Prime Minister Justin Trudeau has made increasing housing a top priority by committing to “the most comprehensive and ambitious housing plan ever seen in Canada.” Unfortunately, he is also committed to muddled policies that kneecap his housing goals.
Trudeau’s decision to increase the capital gains inclusion rate for individuals from 50 per cent to 67 per cent on gains above $250,000, and for businesses on all gains, demonstrates his failure to understand the complexity of markets.
The large real estate developments Trudeau needs to increase the housing stock largely depend on residential property developers’ ability to assemble land on major thoroughfares. Because the mom-and-pop shops that would ordinarily sell their land to assemblers will now face a higher capital-gains tax hit, they will become reluctant to sell unless compensated by higher prices, making many developments financially unviable.
Moreover, the new housing that does get built will be costlier than otherwise, putting it further out of reach for an increasing number of home-seekers.
The capital gains hike will deter investment across the board. In housing it will act as an all-purpose house-construction killer. Fearing high taxes upon an eventual sale, shopkeepers will less often convert the attic above their store into a rental unit; homeowners will think twice about adding a granny flat. With less incentive to sell, many who had considered disposing of underused second homes will keep them off the market.
Trudeau has even been chipping away at Canadians’ one great incentive for home ownership — the capital gains tax exemption for primary residences. Entrepreneurs short on funds but handy with a hammer have long enhanced the housing stock by buying
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