Capital Gains Tax on Primary Residences

[Michael Hardner]

22 minutes ago, ExFlyer said:

Just answering, or trying to put in perspective your comment about housing keeping up with population increases.

2 things,

1. Housing costs are what they are because of material costs, labour and development charges.

2. Rental rates are also dependant on material costs for repairs, labour  also for repairs and municipal taxes and charges.

All those things have gone up substantially and those costs are passed on to the consumer hence, the cost of housing is up. 

Competition in the market normally drives prices down except in housing because completion means more buyers than seller therefore the buyers are driving the price of houses. Trying to find someone else to blame for high housing costs is nonsensical because it is obvious, we are doing it to ourselves.

I would agree with you if you could provide a cited breakdown of average costs of land acquisition, labour and materials.  Somehow I doubt that a patch of farmland, a crew and some wood and cement work out to close to $1M.

Mike

[ExFlyer]

4 minutes ago, Michael Hardner said:

I would agree with you if you could provide a cited breakdown of average costs of land acquisition, labour and materials.  Somehow I doubt that a patch of farmland, a crew and some wood and cement work out to close to $1M.

Mike

Mike, the cost of a piece of property in a city/municipality in Canada varies and is different in each city. In Toronto a housing lot can be  as little as $100K and the sky is the limit. Same goes for Vancouver. It is probably a lot less in Moosejaw Saskatchewan.

Lumber prices alone went sky high last year (maybe the year before) so that had a huge impact on the price of a house or condo. Prices for building materials also went through the roof (we put off some renovations because of the super high quotes we got).

Around where I live, there are construction, landscape, painting, drywall installers all looking for labourers alone offering $30+ per hour. Tradesmen are getting far more. My buddy in the concrete business said that concrete alone more than doubled in price and laborers are getting $40 to $60 per hour.

Lastly, we are not talking about farmland. Having said that, the big debate in the GTA surrounding area they are building on former farmland. Lots of people upset at losing it but they are building anyway and those houses are close to a million (for townhomes, single family homes are more).

Not sure where oyu are but, it is not a pretty picture in many places in Canada.

[Michael Hardner]

31 minutes ago, ExFlyer said:

Not sure where oyu are but, it is not a pretty picture in many places in Canada.

I guess so but prices have been increasing since before the materials shortage.

[ExFlyer]

57 minutes ago, Michael Hardner said:

I guess so but prices have been increasing since before the materials shortage.

Yes they have and as the old adage says, you can never go wrong with real estate.

Also, as I said, the consumers are in a big way responsible for the huge rise lately. They are making the prices rise by the desire to own a home. Bidding wars is the norm nowadays and all that does is drive the price up.

I feel, if the mortgage rates go up, the housing will drop. I was one of those unfortunate people that had a mortgage at 17%. I lived in Edmonton at the time and I saw many homes being abandoned.

[Army Guy]

On 4/7/2022 at 8:45 AM, Michael Hardner said:

Some points first - as much for others than you.

1. You and I have a long history but whether we agree or disagree we will always have an honest and productive discussion.  This makes me willing to put work into our discussions.
2. I am still researching the housing crisis and it IS a crisis.  The causes are not well known, but these things can be established by looking at data.  It's as important to solving our political discussion crisis as the housing crisis itself that we do so.
3. I am convinced it's not immigration causing the crisis, but that doesn't mean that I think immigration policies are fine as they are.  I feel they are being abused to serve some sponsors,and that healthcare and urban planning are not being given enough care to manage our population growth.  When you add to that the political scapegoating that happens with immigration, it means we need to take a pause and look at what is happening.

Now - where I got my conclusion from is here.  The number of housing completions is generally trending up as is immigration.  

https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3410013501&pickMembers[0]=1.1&pickMembers[1]=4.1&cubeTimeFrame.startMonth=01&cubeTimeFrame.startYear=2012&cubeTimeFrame.endMonth=10&cubeTimeFrame.endYear=2021&referencePeriods=20120101%2C20211001

Given that the numbers aren't spiking anything like how home prices are, and given that the average home in Canada has 2.5 residents, and that that number may be more for immigrant families...

https://www.oecd.org/els/family/47710686.pdf

It doesn't seem that we are not building enough for immigrants.  Here's a table I made of the annual totals.
 

This, to me, seems totally adequate on the aggregate to house our immigrant population.    What are some possible other causes ?  I would estimate that Air BnB has an impact...  This graph for NYC shows that they have been spiking upwards... to very high levels as of 2018.

 

https://towardsdatascience.com/airbnb-rental-listings-dataset-mining-f972ed08ddec

Your charts do not take into account how many builds we are short right now, CBC did a story today, and they quote Ontario alone  has a 10.5 million home deficit right now.. which would skew your numbers if they are already working in the negatives....They did not share a source but that is one province, what is the deficit nation wide...and if we are only producing a 1/4 million new homes each year across the country...plus taking into account immigration of 450 k a year, families looking for bigger or families looking to down size into new homes i don't see us closing any gaps anytime soon. They quote a labor shortage which is holding new builds at this low rate...

Maybe instead of Justins plan, we can address this shortage by subsidizing trades training or perhaps paying for the whole shot...and expanding these schools across the country...these trades are going to be in demand well in to the future. 

[Army Guy]

1 hour ago, Michael Hardner said:

I guess so but prices have been increasing since before the materials shortage.

There is not a shortage of lumber, lots of lumber being produced across NB, most lumber yards are choked filled with new lumber, they are only releasing it in small numbers slowly to make it look like their is a shortage... i use to be able to buy a 2 x 10 x 8 for around 20  dollars each now they are 69 dollars each... i recently got a quote to build a new home and was told 250 dollars a square foot, for a standard build, no fancy kitchen or finishes, no landscaping no paved driveway, just a plain home that runs 450 K for 1800 sq feet of finished living space....I was also told that the quote is only good for today, as the market is influx and only getting worse....i was advised to have an additional 20 to 25 % for any changes....This is in the back country outside of Fredericton, i can only imagine what it is like in the cities.. 

[eyeball]

1 hour ago, Michael Hardner said:

I guess so but prices have been increasing since before the materials shortage.

Another thing that's increased the cost are the standards to which new buildings need to be constructed.  Around here people need to take earthquake measures into account. This means hiring geo-technical engineers to oversee the construction of the foundations. Another is that an owner who chooses to construct their own building has to take a course and pass tests before the building permit is issued and live in the house for a year before selling it.  

[Moonbox]

17 hours ago, Michael Hardner said:

1. I think picking a 10 year average is thin ice, and the other things I pointed out but ok.

What does thin ice mean in this case?  Housing supply isn't something that can be solved in a year or two.  As I mentioned earlier, large rental projects can take over three years to complete from zoning/land purchase to completion.  For a demographic issue like housing, you want to be using an average.  Regardless, real-estate speculation and skyrocketing prices have been a problem for longer than 10 years.  Affordability has been getting worse and worse and probably only really collapsed in 2016-2017 and beyond, but this isn't something that jumped out of the woodwork on us.  I don't know the exact numbers, but from what I recall both Canada and to an even greater extent Ontario have technically increased housing builds compared to population over the last 5 years, but not to the extent that it substantially reduces the existing shortfalls.  

17 hours ago, Michael Hardner said:

2. I think if all countries are seeing the same problem then we have to ask what is causing that.

All countries are not seeing the same problem. Canada and to a lesser extent the UK and the US are, but asking what's causing the problem is precisely what we're doing.  

17 hours ago, Michael Hardner said:

4. I don't think it was a problem 10 years ago and I wonder if it is today.  

What do you even mean by this?  Housing prices were detaching from Canada's wage growth even 10 years ago when I still worked at a bank. https://nationalpost.com/news/canada/canadas-unhinged-housing-market-captured-in-one-chart

17 hours ago, Michael Hardner said:

5. My challenge to you is to find a studied source that blames speculation.  Then see if Scotiabank, Re/Max, The Builders' Association, etc. are co-signatories on said report

Basically nobody (outside of realtor boards/associations) is arguing that overheated demand and bonkers speculation isn't fueling housing prices today.  Mathematically the disparity in supply and demand cannot explain price growth like we're showing above.  

https://www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.housing.housing-note.housing-note--april-4--2021-.html

“Speculative activity is the issue of most concern, and any immediate policy actions should be limited to reducing speculation,” Perrault said. The government could, for example, consider taxing sellers who buy a home only to sell it again quickly.

https://thoughtleadership.rbc.com/hot-canadian-housing-markets-call-for-a-policy-response/?utm_medium=email&utm_source=salesforce&utm_campaign=housing

Policymakers should look at a range of options to discourage speculative activity as this could generate further volatility. We find New Zealand’s just-announced phasing-out of mortgage interest expense tax-deductibility for investors an interesting proposal.

How best to address the problem is what the real question is.  Central bank policy (rising interest rates) will no doubt have an impact, along with recent budgetary measures targeting speculation.  These all help curb inflated demand, but we're still short on housing.  Worse is that we're short on the right kind of housing and in the right places.  Upzoning middle/lower class neighborhoods in Toronto to build pocket-mansions or luxury condos or building higher-class 1-bedroom apartment buildings (popular with speculators) can boost housing completion numbers, but they're not actually improving supply for struggling middle-class or lower-income families.  

 

 

[Moonbox]

1 hour ago, eyeball said:

Another thing that's increased the cost are the standards to which new buildings need to be constructed.  Around here people need to take earthquake measures into account. This means hiring geo-technical engineers to oversee the construction of the foundations. Another is that an owner who chooses to construct their own building has to take a course and pass tests before the building permit is issued and live in the house for a year before selling it.  

Material and construction costs are not responsible for more than a small percentage of overall cost.  Michael is right that speculation and inflated demand are the real issue, but solving it requires tackling the disparity of supply/demand from both sides.  Predatory/risking speculating and overly-accommodative monetary policy are key things that should be (and look to be) getting addressed, but then a lack of affordable supply promotes the environment where this sort of speculation thrives as well.  

Developers will start steering away from more expensive higher-margin developments if municipalities and other levels of government focus on promoting affordable, sustainable housing growth.  

[West]

8 hours ago, Michael Hardner said:

I guess so but prices have been increasing since before the materials shortage.

Several reasons. Low interest rates, Foreign speculation and obscenely high immigration rates certainly don't help.

[eyeball]

5 hours ago, Moonbox said:

Material and construction costs are not responsible for more than a small percentage of overall cost.  Michael is right that speculation and inflated demand are the real issue, but solving it requires tackling the disparity of supply/demand from both sides.  Predatory/risking speculating and overly-accommodative monetary policy are key things that should be (and look to be) getting addressed, but then a lack of affordable supply promotes the environment where this sort of speculation thrives as well.  

Developers will start steering away from more expensive higher-margin developments if municipalities and other levels of government focus on promoting affordable, sustainable housing growth.  

I guess I'm looking at construction from an older school way of doing things. I constructed my buildings myself 35 years ago, mostly with beach-combed logs I sawed into lumber.  You're just not allowed to do that sort of thing anymore.  Nowadays the lumber has to be graded, planed, sanded and stamped with approval....the wood I salvaged was almost entirely export grade old growth fir you'd be hard pressed to find anywhere in Canada now.  The wood has hardened up so much I have to drill a hole to pound a nail into anything.

In addition to stricter regulations are by-laws established by local governments.  I don't think nimbyism is a barrier that has been touched on enough, especially as it relates to density.  How exactly the new $4 billion dollar Housing Accelerator Fund budgeted by Ottawa for municipalities to build new housing is supposed to work seems a little mysterious to me. In addition to building affordable housing I also heard mention about cutting red-tape. Where, what and how and in such a way that it won't be subject to public backlash if it aggravates the issues with density so many people have everywhere?  For many small towns increased density may also mean expensive upgrades to infrastructure.  It doesn't help that affordable housing is code for housing projects for people on welfare. 

I wasn't kidding when I said the word dictator will quickly be thrown at any government that tries to change or override zoning that was largely shaped by local public input.  For example when the area planning commission I'm on switched to ZOOM for public meetings shortly after COVID hit emails about the end of democracy started flying the next day.   We're talking about variances for height restrictions, size of decks, and setbacks for creeks and such, not exactly constitutionally relevant but it is what it is.  And yet even these can trigger people now.

Remember Marvin Heemyer and his bulldozer rampage?

Edited April 9, 2022 by eyeball

[cougar]

5 hours ago, West said:

Several reasons. Low interest rates, Foreign speculation and obscenely high immigration rates certainly don't help.

I actually can see zero sound reason.

The curve  above shows that the houses have become unaffordable.  Unaffordable means you cannot buy a house, or at least the masses represented by the "disposable income" curve cannot buy them.

In other words, those who are still buying are not represented in the curve, or their number is so small that it does not affect the curve by much.

I guess what the picture shows is how wide the gap between the super rich and the rest of us have become.

Edited April 9, 2022 by cougar

[August1991]

On 4/3/2022 at 10:30 AM, ExFlyer said:

The Feds, last year, were thinking of capital gains tax on your principal residence. This kind of went away but seems to be resurrecting.

....

I have flipped through this thread.

1. Why is a capital gain taxed at 50%?

2. Why do we have a "gross-up"?

3. Why is a principal residence exempt?

At least, we don't have the American tax deductions for mortgage. And in Canada, we never had the SALT deductions (Trump wisely eliminated them).   

[August1991]

The Big One:

We in Canada (and everywhere else in the civilised world) have a Consumption/Value Added Tax.

Americans do not have a federal VAT.

=====

Mulroney did it. A true conservative.

[ExFlyer]

3 hours ago, August1991 said:

I have flipped through this thread.

1. Why is a capital gain taxed at 50%?

2. Why do we have a "gross-up"?

3. Why is a principal residence exempt?

At least, we don't have the American tax deductions for mortgage. And in Canada, we never had the SALT deductions (Trump wisely eliminated them).   

1. Tax grab for government revenue

2. The purpose of grossing up the dividend by 38 per cent is to approximate how much pretax profit the company would have had to earn

3. Because it is where you permanently live and the sale of such has never been considered an income  investment.

SALT was not eliminated, the federal part was lessened.

 

[CITIZEN_2015]

Well nothing about Capital gain on primary residence tax in the budget. Where this thread came from? 

Edited April 9, 2022 by CITIZEN_2015

[ExFlyer]

On 4/9/2022 at 1:43 PM, CITIZEN_2015 said:

Well nothing about Capital gain on primary residence tax in the budget. Where this thread came from? 

There are many things that happen that are not in the budget. Governments make all sorts of "adjustments", change regulations and other policies that are not in a budget. A budget, as we have come to realize , is really just a SWAG (maybe even without the S) and hardly a definitive spending plan.

Question and discussion came from the link in the first post

"In the lead-up to the last federal election when the murmurs got louder that the Liberals were quietly contemplating rescinding the capital gains exemptions on principal residences"

[Nationalist]

On 4/8/2022 at 10:42 AM, ExFlyer said:

Mike, the cost of a piece of property in a city/municipality in Canada varies and is different in each city. In Toronto a housing lot can be  as little as $100K and the sky is the limit. Same goes for Vancouver. It is probably a lot less in Moosejaw Saskatchewan.

Lumber prices alone went sky high last year (maybe the year before) so that had a huge impact on the price of a house or condo. Prices for building materials also went through the roof (we put off some renovations because of the super high quotes we got).

Around where I live, there are construction, landscape, painting, drywall installers all looking for labourers alone offering $30+ per hour. Tradesmen are getting far more. My buddy in the concrete business said that concrete alone more than doubled in price and laborers are getting $40 to $60 per hour.

Lastly, we are not talking about farmland. Having said that, the big debate in the GTA surrounding area they are building on former farmland. Lots of people upset at losing it but they are building anyway and those houses are close to a million (for townhomes, single family homes are more).

Not sure where oyu are but, it is not a pretty picture in many places in Canada.

Huh...I've been looking at demolishing and re-building on one of my properties in Toronto. My research shows it would cost about $500k to do the demo and build 2 houses on the same lot. Each house would sell in today's market for about 1.5 million.

On the other hand, should I decide to simply build another apartment on top of what's already there, the cost would be about $200k (Maximum) with a rental value of about $2500/mo.

Evidently, housing prices have much more to do with value than they do with cost to build.

[Michael Hardner]

On 4/8/2022 at 2:41 PM, Moonbox said:

1.  Housing supply isn't something that can be solved in a year or two.  As I mentioned earlier, large rental projects can take over three years to complete from zoning/land purchase to completion. 

2. For a demographic issue like housing, you want to be using an average.  Regardless, real-estate speculation and skyrocketing prices have been a problem for longer than 10 years. 

3. Ontario have technically increased housing builds compared to population over the last 5 years, but not to the extent that it substantially reduces the existing shortfalls.  

4. All countries are not seeing the same problem. Canada and to a lesser extent the UK and the US are, but asking what's causing the problem is precisely what we're doing.  

5. What do you even mean by this?  Housing prices were detaching from Canada's wage growth even 10 years ago when I still worked at a bank. https://nationalpost.com/news/canada/canadas-unhinged-housing-market-captured-in-one-chart

6. Basically nobody (outside of realtor boards/associations) is arguing that overheated demand and bonkers speculation isn't fueling housing prices today.   

How best to address the problem is what the real question is.  Central bank policy (rising interest rates) will no doubt have an impact, along with recent budgetary measures targeting speculation.  These all help curb inflated demand, but we're still short on housing.  Worse is that we're short on the right kind of housing and in the right places.  Upzoning middle/lower class neighborhoods in Toronto to build pocket-mansions or luxury condos or building higher-class 1-bedroom apartment buildings (popular with speculators) can boost housing completion numbers, but they're not actually improving supply for struggling middle-class or lower-income families.  

 

 

1. What about a crash that puts lower priced dwellings on the market en masse ?

2. Perhaps, but 10 years ago I could afford to buy on one salary.  "Skyrocketing" means something different every year.

3. That seems right, but also seems to undercut a point you made previously.  But ok, that makes sense.

4. Yes, and very strange that nobody has a clear answer that is on the top of the public understanding.

5. I concur but look at the right end of the graph in RED.  That is skyrocketing, not just detached.  Anyway, we seem to agree yet again.

6. They can come on stronger, and they have been, but they don't want a hard landing.  I suspect that there are a lot of empty/underused dwellings out there.

[ExFlyer]

1 hour ago, Nationalist said:

Huh...I've been looking at demolishing and re-building on one of my properties in Toronto. My research shows it would cost about $500k to do the demo and build 2 houses on the same lot. Each house would sell in today's market for about 1.5 million.

On the other hand, should I decide to simply build another apartment on top of what's already there, the cost would be about $200k (Maximum) with a rental value of about $2500/mo.

Evidently, housing prices have much more to do with value than they do with cost to build.

Not sure what you are contesting or trying to convey?

You do what suits you and your requirements.

The discussion I had was potentially what went into the cost to build a house.

[Moonbox]

1 hour ago, Michael Hardner said:

1. What about a crash that puts lower priced dwellings on the market en masse?

Could happen, but not likely I don't think, and policymakers have talked a lot about trying to avoid this and go for a "soft landing" instead. 

1 hour ago, Michael Hardner said:

2. Perhaps, but 10 years ago I could afford to buy on one salary.  "Skyrocketing" means something different every year.

Skyrocketing is hardly an academic term.  The detachment in price vs income has been a long and steady burn, however,   

1 hour ago, Michael Hardner said:

3. That seems right, but also seems to undercut a point you made previously.  But ok, that makes sense.

Well it's a question of framing.  10 years vs 5 years, what regions you look at etc.  For Ontario, I don't think the farming  really matters considering the shortfall and how it's not being filled by any significant measure.  

1 hour ago, Michael Hardner said:

4. Yes, and very strange that nobody has a clear answer that is on the top of the public understanding.

A question of stakeholders.  The housing boom has been great for public coffers and for for existing owners and folks who could still afford.  Canadians are generally terrible savers and a lot of their retirement plans hinge on their primary residence.  

Housing has continued to be a problem for a long time in Canada especially (but also in the US, with more recent lessons learned and forgotten) because of how many people are benefiting from it.  That the problem was running away into absurdity was obvious back in 2017 and I've been cautioning clients about over-leveraging/investing into real-estate since probably 2016 (and looking like an asshole over it so far) but up until (relatively) recently, there hasn't been enough opposition to it.  At today's values it's almost like investing in Bitcoin - there's no objective case to make for the price, but people think it's going to go up because it keeps going up which reinforces the idea that it's always going to go up.

We're only just starting to see push-back as millennials priced out of the market are quickly becoming the most dominant demographic.  This hasn't been a voting issue yet, but it will front-and-centre in the next election.   

1 hour ago, Michael Hardner said:

5. I concur but look at the right end of the graph in RED.  That is skyrocketing, not just detached.  Anyway, we seem to agree yet again.

Yeah that's pure insanity.  That the government and the regulators didn't step in seriously back in 2017 is negligent and incompetent but the huge spike through COVID can be attributed to the big spike in disposable income.  Nobody had anything else to spend their money on.    

1 hour ago, Michael Hardner said:

6. They can come on stronger, and they have been, but they don't want a hard landing.  I suspect that there are a lot of empty/underused dwellings out there.

There are certainly some.  My cousin bought a place in a nice part of Waterloo maybe 7 years ago for ~750,000 and it's probably close to $2M now.  A Chinese family bought the place next door after the first week or two they've never been back.  It's just been sitting empty and getting maintained since then.  Great investment.   

[Nationalist]

1 hour ago, ExFlyer said:

Not sure what you are contesting or trying to convey?

You do what suits you and your requirements.

The discussion I had was potentially what went into the cost to build a house.

I'm saying it doesn't cost a mil to build a house.

[ExFlyer]

56 minutes ago, Nationalist said:

I'm saying it doesn't cost a mil to build a house.

You are right about the actual material. We are talking about housing though and that is not just the house itself, it is the land and all the associated permit and fees.

A house in GTA will cost about the same to build as it does in Sudbury but, the land and fees are a lot different. the finished house on it's property may only cost 300 or 400K in Sudbury but much closer to a million in GTA.

[Nationalist]

7 minutes ago, ExFlyer said:

You are right about the actual material. We are talking about housing though and that is not just the house itself, it is the land and all the associated permit and fees.

A house in GTA will cost about the same to build as it does in Sudbury but, the land and fees are a lot different. the finished house on it's property may only cost 300 or 400K in Sudbury but much closer to a million in GTA.

Obviously Toronto is full. Build in Sudbury.

[ExFlyer]

1 minute ago, Nationalist said:

Obviously Toronto is full. Build in Sudbury.

Uhh no. Been there LOL