The envy tax

If memory serves, this blog has foamed on in the past about the right to own property. You don’t have it. Nobody does. Because it’s not included in our Charter of Rights, governments at all levels can pretty much have their way with you. As is now the case.

(It was twenty-five years ago when, as a badass MP, I was able to persuade the federal government to include this right in a constitutional reform that also recognized Quebec as distinct. Canadians rejected the pact in a referendum. Harper later granted Quebec its special status, but refused to move on giving citizens property rights – which SJWs and greenies hate. Moisters, too now.)

The latest assault is a special tax aimed at people who don’t live in their houses enough. Vancouver brought in this silly levy earlier this year. Now Toronto is poised to do the same. The Ontario government, as part of its anti-bubble crusade announced in April, has granted municipalities the right to punish homeowners or investors for having any dwelling that is not lived in for six months.

In July the lefty councillors running the GTA adopted a report on taxing “empty” houses, and this week the city launched its consultation process – the precursor to passing this into law. The centrepiece is an online survey which automatically rejects responses from anyone not currently owning or renting in the region. So much for democracy. The basic questions are: should the tax be implemented?; what are the “potential public policy benefits of a property tax on vacant residential units” (there’s no mention of potential negatives.); and how should the tax be implemented.

If the Vancouver model is followed, everybody will have to file a form declaring their home is a principal residence, occupied by a family member or leased. If it’s empty for six months – and being unable to lease or sell it for the price you want doesn’t count – you’re taxed. Bigly. It’s 1% of the value of the property per year, which is about $700 a month on the average GTA digs.

The YVR experience so far is dismal. The city raised about $2.2 million in tax and spent $1.5 million collecting it. There is zero evidence rents anywhere have come down, that the rental stock has increased and meanwhile condo prices are 20% ahead of last year. The stated goal of forcing people with under-utilized properties to either sell them off or rent them out has not been realized. And, likely, it never will.

The empty house tax in both cities has its biggest support in Generation Squeeze, the moister-led, shared-economy, self-marginalizing outfit that would be happy to see Boomers hanging by their private bits from park lamp posts. The tax isn’t actually designed to raise a lot of revenue, says Head Squeezer Paul Kershaw, “but instead to change the incentives for how people use the real estate they own.” And Paul’s a smart boy. He knows you have no property rights.

Real estate is all class warfare now, with a healthy sprinkling of ageism, covered in the sauce of envy and entitlement. The empty houses tax is really a punishment of people with more than one place in which to live, since almost all amateur landlords are hot to lease their units and collect rent. Just as the Chinese were falsely blamed for a run-up in prices that cheap rates and house lust caused, so empty houses are held out as the reason for high rents. But tenants fork over a lot because they live in more valuable accommodation. When bubbles inflate, everyone pays.

Well, a few months ago I gave this summary of the Vancouver empty-house tax.

The argument in favour:
Houses are too expensive for average people to buy, which has placed big pressure on the rental market where vacancy rates are low, competition among tenants is stiff, and landlords are rentier bourgeoisie who should probably be gelded.

Says the Van mayor: “In a rental housing crisis, it’s unacceptable for so much housing to be treated as a commodity while people who live and work in Vancouver can’t find an affordable and secure place to live. Housing is for homes first, investments second. The Empty Homes Tax will help ensure the best use of all our housing, and boost long term rental supply by bringing thousands of homes back into the market.”

(By this logic, anyone with a house they live in full-time with an idle basement suite, or two empty bedrooms the kids used to occupy, is an equal target.)

The argument against:
Lots of people have secondary homes they live in part of the time – like downtown condos used for business purposes every single week of the year. That makes them unrentable, of course. Besides, the owners pay 100% of the property tax yet consume fewer services. And by avoiding a long daily commute, they curb the car and reduce pollution. Moreover, as owners they paid land transfer tax, fork out condo or strata fees, look after utility bills and contribute just as much to the local economy as some moister tenant.

Toronto is the financial capital of the country with thousands of Americans (and Europeans) working there at any one time for cross-border corporations. Many of them find it cheaper and more stable to buy than rent, so why should they be slapped with a tax on a property that’s occupied full-time? If we want urban centres which compete internationally, attracting global investment capital, why act like hicks and dorks?

So, I’ll say it again. This is no tax on empty houses. It’s a tax on the affluent who can afford downtown digs or need a place in another city. It will add no new stock to the tenancy market, or drop rents. It’s an assault on the right to own property which you don’t have. (Did I mention that?) And it’s a sop to those who would like us all to be equal.

Empty-houses taxes in Vancouver and Toronto may well breed similar in Victoria and Ottawa. One more nail in the property coffin, along with the AirBnB assault, universal rent controls, stress tests and rate hikes.

So, relax Squeezers. Rents will go down. Mr. Market has a way of looking after these things all on his own. Brutally.

The next 90

“Hi Garth,” says Dan the east-end Toronto realtor. “Even the little deals aren’t closing.”

So, this house on Chadwick – your typical, ugly, garage-snouted, suburban, 1980s place in Ajax – passed into the hands of new buyers in a fog of emotion a few months ago. In fact, it was a bully offer that won  – when a desperate purchaser forked over 126% of the list price in order to avoid an expected bidding war just a few days later.

As it went to market, this is what the realtor had to say about a thoroughly unremarkable house:

Client Remks:Prime Central Ajax Location!! Walk To Go Station, Shopping, Transit. Situated On A Quiet Court, Close To Great Schools And Parks. Solid 3 Bedroom Brick Home With Nice Curb Appeal, Finished Basement With Walkout To Private Fenced Backyard. Roof Reshingled Approx 8 Yrs Ago, Updated 2nd Floor Windows. Add Your Own Personal Touches. Don’t Miss Out! Extras: Ss Fridge, Ss Stove, B/I Dishwasher, Washer, Dryer, Gdo & Remote, All Electric Light Fixtures, All Window Coverings, Rough In For Bathroom In Basement. Appliances Are As Is. No Survey. Brkage Remks:Sentrilock For Easy Showings. Hwt Is A Rental. Please Include Schedule B & Offer Summary. Offers To Be Viewed On Monday May 1 @ 6:30Pm, Seller Reserves Right To Pre Emptive Offer.

Appliances as it. 8-year-old roof. Bathroom roughed-in. No survey. Add your personal touches. You get the picture. Expensive fixer-upper. But back in the third week of April, when listings were scarce and hormones plentiful, with the GTA coming off back-to-back months of 30%+ annual price increases, FOMO was in the air. Even the ugly ducklings looked like voluptuous movie stars. It was realtor game on.

So Chadwick, listed for $499,000, sold in two days for $630,000. Then the Ontario anti-bubble measures started to bite. The Bank of Canada increased its key rate for the first time in seven years. Five-year mortgage rates were hiked. Twice. The cost of lines of credit and variable rate home lines swelled. We heard about the bank regulator’s new stress test for all house buyers. Sales volumes began to collapse. Then prices followed. Fear of missing out turned into fear of not getting out. Scared buyers starting walking. Deals crumbled. And the Ajax house came back on the market.

What sold for $630,000 at the end of April is listed at $589,000. No sale yet. Odds are the final price will be significantly lower and, meanwhile, wall-to-wall stress. The average sold price in this once-affordable, distant Toronto burb was $762,000 in the spring, and has drifted down to $631,000 now – a 17% plop. It’s typical of what’s happening, and continues to unfold.

As I told some kid reporter from a house-pumping web site (BuzzBuzz something or other…) the declines experienced so far are but a prelude to events of the next 90 days. Things may get better for real estate in a dead-cat-bounce kinda way, but it’s a lot more likely they’ll get worse. The universal stress test will be in place before the end of 2017 and mortgage brokers expect it to restrict overall credit by about 18%. In other words, buyers will qualify for 18% less financing, which means they have 18% less to spend. So guess what happens to prices?

At the same time the Bank of Canada seems ready to inflate rates again in the third week of October and, unless Trump blows up, the Fed will also push the cost of money higher – the fourth act of tightening in one year.

The single greatest factor in shoving house prices skyward in Toronto, Vancouver, Victoria, southern Ontario and the Lower Mainland has been the historically-low cost of money. So as rates slowly normalize, and incomes stay stuck, the pendulum will swing back. Add in universal rent controls, vacant house taxes, the CRA’s war on speckers, foreign buyers’ taxes, the new mortgage stress test and a tax sledgehammer on small business and this market is pooched.

“Here’s some great advice,” Gill says in a note to me, “from a realtor in Alberta.”

Want to qualify now for a mortgage you won’t get later, in order to rush-buy a house that’ll likely decline immediately after you close? Good. Call today.

Never underestimate what living on commission will do to a man.