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On the eve of the last federal election, when rumors grew louder that the Liberals were quietly considering rescinding capital gains exemptions on principal residences, I literally burst out laughing.
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Never mind that it was revealed that our government’s Canada Mortgage and Housing Corporation had funded a study through the Vancouver think tank, Generation Squeeze, which looked at exactly that. There was absolutely no conceivable way this could be true, I said, because that would be political suicide.
I wrote on September 11, 2021: “It will never happen. Because it would enrage voters and blow up the housing market. As long as politicians are serious about getting re-elected, decimating the net worth of every Canadian homeowner will be no small feat.
Except now I’m not so sure, especially in light of the new Liberal-NDP alliance.
Look where we are.
A market that has become totally disconnected from the economic realities that should anchor prices. And a government whose policies brought us here, namely, turning on the tap to let the money flow with an apparent ambivalence about how that money, coupled with easily abused lending policies, was actually stimulating investment and the speculation.
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In some areas that were once popular sleeper communities outside the city, housing prices have more than tripled during the pandemic. I’m also optimistic that they’re coming to the housing market, but there comes a time when you have to pause and ask yourself if you’re so into it that you can’t see the forest for the trees.
This is, quite simply, extremely unsustainable.
And what exactly is our government doing about it? What could they do there? Sure, we can tax foreign buyers, eliminate blind bidding, and help first-time buyers tap into more cash to get a head start. But what will it really bring?
The question was always, how long would our government sit back and hope that market forces would self-regulate and then, when, would it decide it was time to intervene? 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 out of control. At some point, it was inevitable that the powers that be would decide it was worth getting dirty to get to the other side. And I can’t think of anything that would make more of a mess while achieving less than canceling the capital gains exemption for primary residences.
It would mean a sudden change in the conditions imposed on Canadians who have planned their lives and their financial futures based on the equity in their homes. And to be clear, it’s not just that the rules would change with many baby boomers relying on their home equity to fund their retirement. It is that at the same time, the market will surely falter and we will see even less in the market than what we have now.
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If that happens it won’t just affect baby boomers and it won’t just be a matter of the bank heist proceeds evaporating from pandemic housing appreciation, no, it will again be the young people who will suffer the blow in the near term.
The same people who had to save more and take on more debt to have the privilege of buying in the tightest real estate market on record.
If the market seizes on this government intervention leading to a precipitous drop, it will be those who have recently bought who will feel it the most intensely. And then of course, if by some miracle there is no meaningful price adjustment, all we will see is less inventory resulting in more competition which will serve to offset any subtle cooling in the market in response to rising interest rates.
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What’s the good side then?
It’s just a cash grab.
Critics would say, so what – real estate has gone from a mere home to a full-fledged investment vehicle. Why should wealthy people who already benefit from home ownership also be able to enjoy unconditional tax sheltering? This only widens the gap between the haves and the have-nots. And if that’s your point of view, I take your point of view entirely.
However, what should really drive your fury is the idea that the same entities that tacitly allowed our real estate market to explode in the first place are now the ones out to blow it all up while telling us that it’s is for our own good. And nothing about that idea is good.
Hopefully it’s a non-runner.
