The last of the three examples, the 61 year old with 10 years left on their mortgage gave me pause; Mike misses something I think I know:
In my 15 years as a stock broker, financial planner for about 300 households, I observed a difference between the generations that experienced hardship and those that did not, a difference much discussed among my peers. Clients who were close enough in age to the depression era, or WWII, who experienced the lasting emotional impact of difficult choices, sometimes no choices, going hungry, feeling acute insecurity for food and shelter as a result of those circumstances. They witnessed, experienced or heard about their parents stress.
The difference was behavioural. The hardship group saved more, spent less on discretionary items and always had a cushion that built over time, eventually creating a sense of security. They prioritized paying down the mortgage and were very wary of, even avoiding any expensive, unsecured, or after tax debt, especially credit card debt. They were expert at delayed gratification.
The group that experienced no hardship behaved differently. Instead of being focused on avoiding any self inflicted hardship through debt, they focused on their wants. Wants became needs, debts grew, revolving credit card debt was normalized and a huge amount of discretionary income was spent on instant, as opposed to delayed, gratification. Marketing, media, and peer pressure contributed, but this was a difference of choices made.
The results at age 65 are two completely different worlds, as a result of the magic of compounding working for, or against the future. It's the difference between security and choices, and working forever wherever possible with few choices. It's the difference between inner peace and pervasive anxiety.
I'm not saying this is the only input to the current situation; housing affordability is also part of the problem. But we can't pretend there isn't a difference in behaviour because every financial professional who's met both groups has dealt with the results in a visceral way. We've sat with, helped, consulted, congratulated and consoled many in both camps.
There's a policy issue, and there's also a change in how people think about their own responsibility vs. the responsibility of the state to care for them. This can also be influenced by policy, and should be. The kind of debt that's grown (I mean, omg, people borrow on online shopping sites for $300??) exponentially does not benefit productivity, growth or progress at either the national or individual level.
Dude, the "depression era" was a century ago. If you were 10 years old on Black Tuesday, you are now 96 years old, i.e. statistically dead.
The people currently hitting retirement age grew up in the 1960s, at the start of one of the greatest sustained wealth booms in human history. If you were 10 years old on October 29, 1960, you were 41 years old before you experienced a year when GDP per capita didn't increase from the year before. GDP per capita adjusted for inflation has in total increased 24x between then and now, when you're cashing out your chips at the age of 65.
The hypothetical 61-year-old in this article isn't a beacon of personal virtue. He bought a house when the average price in Toronto was 3.5x average income and it's now worth 12.5x average income. That's it.
I have no time for the suggestion that a generation that could save up a down payment on an average home in 2.5 years has any business trying to teach financial lessons to a generation that needs to save for 25 years for a down payment on an average home.
Younger generations aren't asking the state to care for them, they're asking the state to stop destroying the economy to protect the inflated asset values of the class of people you're writing panegyrics about.
You've made a lot of statements that have no basis in fact...
and, maybe I wasn't clear that for the folks born in the 60s the risk, the trauma they heard about from parents was continuous. I heard it. If you were born in the 1960s, WWII was closer in time than 9/11, global, and unprecedented in scale.
I'll ignore the rest of your rant as opinions born of emotional response.
'Shirtsleeves to shirtsleeves in three generations' --- it's similar to how the values of any group that's experienced hardship - refugees, economic migrants, etc - inform their choices, somewhat their children's choices, but by the time of their grandkids? 'I don't want to hear how you had to eat shoes to survive, I just want to party'
the flip side is that the moral rot at the heart of much of Western Civilization is 'having achieved insane levels of wealth, we still devote most of our energies to creating and consuming environmentally destructive trinkets because we've discovered that psychologically manipulating our conspecifics into endless fear/greed driven consumption, will buy some of us that house by the lake'
True for some people, yes. I don't believer the moral trajectory is negative, though... the evidence is for growing enlightenment.
Having said that, there's a real risk electronic devices, algorithms, and A.I. will diminish, limit, maybe destroy our access to the internal spiritual self.
This worked when the trade off for the average person was between buying an even bigger home / adding a cottage, and paying down the mortgage / boosting retirement savings.
The modern equivalent for young people who aren't ultra high income or on track to be, would be: rent a basement apartment or a 350 square foot condo, never eat out (especially that avocado toast), never leave home except for work, never travel, don't own a car, don't get a partner (no time or money to find one), don't have kids (kids are expensive and you can't afford it, plus no partner), put everything into index fund savings and then maybe you will be ok in retirement. In the meantime, 'own nothing and be miserable'. Remember, the average income for working people in Canada is $70K, and that's all age groups, and median is closer to $50K.
Is the current generation of young adults a "hardship" generation? Do you consider the cohort born between 1946 and 1965 to be a "soft" generation? One of these is much closer to the memory of the Depression and WWII than the other, and as others point out these are now almost 100 years ago.
What role have 10-20x housing gains and recent 20+% per year stock gains had in making the latter generation feel like they are financial geniuses who saved enough, totally on purpose, rather than essentially being bailed out by circumstances and friendly governments?
I was thinking to myself the other day how any boomers with $1M invested must feel like they are earning more in retirement than they ever made working! No wonder they all look pleased as punch with the state of the country.
Some fair points but the article misses many of the fundamentals of why housing has become so unaffordable. Combine rapid population growth due to immigration with a stagnant economy over the past 10 years (thanks for that JT) ,resulting in flat GDP per capita ,and you have a recipe for the affordability issue that many now face.
Meanwhile the cost of building new housing continues to rise due to municipal red tape, fees, FN approvals, and the bureaucratic sludge that is endemic to our municipal governments. It takes years to just get a development and building permit to build a house or condo.
Until Governments at all levels in Canada understand that they are the problem and not the solution, I don't see things improving.
Immigration in of itself does not intrinsically lead to higher housing prices, unless the immigrant population is specially lacking in tradespeople who would be involved in housing construction.
Blaming a "stagnant economy" for housing unaffordability might be tautological, because an economy where a greater share of GDP is spent on non-productive assets (housing) is how an economy *becomes* stagnant.
The "skilled immigrant tradespeople can build houses" argument is foolish. Increase the population 10% through immigration and you increase the needed housing stock by 10%. If the immigrants have their share of trades, you might just possibly increase house production by 10%. But, since housing starts are less than 2% of housing stock, you would need to increase house production by 500% to house the new immigrants.
Simple arithmetic shows that mass immigration is a huge stressor on housing.
You write, "since housing starts are less than 2% of housing stock, you would need to increase house production by 500% to house the new immigrants."
But do you not expect that increasing house production would be even more difficult, not less, if the population were decreasing instead of increasing, thus resulting in fewer tradespeople?
Now the type of immigrant recruited can make a difference here: piling on international students (something which was required to fund provincial tuition policies) would result in increased need for housing without much in the way of proportionate new tradespeople. But that's not a predicament inherent to mass immigration per se.
I am happy for wages for trades to rise enough that Canadians retrain for those jobs. The idea that high pay in certain labour sectors means "bring in immigrants to lower it" while high pay for, say, lawyers and bankers is taken as a given always struck me as unfair.
Sure. But in a sensible economy, that would make pay for trades here rise due to shortages. Which encourages people to go into or switch into trades. The only way we will start producing enough tradespeople is if kids start thinking "wow, I can make so much money as an electrician".
I like this one: Dear High School Grads: Become an HVAC technician in four years with no debt and a guaranteed income of $60000/year vs a degree that qualifies you to push a broom and wind up $60K in student loans to pay back.
Nowhere near enough. Trades are much harder than office jobs, and require more actual skill than many. Tradespeople should be making way more than mid level government bureaucrats.
Greg, I implore you to look into the many layers of credit injection into housing and banking the government carries out through mortgage insurance, securitization, and Canada Housing Trust bond sales.
While you may disagree with the role government occupies in a certain area, as I do with the case above, it is a gross oversimplification to say that action on behalf of the federal government is not the solution.
As a result of the previously mentioned programs, the state underwrites nearly a trillion dollars in home loan products, and provides market-altering liquidity to banks and consumer demand.
These systems cannot simply be snapped away overnight. While the state is responsible for creating them, they are also the sole vehicle for solving them.
We need to demand more, in quality, of our government, not less.
Whilst i generally agree with your premise I think you are possibly over generalizing the urban Toronto, Vancouver and perhaps Montreal situations to the entire country. While prices have risen elsewhere they have not done so as quickly or as much as these three locations (certainly there is a ton of variable answers based upon location).
As such any broad based solution focused on fixing the market in those three locations is likely to have significant, potentially unintended, consequences by also proportionally lowering housing values elsewhere.
As late boomers we purchased a 30+ year old home in an Alberta metro urban community for just over $400,000 in 2007 at the height of a market swing. Almost 20 years later the valuation of this is now between $470,000 and $480,000, roughly 15% for the term (very roughly 0.74% annually).
As such value has not even appreciated at a rate matching general inflation and any "national" strategy to deal with three significant but localized settings needs to consider the potential harms elsewhere along with benefits.
I don’t see how this is relevant, there are 2 reasons for housing prices outside of the big 3 to go up: spillover and genuine demand. For people living around the big 3, much of the rise in their housing prices must be due to spillover demand while for someone in Alberta, it’s very unlikely.
From my perspective, all this makes clear is that the goal must be to increase supply as that has the most likely effect of reducing spillover while not affecting genuine demand.
People who are on "fixed incomes", as in those who are retired and beyond their physical abilities to earn income from the labour are facing the same challenges that retirement brought for people who retired in the late '60's and early '70s. Inflation got out of control and so sales of assets that were to provide for a comfortable retirement quickly failed to keep pace with the cost of living.
I realize that a couple who purchased a home in 1982 is sitting on a capital gain bonanza, but you can only sell it once. If the capital gain is ploughed into a down sizing move into a condo how much money is left over as insurance against the post pandemic inflation crisis?
Government loves inflation. The skyrocketing cost of oil and gas this spring is filling government coffers with a financial windfall and you can bet that every cent will get spent on new programming, which in turn distorts the economic government footprint in the economy and the stagnation continues.
The solution is a desperately needed correction in housing speculation that should be redirected towards business development and true economic growth. The housing market has been a handy spot for speculative investment instead of a home ownership dream for young people who are priced out of the market.
It's true that Boomers and government money parasites have absorbed (and squandered) most of Canada's wealth. The question is what to do about it.
The answer is to make those same people absorb as much of the cost as possible in the time we have left. Dramatic cuts to OAS and NGO grants, cuts to civil service numbers, 130% tax inclusion rate for fully indexed guaranteed pensions, remigration and deregulation of resource extraction, will reset the economy quickly in favour of the people who have been shafted.
It won't happen, but it is both just and necessary.
If you cut the civil service and the cuts are done through attrition (not filling jobs where people resign or retire), then you actually reduce employment opportunities specifically for younger people (who then have no civil service jobs to apply to), not for the boomers slowly aging out of the civil service.
I will note that not waiting for attrition would mean sudden disruptions to affected civil servants' financial situations and it would also leave the civil service with less experienced leadership remaining. But, I am guessing that you are fine with that.
Correct. Once upon a time, the deal for civil servants was job security in exchange for pay below the private sector. Now their pay is higher and they have no accountability whatsoever.
This is a stickier problem than outlined here, because new buyers *have* been getting into the housing market. They've paid the highest prices, and they've got the least equity. Home ownership rates among 25-29 year olds was 44.1% in 2011, and it was 36.5% in 2021. For 35-39 year olds, the comparable numbers were 67.1% and 61.5%. Over that time period, average housing prices went up by 70%. A severe housing price correction tends to be in the range of 30%, and you'd basically wipe out the wealth of all of the younger cohorts of buyers while *still* only marginally increasing affordability for those who currently can't get into the housing market.
Forget the boomers with their huge piles of equity - they were driving this problem for decades, true, and a loss of value is less likely to leave them financially underwater. However, demographic realities are going to be taking them out of the equation over the next 10-20 years. That's about how long it's going to take the younger cohort to recovery their lost equity from a big price correction.
This problem took a long time to create through insufficient construction and restrictive zoning. A rapid correction that screws over half of your future voters for a couple of decades (the wealthier, higher propensity ones) is political suicide. As we've been seeing in the comments on this site, Alberta voters still have declared omerta against the federal Liberals for such a crash triggered by the NEP 45 years ago! Actually fixing this problem in a way that doesn't create a bigger mess is going to take decades as well.
Don't forget that the Bank of Canada in about 2008 lowered interest rates to a ridiculous level and artificially kept them low. This created the housing crisis. People borrowed well beyond their means and starting bidding wars over houses. The same low interest rates made saving money in conventional places (like a savings account in a bank) absolutely future. Real estate became the only "sure" investment. At the same time, people were buying little post-war bungalows, tearing them down, and building the biggest house possible on the lot. This resulted in a loss of entry-level single family homes. If Carney couldn't see the problem he was creating as Gov of the Bank of Canada, he's surely not going to be able to see the solution as PM and should not even think of meddling in the market. The law of unintended consequences will surely come back to bite us in the ass.
Also, in the scenarios in the OP, people were making bad decisions. Government policy should not be based on bad decisions. Ever.
Thanks for the well thought-out & presented submission on the current state of the housing market. As a boomer with a paid off home who has been conditioned to consider this my retirement fund I'm not eager to see my home values engineered to stagnate or decline.
I can only hope that any actions our government takes is paced in decades not years.
One of the most influential books I read was Boom Bust Echo by David Foote and it taught me demographics drive almost everything. We must look ahead to the next 10-25 years where it is almost assured that the huge wave of boomers will die. This will have a significant impact on a number or the concerns we are debating today namely housing & healthcare.
It is very possible the supply of single-family homes hitting the market over these periods will overpower the market with supply & prices should fall. This should also happen with health care, while we deal with the wave of seniors swamping the system now with age related issues we must look ahead over the next 10-25 year period and can imagine a significant decline in healthcare requirements possibly creating excess capacity & staffing.
In closing this situation took decades to form but I believe we can see these serious issues of today resolving themselves over the next decades to come.
Exactly. Blaming boomers because they made the cruel decision to be born with the biggest cohort is insane. Makes as much sense as blaming them for WWI and II, and making their parents have a lot of babies all at once.
It wasn’t boomers faults, but it wasn’t a surprise either and they had some responsibility to prepare. They benefited from being a large generation paying for a small one, from having fewer kids than their parents did, and most of all from being the largest voting generation up until their retirements. They chose to abuse their political power to put of needed reform—CPP reform still leaves younger generations paying more, but proves they knew perfectly well the scale of reform needed to pay their way on healthcare and OAS. It’s not young people’s faults boomers are a large generation either, so I guess you can just be cut off since you’ve squandered the time and advantages you had to prepare.
What’s actually being ‘engineered’ is high prices, not the crash that would be caused by going back to the rules boomers bought under. It’s more than disgusting you want to benefit from the rules being rigged against young people, and don’t expect us to be too happy to pay for your handouts and healthcare in the meantime (while ‘just’ 15 or 20 more years of boomer comfort destroys the entire period of life when anyone does anything important). What reason does anyone under 35 or so have to buy into the system?
Let’s not forget that every federal budget of the past twenty years has contained at least one provision to “make housing more affordable,” and which has had the exact opposite effect by helping bid up the price of housing.
If government actually wanted to make life more affordable for citizens, it should stop dicking around with special breaks and tax treatments. Our tax system is so Byzantine and complicated that the CRA can’t understand it, and gives wrong info on its help line most of the time (oh look, they’ve “improved” that to only 70% of the time). Tax compliance costs the economy billions of dollars a year. Cut taxes, and simplify the system. Second, government is too big, bureaucracy too big: this needs the Milei chainsaw treatment. The McDonald Laurier Institute calculates that government (federal, provincial and municipal) accounts for 45% of GDP. That needs to be cut to 33%.
Back when I was a rookie on the bond desk, I read a piece about how you could divide the world’s nations into 3 groups. Group 1 was countries where government was a third of GDP or less. At the time, that was the USA, Switzerland and Hong Kong. Those were countries with 5% growth and 4% unemployment. Group 2 was countries where government was 2/3 or more of GDP, at the time, France, Greece, Spain, etc, with 1 or 2% growth and double-digit unemployment rates. Group 3 were countries in the middle, with middling growth rates and middling unemployment. It’s not rocket science. Suetonius, the Roman historian, noted that the best government was the one that governed least. Lao Tzu advised the Chinese Emperor that running a large country was like cooking a very small fish - if you poke it too much, you’ll ruin it. We’ve now had a decade of nothing but poke, poke, poke, and all that they can come up with to do is to poke us all even harder. It’s not working.
The topic no one is addressing in our political class is population collapse. Don’t confuse that issue with the pro-natalist dogma of the American right wing. They are certainly related, but distinct.
We need serious attention to the issues that emerge from population collapse and Japan kindly provides the model. It is hard to take the idea of high-cost housing seriously when rural villages consist mainly of abandoned houses. The nations at the forefront of this world phenomenon include the ones offering 1 euro houses for sale.
One predicted component of population collapse is the collapse of asset values as the boomers age out. A flood of boomer homes is just now entering the market as these people die off or retreat to care homes. If real estate inventory climbs against the purported inability to buy, basic economics predicts a crash in housing prices. This prediction also applies to the other major asset class of boomers; stocks and bonds. More on offer, fewer buyers and prices plummet as inheritances are liquidated.
What will go up in cost is health and age care. The idea of artificially transferring wealth from a class that is just now needing to deploy it, is a prescription for more government assistance (i.e. taxes).
Colledge is not addressing the real issue that has been driving up living costs for 50 years, debt. specifically, government debt. Often referred to as inflation, the actual issue is currency debasement, which has been steadily occurring since the mid-sixties. The answer, of course, is fiscal responsibility but any cut to government services is met with a howl of indignation. And boomers have been very vocal in their time.
A government policy to deliberately destroy wealth is madness. Reduced expectations may be the realistic answer and a little more education on how wealth is earned, created and stored.
The purchase of your home should be the core strategy of every Canadian, but I think it is subsumed to fancy cars, vacations, acrylic nails and monthly pedicures. It is also subsumed by the career culture where “I just want to do something I love and make a difference in the world”. Things like anime artist, women’s studies, musician and barista are all careers that have their place but if owning your home and financial independence are important to you, think long and hard before pursuing careers with a low prospect of providing either.
This is why I came to the conclusion a long time ago that the only way this gets fixed is a crash. I doubt enough people are altruistic enough to do what needs doing voluntarily.
Politicians and homeowners will work against that at every level, but I still think prices keep going down, as they already have been in the GTA and BC.
The gamut has been run. People stretched their incomes, added second incomes, brought in tenants, relied on parental help, and used equity pulled from inflated homes to buy even more inflated homes. Every workaround available was used to keep the game going.
But those workarounds are finite. Boomers have already used a great deal of their housing wealth to help their children buy into the same inflated market. The Marios of the world have less ability to do that. Everyone younger has even less room to work, save, or dream their way into ownership.
At some point you simply run out of people who can beg, borrow, or steal enough money to buy in. Housing got too expensive for those not already established to justify working towards it, and I think we're starting to see the consequences of that now.
The article, while correct in direction, paints a singular proposition for correction: the Canadian citizen must bite the bullet alone. I would appreciate a revisiting of this topic to include:
1. Challenging the validity that home ownership is a "right"...or national goal. The foundational right to adequate housing was formally enshrined as law in 2019. On the contrary, citizens must be allowed to under save, under plan and live of life free of home ownership.
2. Tying the cost of "the fix" to our national debt. It's time for the politicians to understand the reality that inflation control and federal expenditure reduction must contribute a large portion of the funds to affect national housing prices. They must, however, pay the political price for reallocating voter-enjoyable programs to house price remediation.
3. Aligning student loans to specitic degree earning potential. Nationally we have students with high loans who took low income degrees (Women's Studies must be an example). Post secondary degrees and loans must, in part, be assessed on their contribution to housing affordabilitiy through higher incomes and more rapid loan repayment.
4. Mandatory 10% annual savings from the first year of taxable earnings. Funds may be redeemed at any time by the purchase of a home or formal acknowledgement that home ownership is not a significant personal objective.
The suggestion of such governmental interference is repulsive. Government has no right to intrude into the living rooms of Canadians. It implies that Canadians are unable to accept their responsibilities to provide for themselves...and to ditch the bitching when "everything" doesn't come their way. But "everything" changed in 2019 and government must accept responsibility for much of the problem.
The four steps above will, very painfully, move housing prices downwards.
I agree with 1 in principle, but I think that home ownership adds so much to flourishing for most people, that government should make it a key objective to run the polity in such a way that this is achievable for those who want it.
2 is obviously true, but I think we don't blame the final beneficiaries of current policies enough. Politicians and their clients most both suffer.
3. I agree. All government student loans should be repaid as a capped percentage of income over a period of time, and should be securitized bundled by degree and school. So a U of T engineer could pay $10,000 of tuition with 1% of income, while a Brock gender studies major might not be able to pay $10,000 of tuition at all.
4. I am charging my employed, at home, kids a substantial rent with the promise that that will get it back toward a deposit on a marital home.
Then no other service or social benefit should be a right until homeowners sell their home. I’m not going to be told I have to pay for geriatric homeowners ‘right’ to healthcare—really, their right to access healthcare without selling their home—while attainable ownership is not considered a social responsibility. Much of what we pretend is a safety net is really about not letting the established ever fall down the ladder, and it’s indefensible to think we ought to do that while having no obligation to keep the ladder there for the less established.
I’m willing to make the sacrifice. I bought,totally Reno 3 homes,sold them. All the while working full time,raising a family. Asset growth averaged 2.5% per year. Held each home for a min of 5 years. Was mortgage free on our third home. Built brand new our 4th. Hard work,live with some dust,off and on and do some of your own work. Leave the true Mechancal to Certfied Pros,ticketed for Insurance disclosure. There are deals out there,
I've come around to the idea that capital gains taxes on primary residences might be a good and necessary thing. One way to possibly cushion the impact of introducing capital gains on primary residences would be to declare a base year to start the calculation. For example 2024 as the base year for assessed housing value on homes already owned. As of the year 2025 capital gains would be applied as normal. Ideally it would protect near retirees counting on housing for retirement funding since much of the gains would be protected from taxation. Then hopefully it should cool the housing market going forward since housing would be treated like other investments. It would be political suicide so it will never happen.
No. Not another tax. I’ll let my house fall apart,lower my value,lower my tax. Watched my brother do it during a bitter divorce. Got ugly,his acreage was run down,on purpose. Lowered his assessment value
That's a necessary part of a fuller tax reform that I have already thought through:
Implement principal residence gains taxation so that capital gains will be calculated after adjusting original cost for CPI since month of purchase. Restrict SINGLE FAMILY HOME ownership to RESIDENT ADULT INDIVIDUALS (not businesses/corporations), and only one (1) home per adult individual, implemented as follows:
1) Establish an initial implementation date. All houses purchased after this date will be subject to tax on CPI adjusted gain (with CPI adjusted losses deductible against other income) and restricted as described above. Note this is a trivial calculation - see note 9.
2) housing currently owned outside the above restriction must be sold within two years of initial implementation date, or be expropriated and sold at auction (with buyer eligibility restricted as described above obviously).
3) ALL housing sold after five years after initial implementation date will be subject to tax (with losses deductible) as described above.
The two year and five year windows would give ample time for markets to adjust to a new reality and prices to reflect that. Clearly, during the initial two year window there would be a significant increase in the number of homes for sale. This increased supply and the forced sale of investment properties into a new tax regime will significantly reduce housing prices.
Note that the new tax policy negates the need to differentiate between a principal residence and an investment property for capital gains purposes. Also, the housing restriction doesn’t require one to live in the home they own (they could rent elsewhere, or live with someone else). It also operates on an individual, not family basis. In other words there would still be a rental market for single family homes. Obviously it wouldn’t be as big, but neither would it need to be since housing would be more affordable to purchase. Clearly pricing for other rental markets (non single family dwellings) would be affected also, and no doubt overall inflation, and therefore interest rates, currency value and foreign investment too. To the extent that Capital is greatly and negatively impacted, I see that as a risk assumed, regardless of current governments insisting that tax free housing gains will remain a sacred cow. It can be done. It only takes government will.
Other notes:
1) housing capital cost (including purchase costs, e.g. legal, transfer taxes etc.) may be adjusted by capital improvements (again, CPI adjusted), but all operating costs such as utilities, regular maintenance, municipal taxes and mortgage interest are PERSONAL housing costs and therefore not deductible. Note that mortgage interest is sometimes considered a capital cost for tax purposes, but not necessarily, and in this instance would be explicitly excluded from being deductible, since it is related to how much home you’re buying, which is a personal, not an investment decision. Differentiating between capital (taxable) vs. operating (personal) is crucial in understanding why taxation does NOT imply deductibility for operating expenses.
2) residences would not be subject to capital gains tax until sold (no tax on accrued gains), however, utilizing (i.e. realizing) appreciating house value by remortgaging or otherwise encumbering based on an appreciated value would trigger a deemed disposition (with attendant tax) and reacquisition at the current value.
3) regulations will be required to ensure beneficial ownership truly resides with the owner (to avoid investment workarounds to the one home per individual rule)
4) taxes due on sale could be paid over five years (or perhaps some longer period if more commensurate with the time the residence was owned), or when the new house is sold, whichever comes first. This would, however, require differentiating principal residences from investment property.
5) the housing restriction would probably need to be restricted to urban areas or somehow made not applicable to non-urban vacation property. This would be fairly problematic to define, and I confess I don’t have a good solution (possibly based on no. of km from a population centre of a given size or density?). But I’m confident it is possible. At the very least, a simple (though not sufficient) definition would be that excluded vacation property would not be habitable year round.
6) restricting home ownership to residents is already done in some Caribbean, European and Asian countries, i.e. it’s not unheard of in the rest of the world.
7) this is NOT some sort of communist plot, I’m a capitalist by definition. Rather it utilizes a market solution to a market problem, albeit by simply restricting entry into the market for the good of society. Capitalism (i.e. some people) always needs some sort of restraint to avoid the tragedy of the commons. Capitalism should serve society, not the other way around.
8) expanding this treatment of capital gains (making 100% of the CPI adjusted gain taxable) to all investments would be preferred, as part of a greater tax reform. Note that some may claim this would be unduly onerous to active investors, to which I reply: “software.” This isn’t 1966.
9) in case anyone reading this doesn’t realize how the CPI adjustments are made: CPI adjusted gain = net current proceeds (after selling costs, like normal) - (original purchase price x current CPI/purchase CPI). It’s elementary school level arithmetic.
10) short term rental restrictions (AirBnB etc.) OUGHT to be a local zoning issue. I suggest that it remain so at least until the above changes work themselves through the market (presumably reducing the number of such rentals) and that it be revisited only if necessary.
11) The corollary to full taxation is that CPI adjusted losses should also be deductible. This is only reasonable, especially for those who would find that their recently purchased home is now worth a fraction of its purchase price. Spreading the cost of this implementation across the entire tax base (via loss deductibility) is also reasonable because all society (through democracy and political leadership) is responsible for the current bubble. Individual responsibility is also maintained for buying into a bubble. (Tax loss deductibility isn't a tax loss credit, but it could be in part if politically necessary). Of course, no one who purchased their personal home at the top of the market need sell since the usability of the home won't change just because its market value has, as long as they can still manage its operating and carrying costs, things which won't necessarily change.
Based on reading the Carter Commission and 40 years of studying and thinking about tax reform. If you don't know under what circumstances interest is considered a capital cost, you're clearly not a CPA. I was.
You could have found ITA Subsection 18(2) and 18(3.1) with a simple google question.
It would depress prices, which is the point. Additional implementation terms would be required as I outlined in my response to the OP. Upgrades would only be discouraged if the owner didn't think they were worth the money, but they would still adjust the cost base.
For me, the housing crisis has come about after decades of crumbling infrastructure. We have to fix both. How do we build homes for cities that do not have the infrastructure to support new communities. I think if government somehow forced massive drop in prices we would likely be thrown into a recession. A really terrible awful one.
Bad news for homeowners? And seniors, I would imagine. This is our chickens coming home to roost or something more clever, it's early still.
The last of the three examples, the 61 year old with 10 years left on their mortgage gave me pause; Mike misses something I think I know:
In my 15 years as a stock broker, financial planner for about 300 households, I observed a difference between the generations that experienced hardship and those that did not, a difference much discussed among my peers. Clients who were close enough in age to the depression era, or WWII, who experienced the lasting emotional impact of difficult choices, sometimes no choices, going hungry, feeling acute insecurity for food and shelter as a result of those circumstances. They witnessed, experienced or heard about their parents stress.
The difference was behavioural. The hardship group saved more, spent less on discretionary items and always had a cushion that built over time, eventually creating a sense of security. They prioritized paying down the mortgage and were very wary of, even avoiding any expensive, unsecured, or after tax debt, especially credit card debt. They were expert at delayed gratification.
The group that experienced no hardship behaved differently. Instead of being focused on avoiding any self inflicted hardship through debt, they focused on their wants. Wants became needs, debts grew, revolving credit card debt was normalized and a huge amount of discretionary income was spent on instant, as opposed to delayed, gratification. Marketing, media, and peer pressure contributed, but this was a difference of choices made.
The results at age 65 are two completely different worlds, as a result of the magic of compounding working for, or against the future. It's the difference between security and choices, and working forever wherever possible with few choices. It's the difference between inner peace and pervasive anxiety.
I'm not saying this is the only input to the current situation; housing affordability is also part of the problem. But we can't pretend there isn't a difference in behaviour because every financial professional who's met both groups has dealt with the results in a visceral way. We've sat with, helped, consulted, congratulated and consoled many in both camps.
There's a policy issue, and there's also a change in how people think about their own responsibility vs. the responsibility of the state to care for them. This can also be influenced by policy, and should be. The kind of debt that's grown (I mean, omg, people borrow on online shopping sites for $300??) exponentially does not benefit productivity, growth or progress at either the national or individual level.
Dude, the "depression era" was a century ago. If you were 10 years old on Black Tuesday, you are now 96 years old, i.e. statistically dead.
The people currently hitting retirement age grew up in the 1960s, at the start of one of the greatest sustained wealth booms in human history. If you were 10 years old on October 29, 1960, you were 41 years old before you experienced a year when GDP per capita didn't increase from the year before. GDP per capita adjusted for inflation has in total increased 24x between then and now, when you're cashing out your chips at the age of 65.
The hypothetical 61-year-old in this article isn't a beacon of personal virtue. He bought a house when the average price in Toronto was 3.5x average income and it's now worth 12.5x average income. That's it.
I have no time for the suggestion that a generation that could save up a down payment on an average home in 2.5 years has any business trying to teach financial lessons to a generation that needs to save for 25 years for a down payment on an average home.
Younger generations aren't asking the state to care for them, they're asking the state to stop destroying the economy to protect the inflated asset values of the class of people you're writing panegyrics about.
You've made a lot of statements that have no basis in fact...
and, maybe I wasn't clear that for the folks born in the 60s the risk, the trauma they heard about from parents was continuous. I heard it. If you were born in the 1960s, WWII was closer in time than 9/11, global, and unprecedented in scale.
I'll ignore the rest of your rant as opinions born of emotional response.
Born in 1961. This is 100 % correct.
I'm assuming you don't have many business owners or anyone who did anything other than work a 9 to 5 of they were too scared to take out a loan.
Or was this in the era when a bushel of apples and a flat of beer would get you the down payment on a starter home?
'Shirtsleeves to shirtsleeves in three generations' --- it's similar to how the values of any group that's experienced hardship - refugees, economic migrants, etc - inform their choices, somewhat their children's choices, but by the time of their grandkids? 'I don't want to hear how you had to eat shoes to survive, I just want to party'
the flip side is that the moral rot at the heart of much of Western Civilization is 'having achieved insane levels of wealth, we still devote most of our energies to creating and consuming environmentally destructive trinkets because we've discovered that psychologically manipulating our conspecifics into endless fear/greed driven consumption, will buy some of us that house by the lake'
True for some people, yes. I don't believer the moral trajectory is negative, though... the evidence is for growing enlightenment.
Having said that, there's a real risk electronic devices, algorithms, and A.I. will diminish, limit, maybe destroy our access to the internal spiritual self.
This worked when the trade off for the average person was between buying an even bigger home / adding a cottage, and paying down the mortgage / boosting retirement savings.
The modern equivalent for young people who aren't ultra high income or on track to be, would be: rent a basement apartment or a 350 square foot condo, never eat out (especially that avocado toast), never leave home except for work, never travel, don't own a car, don't get a partner (no time or money to find one), don't have kids (kids are expensive and you can't afford it, plus no partner), put everything into index fund savings and then maybe you will be ok in retirement. In the meantime, 'own nothing and be miserable'. Remember, the average income for working people in Canada is $70K, and that's all age groups, and median is closer to $50K.
Is the current generation of young adults a "hardship" generation? Do you consider the cohort born between 1946 and 1965 to be a "soft" generation? One of these is much closer to the memory of the Depression and WWII than the other, and as others point out these are now almost 100 years ago.
What role have 10-20x housing gains and recent 20+% per year stock gains had in making the latter generation feel like they are financial geniuses who saved enough, totally on purpose, rather than essentially being bailed out by circumstances and friendly governments?
I was thinking to myself the other day how any boomers with $1M invested must feel like they are earning more in retirement than they ever made working! No wonder they all look pleased as punch with the state of the country.
I'm sorry for your bitterness and disappointment.
Some fair points but the article misses many of the fundamentals of why housing has become so unaffordable. Combine rapid population growth due to immigration with a stagnant economy over the past 10 years (thanks for that JT) ,resulting in flat GDP per capita ,and you have a recipe for the affordability issue that many now face.
Meanwhile the cost of building new housing continues to rise due to municipal red tape, fees, FN approvals, and the bureaucratic sludge that is endemic to our municipal governments. It takes years to just get a development and building permit to build a house or condo.
Until Governments at all levels in Canada understand that they are the problem and not the solution, I don't see things improving.
Immigration in of itself does not intrinsically lead to higher housing prices, unless the immigrant population is specially lacking in tradespeople who would be involved in housing construction.
Blaming a "stagnant economy" for housing unaffordability might be tautological, because an economy where a greater share of GDP is spent on non-productive assets (housing) is how an economy *becomes* stagnant.
The "skilled immigrant tradespeople can build houses" argument is foolish. Increase the population 10% through immigration and you increase the needed housing stock by 10%. If the immigrants have their share of trades, you might just possibly increase house production by 10%. But, since housing starts are less than 2% of housing stock, you would need to increase house production by 500% to house the new immigrants.
Simple arithmetic shows that mass immigration is a huge stressor on housing.
You write, "since housing starts are less than 2% of housing stock, you would need to increase house production by 500% to house the new immigrants."
But do you not expect that increasing house production would be even more difficult, not less, if the population were decreasing instead of increasing, thus resulting in fewer tradespeople?
Now the type of immigrant recruited can make a difference here: piling on international students (something which was required to fund provincial tuition policies) would result in increased need for housing without much in the way of proportionate new tradespeople. But that's not a predicament inherent to mass immigration per se.
Remigration is the better option, reducing demand for housing stock directly, along with a host of other benefits.
Because housing stock turns over so rarely, dramatic population jumps like we have experienced in the last few years inevitably overload the system.
We need skilled tradespeople big big big time.
I am happy for wages for trades to rise enough that Canadians retrain for those jobs. The idea that high pay in certain labour sectors means "bring in immigrants to lower it" while high pay for, say, lawyers and bankers is taken as a given always struck me as unfair.
My experience in the trades has been bring in foreign workers we don't have enough tradespeople being produced in this country.
Sure. But in a sensible economy, that would make pay for trades here rise due to shortages. Which encourages people to go into or switch into trades. The only way we will start producing enough tradespeople is if kids start thinking "wow, I can make so much money as an electrician".
I like this one: Dear High School Grads: Become an HVAC technician in four years with no debt and a guaranteed income of $60000/year vs a degree that qualifies you to push a broom and wind up $60K in student loans to pay back.
Nowhere near enough. Trades are much harder than office jobs, and require more actual skill than many. Tradespeople should be making way more than mid level government bureaucrats.
And the cost of materials.
Greg, I implore you to look into the many layers of credit injection into housing and banking the government carries out through mortgage insurance, securitization, and Canada Housing Trust bond sales.
While you may disagree with the role government occupies in a certain area, as I do with the case above, it is a gross oversimplification to say that action on behalf of the federal government is not the solution.
As a result of the previously mentioned programs, the state underwrites nearly a trillion dollars in home loan products, and provides market-altering liquidity to banks and consumer demand.
These systems cannot simply be snapped away overnight. While the state is responsible for creating them, they are also the sole vehicle for solving them.
We need to demand more, in quality, of our government, not less.
Whilst i generally agree with your premise I think you are possibly over generalizing the urban Toronto, Vancouver and perhaps Montreal situations to the entire country. While prices have risen elsewhere they have not done so as quickly or as much as these three locations (certainly there is a ton of variable answers based upon location).
As such any broad based solution focused on fixing the market in those three locations is likely to have significant, potentially unintended, consequences by also proportionally lowering housing values elsewhere.
As late boomers we purchased a 30+ year old home in an Alberta metro urban community for just over $400,000 in 2007 at the height of a market swing. Almost 20 years later the valuation of this is now between $470,000 and $480,000, roughly 15% for the term (very roughly 0.74% annually).
As such value has not even appreciated at a rate matching general inflation and any "national" strategy to deal with three significant but localized settings needs to consider the potential harms elsewhere along with benefits.
I don’t see how this is relevant, there are 2 reasons for housing prices outside of the big 3 to go up: spillover and genuine demand. For people living around the big 3, much of the rise in their housing prices must be due to spillover demand while for someone in Alberta, it’s very unlikely.
From my perspective, all this makes clear is that the goal must be to increase supply as that has the most likely effect of reducing spillover while not affecting genuine demand.
People who are on "fixed incomes", as in those who are retired and beyond their physical abilities to earn income from the labour are facing the same challenges that retirement brought for people who retired in the late '60's and early '70s. Inflation got out of control and so sales of assets that were to provide for a comfortable retirement quickly failed to keep pace with the cost of living.
I realize that a couple who purchased a home in 1982 is sitting on a capital gain bonanza, but you can only sell it once. If the capital gain is ploughed into a down sizing move into a condo how much money is left over as insurance against the post pandemic inflation crisis?
Government loves inflation. The skyrocketing cost of oil and gas this spring is filling government coffers with a financial windfall and you can bet that every cent will get spent on new programming, which in turn distorts the economic government footprint in the economy and the stagnation continues.
The solution is a desperately needed correction in housing speculation that should be redirected towards business development and true economic growth. The housing market has been a handy spot for speculative investment instead of a home ownership dream for young people who are priced out of the market.
It's true that Boomers and government money parasites have absorbed (and squandered) most of Canada's wealth. The question is what to do about it.
The answer is to make those same people absorb as much of the cost as possible in the time we have left. Dramatic cuts to OAS and NGO grants, cuts to civil service numbers, 130% tax inclusion rate for fully indexed guaranteed pensions, remigration and deregulation of resource extraction, will reset the economy quickly in favour of the people who have been shafted.
It won't happen, but it is both just and necessary.
AE, see my post above.
If you cut the civil service and the cuts are done through attrition (not filling jobs where people resign or retire), then you actually reduce employment opportunities specifically for younger people (who then have no civil service jobs to apply to), not for the boomers slowly aging out of the civil service.
Don't wait for attrition.
I will note that not waiting for attrition would mean sudden disruptions to affected civil servants' financial situations and it would also leave the civil service with less experienced leadership remaining. But, I am guessing that you are fine with that.
Correct. Once upon a time, the deal for civil servants was job security in exchange for pay below the private sector. Now their pay is higher and they have no accountability whatsoever.
I think there's an even bigger problem. There are no jobs or careers for too many kids. Their future is incredibly bleak.
This is a stickier problem than outlined here, because new buyers *have* been getting into the housing market. They've paid the highest prices, and they've got the least equity. Home ownership rates among 25-29 year olds was 44.1% in 2011, and it was 36.5% in 2021. For 35-39 year olds, the comparable numbers were 67.1% and 61.5%. Over that time period, average housing prices went up by 70%. A severe housing price correction tends to be in the range of 30%, and you'd basically wipe out the wealth of all of the younger cohorts of buyers while *still* only marginally increasing affordability for those who currently can't get into the housing market.
Forget the boomers with their huge piles of equity - they were driving this problem for decades, true, and a loss of value is less likely to leave them financially underwater. However, demographic realities are going to be taking them out of the equation over the next 10-20 years. That's about how long it's going to take the younger cohort to recovery their lost equity from a big price correction.
This problem took a long time to create through insufficient construction and restrictive zoning. A rapid correction that screws over half of your future voters for a couple of decades (the wealthier, higher propensity ones) is political suicide. As we've been seeing in the comments on this site, Alberta voters still have declared omerta against the federal Liberals for such a crash triggered by the NEP 45 years ago! Actually fixing this problem in a way that doesn't create a bigger mess is going to take decades as well.
Don't forget that the Bank of Canada in about 2008 lowered interest rates to a ridiculous level and artificially kept them low. This created the housing crisis. People borrowed well beyond their means and starting bidding wars over houses. The same low interest rates made saving money in conventional places (like a savings account in a bank) absolutely future. Real estate became the only "sure" investment. At the same time, people were buying little post-war bungalows, tearing them down, and building the biggest house possible on the lot. This resulted in a loss of entry-level single family homes. If Carney couldn't see the problem he was creating as Gov of the Bank of Canada, he's surely not going to be able to see the solution as PM and should not even think of meddling in the market. The law of unintended consequences will surely come back to bite us in the ass.
Also, in the scenarios in the OP, people were making bad decisions. Government policy should not be based on bad decisions. Ever.
Thanks for the well thought-out & presented submission on the current state of the housing market. As a boomer with a paid off home who has been conditioned to consider this my retirement fund I'm not eager to see my home values engineered to stagnate or decline.
I can only hope that any actions our government takes is paced in decades not years.
One of the most influential books I read was Boom Bust Echo by David Foote and it taught me demographics drive almost everything. We must look ahead to the next 10-25 years where it is almost assured that the huge wave of boomers will die. This will have a significant impact on a number or the concerns we are debating today namely housing & healthcare.
It is very possible the supply of single-family homes hitting the market over these periods will overpower the market with supply & prices should fall. This should also happen with health care, while we deal with the wave of seniors swamping the system now with age related issues we must look ahead over the next 10-25 year period and can imagine a significant decline in healthcare requirements possibly creating excess capacity & staffing.
In closing this situation took decades to form but I believe we can see these serious issues of today resolving themselves over the next decades to come.
Exactly. Blaming boomers because they made the cruel decision to be born with the biggest cohort is insane. Makes as much sense as blaming them for WWI and II, and making their parents have a lot of babies all at once.
It wasn’t boomers faults, but it wasn’t a surprise either and they had some responsibility to prepare. They benefited from being a large generation paying for a small one, from having fewer kids than their parents did, and most of all from being the largest voting generation up until their retirements. They chose to abuse their political power to put of needed reform—CPP reform still leaves younger generations paying more, but proves they knew perfectly well the scale of reform needed to pay their way on healthcare and OAS. It’s not young people’s faults boomers are a large generation either, so I guess you can just be cut off since you’ve squandered the time and advantages you had to prepare.
"they" "you" "they" "you"
lol
Remember the boomers will be losing political power right when they're most dependent
lol
What’s actually being ‘engineered’ is high prices, not the crash that would be caused by going back to the rules boomers bought under. It’s more than disgusting you want to benefit from the rules being rigged against young people, and don’t expect us to be too happy to pay for your handouts and healthcare in the meantime (while ‘just’ 15 or 20 more years of boomer comfort destroys the entire period of life when anyone does anything important). What reason does anyone under 35 or so have to buy into the system?
Let’s not forget that every federal budget of the past twenty years has contained at least one provision to “make housing more affordable,” and which has had the exact opposite effect by helping bid up the price of housing.
If government actually wanted to make life more affordable for citizens, it should stop dicking around with special breaks and tax treatments. Our tax system is so Byzantine and complicated that the CRA can’t understand it, and gives wrong info on its help line most of the time (oh look, they’ve “improved” that to only 70% of the time). Tax compliance costs the economy billions of dollars a year. Cut taxes, and simplify the system. Second, government is too big, bureaucracy too big: this needs the Milei chainsaw treatment. The McDonald Laurier Institute calculates that government (federal, provincial and municipal) accounts for 45% of GDP. That needs to be cut to 33%.
Back when I was a rookie on the bond desk, I read a piece about how you could divide the world’s nations into 3 groups. Group 1 was countries where government was a third of GDP or less. At the time, that was the USA, Switzerland and Hong Kong. Those were countries with 5% growth and 4% unemployment. Group 2 was countries where government was 2/3 or more of GDP, at the time, France, Greece, Spain, etc, with 1 or 2% growth and double-digit unemployment rates. Group 3 were countries in the middle, with middling growth rates and middling unemployment. It’s not rocket science. Suetonius, the Roman historian, noted that the best government was the one that governed least. Lao Tzu advised the Chinese Emperor that running a large country was like cooking a very small fish - if you poke it too much, you’ll ruin it. We’ve now had a decade of nothing but poke, poke, poke, and all that they can come up with to do is to poke us all even harder. It’s not working.
The topic no one is addressing in our political class is population collapse. Don’t confuse that issue with the pro-natalist dogma of the American right wing. They are certainly related, but distinct.
We need serious attention to the issues that emerge from population collapse and Japan kindly provides the model. It is hard to take the idea of high-cost housing seriously when rural villages consist mainly of abandoned houses. The nations at the forefront of this world phenomenon include the ones offering 1 euro houses for sale.
One predicted component of population collapse is the collapse of asset values as the boomers age out. A flood of boomer homes is just now entering the market as these people die off or retreat to care homes. If real estate inventory climbs against the purported inability to buy, basic economics predicts a crash in housing prices. This prediction also applies to the other major asset class of boomers; stocks and bonds. More on offer, fewer buyers and prices plummet as inheritances are liquidated.
What will go up in cost is health and age care. The idea of artificially transferring wealth from a class that is just now needing to deploy it, is a prescription for more government assistance (i.e. taxes).
Colledge is not addressing the real issue that has been driving up living costs for 50 years, debt. specifically, government debt. Often referred to as inflation, the actual issue is currency debasement, which has been steadily occurring since the mid-sixties. The answer, of course, is fiscal responsibility but any cut to government services is met with a howl of indignation. And boomers have been very vocal in their time.
A government policy to deliberately destroy wealth is madness. Reduced expectations may be the realistic answer and a little more education on how wealth is earned, created and stored.
The purchase of your home should be the core strategy of every Canadian, but I think it is subsumed to fancy cars, vacations, acrylic nails and monthly pedicures. It is also subsumed by the career culture where “I just want to do something I love and make a difference in the world”. Things like anime artist, women’s studies, musician and barista are all careers that have their place but if owning your home and financial independence are important to you, think long and hard before pursuing careers with a low prospect of providing either.
This is why I came to the conclusion a long time ago that the only way this gets fixed is a crash. I doubt enough people are altruistic enough to do what needs doing voluntarily.
Politicians and homeowners will work against that at every level, but I still think prices keep going down, as they already have been in the GTA and BC.
The gamut has been run. People stretched their incomes, added second incomes, brought in tenants, relied on parental help, and used equity pulled from inflated homes to buy even more inflated homes. Every workaround available was used to keep the game going.
But those workarounds are finite. Boomers have already used a great deal of their housing wealth to help their children buy into the same inflated market. The Marios of the world have less ability to do that. Everyone younger has even less room to work, save, or dream their way into ownership.
At some point you simply run out of people who can beg, borrow, or steal enough money to buy in. Housing got too expensive for those not already established to justify working towards it, and I think we're starting to see the consequences of that now.
Wealth confiscation no answer, which is the credo of the Canadian left.
Reaffirm private wealth, not socialist intervention.
Boomers look after their children and grandchildren.
Canada's issue are about wealth creation.
Which Carney has no anwers.
The article, while correct in direction, paints a singular proposition for correction: the Canadian citizen must bite the bullet alone. I would appreciate a revisiting of this topic to include:
1. Challenging the validity that home ownership is a "right"...or national goal. The foundational right to adequate housing was formally enshrined as law in 2019. On the contrary, citizens must be allowed to under save, under plan and live of life free of home ownership.
2. Tying the cost of "the fix" to our national debt. It's time for the politicians to understand the reality that inflation control and federal expenditure reduction must contribute a large portion of the funds to affect national housing prices. They must, however, pay the political price for reallocating voter-enjoyable programs to house price remediation.
3. Aligning student loans to specitic degree earning potential. Nationally we have students with high loans who took low income degrees (Women's Studies must be an example). Post secondary degrees and loans must, in part, be assessed on their contribution to housing affordabilitiy through higher incomes and more rapid loan repayment.
4. Mandatory 10% annual savings from the first year of taxable earnings. Funds may be redeemed at any time by the purchase of a home or formal acknowledgement that home ownership is not a significant personal objective.
The suggestion of such governmental interference is repulsive. Government has no right to intrude into the living rooms of Canadians. It implies that Canadians are unable to accept their responsibilities to provide for themselves...and to ditch the bitching when "everything" doesn't come their way. But "everything" changed in 2019 and government must accept responsibility for much of the problem.
The four steps above will, very painfully, move housing prices downwards.
I agree with 1 in principle, but I think that home ownership adds so much to flourishing for most people, that government should make it a key objective to run the polity in such a way that this is achievable for those who want it.
2 is obviously true, but I think we don't blame the final beneficiaries of current policies enough. Politicians and their clients most both suffer.
3. I agree. All government student loans should be repaid as a capped percentage of income over a period of time, and should be securitized bundled by degree and school. So a U of T engineer could pay $10,000 of tuition with 1% of income, while a Brock gender studies major might not be able to pay $10,000 of tuition at all.
4. I am charging my employed, at home, kids a substantial rent with the promise that that will get it back toward a deposit on a marital home.
Dear Epist. You're no fun. I sense we agree on everything in concept but would need a couple of beers to isolate the specific actions.
Sounds good. Are you in Toronto?
Happily...no. If you're ever north of there, the first one's on me.
Then no other service or social benefit should be a right until homeowners sell their home. I’m not going to be told I have to pay for geriatric homeowners ‘right’ to healthcare—really, their right to access healthcare without selling their home—while attainable ownership is not considered a social responsibility. Much of what we pretend is a safety net is really about not letting the established ever fall down the ladder, and it’s indefensible to think we ought to do that while having no obligation to keep the ladder there for the less established.
I’m willing to make the sacrifice. I bought,totally Reno 3 homes,sold them. All the while working full time,raising a family. Asset growth averaged 2.5% per year. Held each home for a min of 5 years. Was mortgage free on our third home. Built brand new our 4th. Hard work,live with some dust,off and on and do some of your own work. Leave the true Mechancal to Certfied Pros,ticketed for Insurance disclosure. There are deals out there,
I've come around to the idea that capital gains taxes on primary residences might be a good and necessary thing. One way to possibly cushion the impact of introducing capital gains on primary residences would be to declare a base year to start the calculation. For example 2024 as the base year for assessed housing value on homes already owned. As of the year 2025 capital gains would be applied as normal. Ideally it would protect near retirees counting on housing for retirement funding since much of the gains would be protected from taxation. Then hopefully it should cool the housing market going forward since housing would be treated like other investments. It would be political suicide so it will never happen.
No. Not another tax. I’ll let my house fall apart,lower my value,lower my tax. Watched my brother do it during a bitter divorce. Got ugly,his acreage was run down,on purpose. Lowered his assessment value
So much this. Every bad policy leads to equally bad reactions by the people affected by the bad policy.
There won't be any capital gains post 2024 for quite some time
That's a necessary part of a fuller tax reform that I have already thought through:
Implement principal residence gains taxation so that capital gains will be calculated after adjusting original cost for CPI since month of purchase. Restrict SINGLE FAMILY HOME ownership to RESIDENT ADULT INDIVIDUALS (not businesses/corporations), and only one (1) home per adult individual, implemented as follows:
1) Establish an initial implementation date. All houses purchased after this date will be subject to tax on CPI adjusted gain (with CPI adjusted losses deductible against other income) and restricted as described above. Note this is a trivial calculation - see note 9.
2) housing currently owned outside the above restriction must be sold within two years of initial implementation date, or be expropriated and sold at auction (with buyer eligibility restricted as described above obviously).
3) ALL housing sold after five years after initial implementation date will be subject to tax (with losses deductible) as described above.
The two year and five year windows would give ample time for markets to adjust to a new reality and prices to reflect that. Clearly, during the initial two year window there would be a significant increase in the number of homes for sale. This increased supply and the forced sale of investment properties into a new tax regime will significantly reduce housing prices.
Note that the new tax policy negates the need to differentiate between a principal residence and an investment property for capital gains purposes. Also, the housing restriction doesn’t require one to live in the home they own (they could rent elsewhere, or live with someone else). It also operates on an individual, not family basis. In other words there would still be a rental market for single family homes. Obviously it wouldn’t be as big, but neither would it need to be since housing would be more affordable to purchase. Clearly pricing for other rental markets (non single family dwellings) would be affected also, and no doubt overall inflation, and therefore interest rates, currency value and foreign investment too. To the extent that Capital is greatly and negatively impacted, I see that as a risk assumed, regardless of current governments insisting that tax free housing gains will remain a sacred cow. It can be done. It only takes government will.
Other notes:
1) housing capital cost (including purchase costs, e.g. legal, transfer taxes etc.) may be adjusted by capital improvements (again, CPI adjusted), but all operating costs such as utilities, regular maintenance, municipal taxes and mortgage interest are PERSONAL housing costs and therefore not deductible. Note that mortgage interest is sometimes considered a capital cost for tax purposes, but not necessarily, and in this instance would be explicitly excluded from being deductible, since it is related to how much home you’re buying, which is a personal, not an investment decision. Differentiating between capital (taxable) vs. operating (personal) is crucial in understanding why taxation does NOT imply deductibility for operating expenses.
2) residences would not be subject to capital gains tax until sold (no tax on accrued gains), however, utilizing (i.e. realizing) appreciating house value by remortgaging or otherwise encumbering based on an appreciated value would trigger a deemed disposition (with attendant tax) and reacquisition at the current value.
3) regulations will be required to ensure beneficial ownership truly resides with the owner (to avoid investment workarounds to the one home per individual rule)
4) taxes due on sale could be paid over five years (or perhaps some longer period if more commensurate with the time the residence was owned), or when the new house is sold, whichever comes first. This would, however, require differentiating principal residences from investment property.
5) the housing restriction would probably need to be restricted to urban areas or somehow made not applicable to non-urban vacation property. This would be fairly problematic to define, and I confess I don’t have a good solution (possibly based on no. of km from a population centre of a given size or density?). But I’m confident it is possible. At the very least, a simple (though not sufficient) definition would be that excluded vacation property would not be habitable year round.
6) restricting home ownership to residents is already done in some Caribbean, European and Asian countries, i.e. it’s not unheard of in the rest of the world.
7) this is NOT some sort of communist plot, I’m a capitalist by definition. Rather it utilizes a market solution to a market problem, albeit by simply restricting entry into the market for the good of society. Capitalism (i.e. some people) always needs some sort of restraint to avoid the tragedy of the commons. Capitalism should serve society, not the other way around.
8) expanding this treatment of capital gains (making 100% of the CPI adjusted gain taxable) to all investments would be preferred, as part of a greater tax reform. Note that some may claim this would be unduly onerous to active investors, to which I reply: “software.” This isn’t 1966.
9) in case anyone reading this doesn’t realize how the CPI adjustments are made: CPI adjusted gain = net current proceeds (after selling costs, like normal) - (original purchase price x current CPI/purchase CPI). It’s elementary school level arithmetic.
10) short term rental restrictions (AirBnB etc.) OUGHT to be a local zoning issue. I suggest that it remain so at least until the above changes work themselves through the market (presumably reducing the number of such rentals) and that it be revisited only if necessary.
11) The corollary to full taxation is that CPI adjusted losses should also be deductible. This is only reasonable, especially for those who would find that their recently purchased home is now worth a fraction of its purchase price. Spreading the cost of this implementation across the entire tax base (via loss deductibility) is also reasonable because all society (through democracy and political leadership) is responsible for the current bubble. Individual responsibility is also maintained for buying into a bubble. (Tax loss deductibility isn't a tax loss credit, but it could be in part if politically necessary). Of course, no one who purchased their personal home at the top of the market need sell since the usability of the home won't change just because its market value has, as long as they can still manage its operating and carrying costs, things which won't necessarily change.
Then mortgage interest becomes tax deductible, which has its own trade-offs. I don't think those are good trade-offs, given the experience in the U.S.
Non sequitur. See my response to the OP. (note 1)
BS... you're proposing a policy based on opinion. The argument makes no sense and interest is not a capital cost.
Based on reading the Carter Commission and 40 years of studying and thinking about tax reform. If you don't know under what circumstances interest is considered a capital cost, you're clearly not a CPA. I was.
You could have found ITA Subsection 18(2) and 18(3.1) with a simple google question.
That would discourage sales and would discourage upgrades to homes. Careful what you wish for.
It would depress prices, which is the point. Additional implementation terms would be required as I outlined in my response to the OP. Upgrades would only be discouraged if the owner didn't think they were worth the money, but they would still adjust the cost base.
For me, the housing crisis has come about after decades of crumbling infrastructure. We have to fix both. How do we build homes for cities that do not have the infrastructure to support new communities. I think if government somehow forced massive drop in prices we would likely be thrown into a recession. A really terrible awful one.
Bad news for homeowners? And seniors, I would imagine. This is our chickens coming home to roost or something more clever, it's early still.