Policy experts are warning that B.C.’s latest property assessments show the gulf between homeowners and renters is widening and governments need to act now to narrow the gap.
The total value of properties in B.C. increased by 22 per cent between 2020 and 2021, the highest increase seen since 2017, when BC Assessment data showed values had risen by 26.3 per cent between 2015 and 2016.
Paul Kershaw, a policy professor at the University of British Columbia’s School of Population and Public Health, is calling for a new tax that would apply to homes worth over $1 million.
The surtax would accumulate for each year of home ownership, but homeowners would only pay the tax when they sell their properties. It would range from 0.2 per cent to one per cent of the price above $1 million. For a home that sells for $1.2 million, the seller would pay $400 for every year they owned the home; for a home that sells for $1.5 million, the annual tax would be $1,000.
The proposal is part of a report by Kershaw and other researchers, who received funding from the National Housing Strategy’s Solutions Labs program administered by the Canadian Mortgage and Housing Corp.
The tax is controversial, because for decades home sellers have not had to pay any tax on the sale of their principal residence.
But using his own home as an example, Kershaw says property market windfalls have become so high that it’s leading to gross unfairness between homeowners and people who don’t own property.
“BC Assessment reported that my home went from $1.7 million to $2.2 million while I slept last year,” said Kershaw, adding that the reason his three-bedroom home is valued highly is because it sits on a relatively large parcel of land in the semi-rural suburban community of Pitt Meadows.
“A $500,000 increase last year. That puts me in the top two per cent of households in the country in terms of the value of my housing asset.”
The 2021 housing market has some similarities to 2016, when a massive increase in Metro Vancouver home prices destabilized the housing market, making some homeowners wealthy but creating havoc for renters, who faced sharply rising rents and an increase in eviction attempts. In 2017, Vancouver recorded the highest increase in the number of homeless people in a decade.
The turmoil in the housing market was one factor that led to the BC Liberals losing power in the 2017 provincial election. The BC NDP formed a government that quickly introduced a range of taxes aimed at reining in property speculation.
In the years that followed, property values in Metro Vancouver’s priciest neighbourhoods fell, and total property values rose by more modest amounts in the years after those taxes were introduced.
But 2021 is different from 2016, Kershaw said.
In 2016, the massive property value increases — which reached 40 per cent between 2016 and 2015 in some neighbourhoods — were confined to the Metro Vancouver region. But over the course of the pandemic, property values have risen over the entire province, with some of the steepest increases seen in small towns or rural communities like Port Alberni on Vancouver Island, Slocan in the Kootenays and Oliver in the Okanagan.
That trend is likely driven by an increase in working from home, meaning city-dwellers can now look farther afield for properties in lower-priced rural markets. But it’s also putting huge pressure on lower-income renters and locals who are looking to buy a home.
Kershaw says not taxing housing equity gains is similar to allowing people to use offshore tax shelters. People who are outraged about corporations or wealthy people stashing money in low or no-tax jurisdictions should also be upset at the enormous gains made by homeowners, he says.
“That offshore tax shelter motivates people moving money out of Canada to preserve assets,” he said.
“A homeownership tax shelter motivates people to bank on rising home prices to gain wealth and protect it. And a system that turns homeownership into an investment strategy is going to crush affordability for those who follow.”
Kershaw’s proposal will likely be a hard sell politically. For decades, provincial and federal governments have encouraged homeownership with a slew of tax credits and benefits for homeowners.
In response to the 2022 BC Assessment property value increase, the B.C. government announced it would also raise the homeowner grant to properties worth $1.975 million, up from $1.625 million in 2021. Homeowners can receive grants of between $570 and $1,045, depending on where they live and other factors.
The homeowner grant is meant to help homeowners pay their property taxes, in addition to other measures like property tax deferral for older homeowners who may be house rich, but cash poor.
While the BC NDP made a campaign promise in 2017 to introduce a $400 grant for renters intended to match the homeowner grant, the NDP government has never moved to put that benefit in place.
Like Kershaw, Jill Atkey, the CEO of the BC Non-Profit Housing Association, saw the value of her home rise by hundreds of thousands between 2020 and 2021. She compared the difference of what workers pay in income taxes with the largely tax-free gains on property values.
“If my house was a worker, it would have earned $273,700 ($140/hr) last year,” Atkey wrote on Twitter. “But it also would have paid $101,000 in income taxes ($52/hr). Instead, it’ll pay about $5,000 ($2.56/hr) in property taxes and B.C. will kick in free money to assist with the hardship.”
Kershaw’s tax proposal would come on top of several other taxes introduced by municipalities or the B.C. government to curb runaway home prices.
Those include the City of Vancouver’s Empty Homes Tax, a provincial property surtax on homes worth over $3 million, a provincial foreign buyer’s tax, and a provincial speculation and vacancy tax that targets empty homes and households with “primarily foreign income.”
While some housing watchers say property taxes are just too low, Kershaw says his proposed tax would only apply to the top 10 per cent of properties. Illustrating how homeowners can use their home equity without selling their homes, Kershaw said he’s borrowed against the value of his property to invest in the stock market and fund home renovations.
“If we don’t rein in the dramatic returns to that most common kind of capital, we are absolutely creating all kinds of inequalities between generations and within generations,” he said.
“I am more affluent than others, but we don’t tax that which makes me more affluent — we really focus just on earnings.”