Squeezed

The flares went up a few days ago when Justin Trudeau sat down with Generation Squeeze. As you know, everything’s political now.

The meeting resulted in media reports, which begat speculation, which birthed scary newspaper columns which freaked out Grant – a blog reader.

Source: National Post

“How close do you think we are getting to this happening?” he asked me. “Is it worth selling a house we have had for 25 years and buying something else to protect our principal residence capital gains?”

What worries him?

That Liberals will tax home equity. Not by ending the principal residence capital gains tax exemption, but by whacking the Boomers with a de facto annual wealth levy based on real estate market values.

Now that T2 has cozied up to Paul Kershaw, the concern grows. The PM had a private ‘town hall’ meeting with members of the Squeeze a few days ago in YVR. Reporters were not allowed in but the group released an edited podcast. In it, Trudeau commiserated with those who think ‘fairness’ means taking more from the property-owning wrinklies. “We agree on all sorts of things and look forward to digging into the places where we can all learn from each other,” he said.

Source: Generation Squeeze

Kershaw is a university prof. His belief: “A wealth tax. We think it’s time to ask the 10% owning Canada’s highest value real estate to tolerate a small price on housing inequity in order to demonstrate allegiance to the Canadian dream that a good home should be in reach for what hard work can earn whether in rental or co-op housing or as owners.” The tax, Kershaw says, should drain $5.8 billion per year from homeowners who, “gained windfalls while they sleep and watch TV.”

The details of the tax: “To apply downward pressure on the skyrocketing housing prices that have landed Canada in an affordability crisis, we recommend adding a small surtax on homes valued over $1 million. This surtax would start at 0.2% and peak at 1%. Payment of the surtax could be deferred until the home is sold, to ensure high-value home owners with lower incomes aren’t put at risk.”

In other words, the tax would be a little less than $4,000 per year on the average detached in Toronto or Vancouver, rising to about $20,000, or $1,700 per month, on a place with a value of two million.

Kershaw & the Squeeze say the tax would not apply to many people – just the top 12% of homes by current value. The trouble, of course, is that most of those are concentrated in urban area, and mostly owned by older people. The average property in Vancouver sells for $1,207,100. In Victoria the average detached is $1,295,500. In the GTA, it’s $1,480,399. So, the average household would pay the tax – not because they bought or sold, but simply because they possessed an asset subject to an annual arbitrary stipend.

As you might imagine, this has caused a crapstorm on social media. Homeowners, of course, face substantial routine costs, including ever-increasing property tax. They also have zero influence on the market value of their properties. So being taxed on that – payable in after-tax dollars – could be a true hardship.

Of course, the kids don’t care. They view everyone with real estate as rich. And maybe the enemy, based on some of the insane comments published below. All landlords are ‘greedy.’ People with rental properties are ‘scalpers’. The sense of entitlement – that real estate is a human right – is overwhelming.

Well, as you have seen, governments have tried and failed to fulfill those expectations. They have banned foreigners, taxed non-residents brutally, punished those with ‘underutilized’ dwellings, stripped tax benefits from Airbnb operators, tried to crush people who buy and sell within a year or two, poured billions of public money into developers’ pockets and encouraged ripping up leafy hoods by dismantling zoning rules. The only thing that worked was a jump in the Bank of Canada rate, goosing mortgages. But that was not political. And it’s ending.

So will Trudeau – now desperately trailing the Cons in polling and in need of the ‘youth’ vote – go Squeezy and consider the wealth tax? Does Grant need to fear this?

No. Not yet.

But real estate has a big target on its back. If you have pumped most of your net worth into one asset, the time to change that is probably running out.

About the picture: “Garth: I met this fellow on a local path and figured that I might have to fight him in order to get by,” writes Jim. “However, the owner told me not to worry as he does this to every one he meets. I’m glad I didn’t have to fight cause I think he might have won.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.