CMHC-supported report suggests introducing a surtax on $1M+ properties

A new report calls for introducing an annual progressive surtax on properties that cost $1 million or more in order to solve the issue of sharply growing real estate prices in Canada.

According to the report by Generation Squeeze, which was backed by the Canada Mortgage and Housing Corporation (CMHC), it should be a 1% surtax deferred to a moment when the property is sold or inherited to reduce risks for homeowners with limited income.

In addition to it, the report suggests any interest rate applied to the deferred tax payments needs to be comparable to market rates.

“This annual surtax will reduce the tax shelter that encourages Canadians to rely more on growing home prices as a strategy for savings and wealth accumulation,” – the report says.

“Decreasing the tax shelter will disrupt feedback loops that cause home prices increases.”

In case the $1 million threshold is approved, the tax will apply to 9% of Canada’s households, including 13% of Ontario homes and 21% of British Columbia homes.

The report says the surtax may generate between $4.54 billion to almost $6 billion in revenue, which could then be directed into other housing initiatives aiming at renters, for instance.

The affordability crisis has worsened during the pandemic and the situation isn’t expected to change. RBC Economics called the outlook for Canadian homebuyers “grim” in a Dec. 20 report as growing interest rates keep decreasing a buying power.

The federal government may release new housing measures in the upcoming spring budget. However, according to Generation Squeeze, so far the government initiatives have “proven unable to restore affordability.”

The report suggests aligning the Canada Infrastructure Bank (CIB) with CMHC to encourage lending for purpose-built rental construction. Such a move could help the CIB reach its investment goals and supplement the National Housing Strategy to improve affordability.

In spite of all these suggestions, the report admits there is no easy way to restore housing affordability. “We need an approach addressing the full range of policy tools to shape the national real estate system.”