its largest cities, like Toronto and Vancouver, that have a global appeal.
But costs have also grown steeper in smaller cities, like Hamilton (50 miles from Toronto), the country’s steel making center, which once promised affordability, but is now the fifth-least affordable place in North America for housing, according to Oxford Economics, a consulting and forecasting firm based in Britain.
Canada’s spiraling house prices have long been led by feverish price gains in Toronto, where the detached house price, adjusted for buying patterns, now sits at just under 1.6 million Canadian dollars, and in Vancouver, British Columbia, where it is at about 1.9 million dollars.
An analysis by the Canada Mortgage and Housing Corporation, the government-owned mortgage insurer, found that prices surged near Toronto and Vancouver “partly owing to much higher international migration” between 2015 and 2019. For the Toronto area, before Covid swept the country in 2020, about 125,000 immigrants arrived each year into a market that was building about 33,000 new houses annually.
Another factor contributing to housing price increases is suburban sprawl. As governments attempt to restrict the building of single-family homes in cities — an effort to combat climate change by promoting development that reduces dependency on cars — Canadian families who want detached homes are going farther outside cities to find them.
Once looked down upon by many Torontonians, Hamilton’s charms became more apparent to some as they sought to escape skyrocketing housing prices in Toronto. But as newcomers brought with them an upscale butcher shop, pricey burger joints, cafes and an organic grocer, interest in Hamilton exploded and drove up prices.
Canada defines families with unaffordable housing as those spending more than 30 percent of their income on shelter. By the census agency’s measure, just over 20 percent of Canadian households were in that predicament last year. While that’s led to plenty of rhetoric from across the political spectrum in Canada, there has been little in the way of concrete action beyond tax incentives and sales-tax rebates that, some argue, have only further turned up the heat on prices by enabling even more people to enter the market.
Jim Dunn, an urban geographer at McMaster University, in Hamilton, is also the director of a government-sponsored housing research group. He said that any government committed to providing affordable housing will have to take the politically unpalatable step of reversing several tax advantages for homeowners.
The resulting tax revenue could be used to build more public housing, something the federal government largely abandoned decades ago. Chief among the tax advantages Mr. Dunn wants eliminated is an exemption from capital gains taxes after the sale of primary residences.
He said studies have calculated that the cost of that exemption, and of other tax rules that do not capture homeowners’ gains, amounted to six times all levels of government spending on public housing.
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Comment:
The takeaway: There’s been little in the way of concrete government action beyond tax incentives and sales-tax rebates. These measures may ‘further turn up the heat on prices by enabling even more people to enter the market’, but isn’t the objective to open the buyers’ market so more households can find housing they can afford? Perhaps the more important caveat is that tax incentives punch a hole in local government budgets that could be used to provide needed urban services and investments like social housing.
And yes, urban sprawl is factor contributing to housing price increases. Lower lot purchase costs in exurban locations can easily be offset by higher transportation costs as car ownership becomes a necessity.
Jim Dunn is right stating that governments will have to reverse several tax advantages for homeowners, especially those involving capital gains. In fact, the increase in property value over time is largely due to rising land values, an unearned increment. The most fair and effective way to reverse this advantage, which is held solely by those who already own homes, is to capture that portion of growing property value attributed to rapid home price inflation – land value. A land value tax, placing a high tax rate on land and low rate on improvements, would help dampen skyrocketing home prices. Unlike conventional tax incentives, the LVT does not cut into public revenues. It also discourages land speculation.
So, in addition to rescinding or capping tax exemptions in the income tax code, change the property tax system to a two-rate land value tax.
Tom Gihring, Research Director
Common Ground – OR-WA
