Despite the dampening financial impact of the pandemic across the globe, this period has seen property prices sharply rise in much of the Canadian market, particularly during 2021. According to WOWA, the two most expensive real estate markets remain Toronto and Vancouver.
As of December 21, 2021, the average sold price for a home in Toronto was $1.16 million, up by 22% from the previous year, and $1.21 million in Vancouver, an increase of 16% year-over-year. The average price of a Canadian home rose to $720,854, representing an increase of 19% from the previous year. 2021 also saw over 630,000 homes being sold, setting a new annual sales record.
In a bid to tame these rising home prices, Vancouver based non-profit think-tank, Generation Squeeze, has proposed the introduction of a new luxury tax on homes worth over $1 million. This surtax proposal is progressive, getting steadily larger as the homes increase in value to over $3 million. The tax would be deferred for homeowners that are on a limited income, like seniors. Their exemption would make the taxes payable when the house is sold or inherited.
Generation Squeeze is partly funded by the National Housing Strategy’s Solutions Labs program through the Canada Mortgage and Housing Corporation (CMHC). It operates out of the University of British Columbia, with Professor Paul Kershaw being a founder. Kershaw stated that 90% of Canadians were not likely to pay anything towards this surtax as it would only apply to those at the very top of the real estate ladder. This grouping is believed to be benefitting from large windfalls netted from non-taxable gains on principal residences.
If set at 0.2% on homes valued at $1 million and gradually increased to over 1% on homes worth more than $3 million, Kershaw believes it could raise about $5 billion a year in tax revenues that could be put towards green and affordable purpose-built rentals and co-ops, and other affordable housing initiatives that would discourage speculation.
Kershaw added that this tax was not intended to punish luxury homeowners, but rather have them use their wealth to help others own homes as well. The proposal comes shortly after a Royal Bank of Canada (RBC) report found that housing affordability in the country is at its worst level in 31 years.
The proposal also calls for the creation of a Perpetual Affordable Housing Bond that will aid in generating funds to help support the transition of low-density housing into permanently affordable rental units.
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