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Will shifting the way we tax improve housing affordability in B.C.?

Contrary to prior research, two experts are speaking out and saying that increased taxes will not help the housing and affordability crisis
Previous research has found a weak relationship between income tax and owned property value in Vancouver

An SFU researcher and property tax expert are challenging the idea that increasing the minimum income tax or adding a tax on the top 10 per cent of homes in B.C. will help with affordability, saying instead it will add more financial pressure on British Columbians as they navigate an inflationary period.

“Governments, universities and some lobby groups seem focused on confiscating people’s home equity through additional taxation and adding more red tape rather than enabling more homes to be built easily and affordably, that would also grow our economy,” said Andrey Pavlov, a SFU professor at the Beedie School of Business, in a press release. 

Local researchers have been proposing a progressive tax as a way of mitigating real estate being primarily used as a financial asset. According to Paul Kershaw, a UBC professor and founder of Generation Squeeze, the main question is: does it make sense to be sheltering housing wealth from taxes when it creates incentives to use housing as a potential way to get rich?  

Pavlov, along with Paul Sullivan of Ryan ULC, have challenged the notion that taxes should be raised, saying that one of the contributing factors to British Columbians not being able to afford homes is Canada’s growing taxes. 

In addition, they said none of the new housing taxes, such as the speculation and vacancy tax (SVT), have worked to fix affordability. 

Critics of this tax have pointed to recently released data from the B.C. government that shows that B.C. residents with second properties are the largest group affected by the SVT. According to the data, as of 2019, 2,287 B.C. residents paid at least some speculation tax.

However, the SVT also raised $78 million in 2021 that is meant to go back into affordable housing in areas subject to the SVT, according to a B.C. government press release. 

Pavlov and Sullivan also pointed to an incident where rental home builder Dak Molner paid $250,000 a year in vacancy taxes while waiting for a “slow-walked permit at city hall.” 

“We've seen that with the speculation and vacancy tax, David Eby championed that tax, and also with the additional school tax, that those are both taxes that are presumably going to improve affordability. But they did exactly the opposite. Following the introduction of [the SVT], Vancouver building permits dropped by 30 per cent,” Pavlov said. 

Carson Binda, B.C. director for the Canadian Taxpayers Federation, says that adding a tax will not help make homes more affordable. The impact of increasing taxes will “jack up” the costs of developers and realtors, in addition to transferring some of that onto future tenants or buyers, according to Binda. 

“Right now for many people in Vancouver, and myself included, homeownership is just out of the question. Forget about it. With the average home costing a million dollars in the Lower Mainland right now and the 20% down payment being needed, folks need to save up to $200,000 just for the down payment on the median home. Increasing taxes is just going to make it even more expensive,” Binda said. 

In October 2022, the Canadian Taxpayers Federation called on Premier Eby’s government to cut taxes to save British Columbians money. 

Eby has committed to introducing a new “flipping” tax, which would be a sales tax on real estate sold within two years of purchase. He has not released estimates of how much this tax hike will cost taxpayers in B.C. 

Other data referenced by Pavlov and Sullivan show that single-family homeowners in B.C. pay the highest property taxes in the country. According to research by Pavlov, Vancouver’s single-family homeowners paid an average of $6,235 in annual property taxes to their municipal government in 2019. Those in Ottawa paid $5,376 and those in Toronto, $5,182. 

“You need to compare apples to apples. Single family homes in Vancouver are a luxury. And so if you sort of compare people at different points on the distribution of home value, then I think that point would go away,” said Tom Davidoff, professor at UBC and director of the Centre for Urban Economics and Real Estate. 

In October, Davidoff, along with Paul Boniface Akaabre and Craig Jones, released a study showing that homes in the top 5 per cent of value in Vancouver, as of 2018, had a median value of $3.7 million, but the owners only paid $15,800 in income taxes that year. 

According to the study, this demonstrates a weak relationship between income tax and owned property value in Vancouver when compared to U.S. metropolitan areas. In addition, the study said this points to most luxury homes being bought with money “from sources other than earnings taxed in Canada.” 

“A modest minimum income tax based on property value could raise billions of dollars annually in both the Vancouver and Toronto metropolitan areas,” the study said. 

“Also, a minimum tax would create an incentive for low tax payers to leave, reducing revenue but enhancing supply available for local earners, consistent with existing policy goals.” 

Davidoff said that this is a more progressive and efficient tax code that would do more for affordability by ensuring that British Columbians who own expensive homes pay their fair share. 

In 2021, Kershaw authored a report that takes a similar but different route to shifting the way we think about taxation in B.C. The report proposes to tax the top 10 per cent of Canadians whose homes are assessed at more than $1 million annually.

“By sheltering our housing wealth in our principal residence through taxation, it is clear that we are creating policy incentives that encourage Canadians to celebrate when home prices rise and leave local earnings behind. Because homeowners, like me, get wealthier while I sleep, or watch TV, or cook in the kitchen, and the wealth that I accumulate there, I paid barely any additional tax on,” he said. 

A separate 2018 report by Kershaw points to Statistics Canada data that shows that annual property taxation in B.C. decreased by $2.5 billion, despite home prices tripling, when measured as a share of the economy by comparison with 1981. 

Polling data from Generation Squeeze, the think tank founded by Kershaw, shows that the majority of Canadians are in favour of disrupting homeownership tax shelters. 

Data shows that 68 per cent of respondents agreed with the idea of "implementing a modest surtax paid by the 10 per cent who own the most expensive homes." Even when the wording was changed slightly to note that the top 10 per cent represented those in homes valued above one million, there was still a majority in favour. 

“There's nothing about what I'm saying that is suggesting that adding a price on housing inequity on the value of the home above a million dollars is going to be the panacea. Rather, what we're saying is that this problem of housing affordability and housing inequality is so great and so challenging that we need to use every available tool in the toolbox to address it,” he said.