2y ago

The housing crisis is not just a supply issue. Here are two solutions to fix demand

www.theglobeandmail.com

People are finally talking about shifting income tax to take some of the money out of the housing market:

First:

a lifetime cap of $1-million on the personal residence capital gain exemption [...] would limit unproductive investment in the real estate sector by discouraging retirement strategies based on the gains made from selling a house. It would also stop the investment strategy of buying a house, renovating, living in it the minimum amount of time to claim the tax credit and then flipping it for a tax-free gain.

They note that the lifetime cap wouldn't hit most Canadians in lower-cost communities. It should mostly hit higher end houses and higher income taxpayers.

Second:

a limit applied to the amount of interest that can be recorded as a business expense for single-family residences let as rental properties

They're suggesting these changes because

investors are the fastest growing mortgage segment with a 30-per-cent share of mortgaged home purchases nationally in the first part of this year, up from 19.6 per cent in 2020. They are now a bigger segment than repeat homebuyers and, over the past few years, have taken 6 per cent of market share from first-time buyers

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It's also not clear to me how a personal exemption limit solves the stated issue of investors gobbling 30% maker share. Investors aren't covered in the personal exemption anyways. Would it reduce house flippers? Sure, but they only occupy one residence at a time anyways, so they aren't reducing supply.
Capital gains, not total sale price of residence.
~~a lifetime cap of $1-million on the personal residence capital gain exemption.~~
This fucks anyone who moves or is recolacted for work. When I was in the army I was relocated every 2 years, so I'd burn through that cap in 8 years @250k, 4 years @500k, or a single posting to Ottawa. Police and border are in the same boat.
~~I've got a banker friend, they get relocated branches every 4 years.~~
I've got a doctor friend, she took a residency doing rural medicine in nowhere BC; but she plans to move back with her family in the Victoria area eventually, her family probably wouldn't or couldn't do that with a residence cap. That lifetime cap could change the calculus for doctors doing stints in areas that really need them. Particularly since these stints are normally early in the career while the cashflows are still tight from medical debts.
~~They note that the lifetime cap wouldn't hit most Canadians in lower-cost communities~~
~~It could hit them worse then higher-income. There isn't a lot of space to play with an extra tax payment, on top of all the other costs, to relocate for work opportunities.~~
It would also hit the retired community pretty hard, they are unlike to gain new sources of income, so that would be a big smack if they were looking to downsize or more to assisted living. That could cause an increase in predatory reverse mortgages.
~~This is a personal blind spot, but I'd guess there's also impacts on estate planning?~~
- This looks like a well written critique, but it's unfortunately just wrong. You clearly don't know what a capital gains is, it's not the sale price of your home.
  Capital gains is the sale price, minus what you paid for it (with some other smaller adjustments thrown in). So if you buy and sell regularly, unless you're making 250k each transaction in profit, you wouldn't blow through the cap by moving 4 times. If you bought at 800k and sell 2 years later for 900k you've only made 100k in capital gains. You'd need 10 of those transactions (and you'd have made a million dollars in profit) to hit the cap, and even then you'd only pay taxes on your actual gain in value not the house price.
  A reverse mortgage would only delay the tax until after the death of the person, it's not like dying invalidates taxes so any reverse mortgage would account for it. If grandpa or grandma sells a place for 1.5 million in profit (assuming they had never sold anything before) they'd only pay capital taxes on 500k (1 million would be exempt) and then the 500k in taxable capital gains are only taxed at 50% of the rate of your income tax rules. They'd likely only end up paying about 100k in actual tax on a 1.5 million dollar profit that you made.
  It's really a tax designed to hit people who invested and held onto more than a single home over many years.
  
  Thanks for the correction, I bungled the captial gains on home sale.
  I'm still not sure how capital gains exemption limits impacts investors at all though.
  
  oh thanks. I was thinking in terms of totaly sale prices.
- These changes aren't designed to fix things, they're to placate you and make you quiet for a few more years while things continue to get worse.
- I think that's where the other suggestion comes in:
  a limit applied to the amount of interest that can be recorded as a business expense for single-family residences let as rental properties
- yeah I was gonna say Im on my third place but I never did the whole flip thing. Just life events. Im getting older but will likely have to move at least once more as I age.
not. going. to. happen. Whatever government will be elected next will be guarding interests of people with (more) money. I.e. landlords and house owners. Unfortunately all we can hope for are band-aids while everything crumbles.
To remove resistance there are multiple possibilities, but most of them involve compensating property owners at fair market value today and disincentivese them from holding on to additional properties moving forward, guaranteeing citizens affordable housing into perpetuity and regulating the heck out of real estate market. This way existing property owners are less likely to stage a coup, and future generations are guaranteed to have roof over their head making real estate market unattractive to investors.
But since we are governed by laws of capitalism and not socialism (no, not the idiotic eastern block interpretation of communism) money loss is vewed as a big no-no (instead of seeing human dignity as a prime goal) - none of the above will happen as parties want to get re-elected and they need money for that... well you get the picture.
Whack-a-mole'ing it with micky-mouse measures will prolong the agony but will not end suffering.
TLDR; solution is to change political system first, otherwise there's no hope for a real solution to any of this.
- Member when political parties were getting funded on the number of votes they got?
  I member.
  
  Oh man can you imagine a system that actually decided budget by number of voting citizens. That would be wild. Could really incentivize cities, but I could see necessary rural communities being fucked a bit but still something like that would push for higher voter turnout and popular ideology in the governing members
you need to also fix the SUPPLY side of the issue:
Ban AirBnb-like month+ long rentals
Ban ownership of homes for the SOLE purpose of renting out
Ban Rental of homes to AirBnB sharks who then rent out for short terms (Aka Montreal Shuffle)
- you need to also fix the SUPPLY side of the issue:
  But your suggestions only address the demand side of the equation?
  
  I think that's why they used the word "also"
- also
  I like that part.
- We build more new units per quarter than all the Airbnb listings that exist across Canada. Banning them would not free up any sort of significant supply.
  If you ban ownership for the sole purpose of renting, where are renters supposed to live? Someone has to own every unit that gets rented out. There are many reasons why someone may want to rent rather than owning, ownership is not beneficial in every situation.
  Sure ban subletting to Airbnb, it's not going to hurt anything to do that. Go ahead.
  Airbnb is a great scapegoat, it's easy to point at and does have some realistic impact, but even the biggest studies are showing that the impact is still fairly low. https://www.cbc.ca/news/canada/british-columbia/short-term-rental-report-1.6973598
  "The study by McGill University, led by professor David Wachsmuth, found that between 2017 and 2019, the growth of short-term rental units accounted for 19.8 per cent of rent increases in the province."
  So prices doubled, and Airbnb only accounted for 20% of the 100% increase. Going from 1000/month to 1800/month is better than 2000/month, but it's unaffordable either way. Even if we ban Airbnb, that other growth is going to keep occurring and we aren't doing a damn thing to slow that down.
  
  We build more new units per quarter than all the Airbnb listings that exist across Canada. Banning them would not free up any sort of significant supply.
  Are there any statistics on that that are more granular than "across Canada"? I'd imagine some areas (coastal BC, small touristy towns, prime downtown locations, etc.) Would make up a higher share of Airbnbs than their share of new construction.
This is the best summary I could come up with:
George Athanassakos is a professor of finance and the Ben Graham Chair in Value Investing at the Ivey Business School, Western University, London, Ont.
Regarding the housing crisis, we hear a lot about the supply issue but, other than the pressures brought on by immigration, the demand side of the equation gets very little attention.
Furthermore, well-informed and well-organized NIMBY groups that are highly motivated will always find ways to throw sand in the gears of any potential new development affecting the character of their neighbourhood.
Such a policy would have no direct effect on people if they don’t sell their primary residence and would have very limited impact on Canadians living in less expensive communities.
This policy change would limit unproductive investment in the real estate sector by discouraging retirement strategies based on the gains made from selling a house.
It would also stop the investment strategy of buying a house, renovating, living in it the minimum amount of time to claim the tax credit and then flipping it for a tax-free gain.
The original article contains 888 words, the summary contains 174 words. Saved 80%. I'm a bot and I'm open source!

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