LACKIE: Real estate capital gains tax should be non-starter

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In the lead-up to the last federal election when the murmurs got louder that the Liberals were quietly contemplating rescinding the capital gains exemptions on principal residences, I quite literally laughed out loud.

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Never mind that it had been revealed that our government’s Canada Mortgage and Housing Corporation had funded a study through Vancouver thinktank Generation Squeeze looking into exactly that. There was absolutely no conceivable way that could be true, I declared, as to do so would be political suicide.

I wrote on Sept. 11, 2021: “It will never happen. Because it would incense the voters and blow up the housing market. As long as politicians are in the business of being re-elected, decimating the home equity of every homeowning Canadian will be a non-starter.”

Except now I am not so sure, particularly in light of the new Liberal-NDP alliance.

Look at where we are.

A market that has become wholly untethered from the economic realities that should be anchoring prices. And a government whose policies have gotten us here, namely cranking the tap to let the money flow with apparent ambivalence to how that money coupled with easily-abused lending polices was actually driving investment and speculation.

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In some areas that used to be popular sleeper communities outside of the city, housing prices have more than tripled through the pandemic. I’m as bullish as they come on the housing market, but there comes a point where you have to take a pause and question if you’re so in it that you can’t see the forest for the trees.

This is, simply put, wildly unsustainable.

And what, exactly, is our government doing about it? What could they do about it? Sure, we can tax foreign buyers, eliminate blind bidding, and help first-time buyers tap into more money to get a leg up. But what will that really achieve?

The question was always, how long would our government sit back and hope that market forces self-regulated and then, at what point, would they decide it’s time to step in? If and when that day came, the real question is how disastrous would it be?

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The housing market is like a garden hose flailing out of control. At a certain point it was inevitable the powers-that-be would decide it was worth getting messy to get to the other side. And I cannot think of anything that would make more of a mess while achieving less than rescinding the capital gains exemption for primary residences.

What that would mean is suddenly changing the terms on Canadians who planned their lives and financial futures around the equity held in their homes. And to be clear, this isn’t just that the rules would change with many boomers counting on the equity in their homes to fund their retirement. It’s that at the same time, the market will surely reel and we will see even less on the market than we have now.

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If that happens, it won’t just affect the boomers and won’t simply be a matter of the bank-robber proceeds from pandemic housing appreciation evaporating, no, it will yet again be the young people who will take the hit in the near term.

The same people who have had to save more and take on more debt all for the privilege of buying into the tightest real estate market on record.

If the market seizes from this government intervention resulting in any kind of precipitous fall, it will be those who recently bought-in who will feel it most acutely. And then of course, if by some miracle there is no significant price adjustment, all we will see is less inventory driving more competition that will serve to offset any of the subtle market cooling in response to rising interest hikes.

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What is the upside then?

It’s just a cash grab.

Critics would say, so what — real estate has shifted from being simply one’s home to now a full-blown investment vehicle. Why should the haves who already benefit from property ownership also be able to cash in on a condition-free tax shelter? It’s only furthering the divide between the haves and have nots. And if that’s your view, I take your point completely.

However, what really should drive your fury is the idea that the same entities that tacitly enabled the explosion of our real estate market in the first place are now the ones willing to blow the whole thing up while telling us it’s for our own good. And nothing about this idea is good.

Let’s hope it’s a non-starter.

@brynnlackie