Are High Taxes Making New Homes in Canada Unaffordable?

[@User-jca69420]

Builders will sell units at what the market will bare. Land owners will also sell land at what the developers will bare. People are also loss adversed. People jump in when they speculate the market is going up, but when the market is down they don't want to eat a loss and will try to hold out. This is why before I was not a fan of the supply as solution narrative when the market is treating housing as an asset class. Assets price are not driven by supply, but rather by economic outlook and interest rate. Look at what has happened in the last two years when economic outlook turned down and interest rate went up, demand for housing as investment went down and pricing also went down.

[@Michael-pg7rv]

Cutting taxes will not have an impact on prices right away. Over time though more projects will become feasible so more projects will become a reality creating more supply which in turn will put downward pressure on prices.

[@VK-ds2dw]

Not a great analysis. First, it's fairly easy to apply tax breaks without fueling investor demand. Just make the tax break applicable to ONLY owner occupied units. So different prices for different buyer classes and apply big penalties to those who try and fudge the numbers. This allows the consumer to save, regardless of what size of property they're buying (some people want a 500 sqft apartment in downtown Toronto). Second, half the video is spent arguing against this by using 2021 numbers. We're not in 2021. Current builders can't sell new properties because their finished asking prices are higher than 1-5 year old resales. If you give them the tax break, it allows them to lower their prices in order to move inventory while retaining the same profit margins. What's killing many of them is just trying to carry the cost of the land while trying to sell their units. Does this have to be in place forever? No, but it would help dig us out of a mess that the government itself created.

[@john_pasalis]

Your first suggestion, to make it applicable to owner occupied units only isn't as easy as it sounds for many reasons. And you unfortunately misunderstood the second half, the point was that in busy markets like Alberta it will not lead to lower prices but in a market like Ontario it might. But thanks for your feedback.

[@VK-ds2dw]

@@john_pasalis if you can apply CMHC to 5% down payment mortgages, you can apply the discount to owner occupied units. Come on, we can't be that incompetent as a nation haha. Just apply massive fines for people who screw with the system and it will deter bad actors. Plus it can be tied to your income tax filing. They'll see if you're filing as a home for that property or as a rental. This would be federal policy. If the feds want to do something to alleviate prices, this is the best option. Will it not work in markets CURRENTLY that are hotter than others, sure, but the local and provincial governments there can act accordingly in order to adjust for that if needed. Fundamentally, the less taxes the better long term.

[@Trenty47]

A 5% reduction in dog crates would not save the market. The correction is much larger than that. 5% GST being taken off homes under a mil would absolutely help first time buyers. Look at the boom in rental construction as evidence.

[@Canadian_Eh_I]

55%

[@Dinoknows007]

There is a BC government housing project that is more likely to increase affordable housing. The key is that the houses are priced at 60 percent of the market rate. The buyers will pay off the remaining 40 percent when they sell. To keep the price low, the land is on long-term lease. To reduce incentive to treat this housing as an investment , there is minimum occupation period. Housing has become a vehicle of speculation. This BC housing project focuses on treating houses more as shelter than for investment.

[@jonathanwiebe7222]

How about eliminate taxes on building materials rather than new houses. When people buy lumber etc. for any type of project, they are productive! When lumber is cheaper... ... You get the idea.

[@natheayn6111]

Hey John, I don't mean to be 'that Georgist guy', because I'm not, but it sounds to me like you've unknowingly (or perhaps knowingly) made one big argument for a land value tax. Let's assume it's true that the vast majority of benefits of reducing taxes will manifest as windfall profits for builders which percolate into land appreciation as builders bid up existing land. The argument is that this would primarily benefit speculators and builders, while end users would pay roughly the same amount. A land value tax sounds like the obvious solution to that. It would suppress land prices so that the benefits dont accrue in the hands of speculators. It would give the government revenues to invest in infrastructure, construction, and faster permitting. To the extent that it enhances builder profits by depressing their land costs, i don't think that is a bad thing. Builder profitability is a good thing as long as it increases the number of viable projects (increasing supply and decreasing long run equilibrium prices). This means that profitability must be accompanied by construction capacity in the form of labour, materials, permitting, etc... Most of which will come organically with stable growth and profitability, and permitting will come with good and well-funded governance. Like you say, windfall profits are not helpful. Shifting taxation gradually can prevent this and encourage sustainable market shifts. Even without a land value tax, I find it hard to believe that cutting development charges would fail to increase long run supply at all and would go almost exclusively to land speculators. Thank you for the video. I would love to hear your thoughts.

[@stevehennessey2490]

The better idea is to keep the taxes on but to actually use that money to put in services like sewer and water in areas that need it, making more land available for development

[@Matt-YT]

Yes, builders are driven by profits and the market. BUT right now they sell a good for $1500 even though the market is at $1000. If you cut taxes (1/3 of costs) they can sell the good at $1,000.

[@Danevils]

Yo bro, your points are fair, valid, and overall balanced! Thanks for that. A couple things that would help in your web growth are: 1) adopt a more positive attitude; 2) be a bit more enthusiastic Your content is already nice. Cheers!

[@zackd4770]

John, I've listened to you for a long time, and I know you're not an idiot. While it might be easy to assume that your viewers are, based on the content of your show, I believe that assumption would also be incorrect. If you want to make this argument without sounding like you have an agenda, why not provide some concrete examples? Share a summarized breakdown of the specific costs involved in building a home, condo, or townhouse. Without that, this just feels like another unproductive rant. I value your knowledge, but the way you're presenting it lacks the visual examples needed to help us laypeople fully understand your point.

[@rdefacendis]

It is not useful to separate out development taxes from property taxes... any tax savings on the development side WILL result in a rise in property taxes... we all have to pay the cost of running a city... if costs are uploaded to the province.. our income taxes will rise. Currently, existing homeowners are having the costs of running their city subsidized by development fees on new housing... Its time to bite the bullet... and raise property taxes..... probably another 20%, to get off the development tax addiction.

[@Matt-YT]

@movesmartly you would benefit from studying the oil exploration market. Many many similarities: price set by market, at some time unjustified prices, different regulatory environments, land acquisition....

[@BobSmith-bw6so]

This analysis doesn't account for the fact that demand and supply are variable. It assumes demand stays at peak demand (2021 demand) for the long term This is incorrect over the longer term Theoretically if the 30 percent taxes were removed, this would lead to greater housing starts. Even in depressed market, builders could be building which would lead to increased housing supply and lower prices Currently builders are not building in this depressed market due to high input prices Supply and demand. Econ 101

[@john_pasalis]

I think you missed the point, or maybe I didn't communicate it clearly. The point is that in markets were demand is strong like Alberta, tax cuts will not lead to lower prices but in markets like Ontario where there is a big gap between what builders need to sell at vs what the market will pay, we may see them flow those tax cuts to consumers in the form of lower prices.

[@dougpatterson7494]

Would a reduction in taxes not provide a benefit to people building custom homes or moving a factory-built home onto an open lot? Or is this not a common practice in Ontario? Less development fees and land transfer taxes up front and higher annual property taxes seem to work for making housing more affordable Personal anecdote: I read a headline about an Ontario municipality being forced to raise property taxes 50% in 2025. I looked at how high the property taxes actually were and thought "wow, that's still pretty affordable". Despite the average home in this city (don't recall the name, it wasn't an major city) being worth more than double my Alberta house, the average tax bill was about 40% less! I understand that you guys have higher sales tax but I believe that reducing the Provincial portion of HST and perhaps raising property taxes would be beneficial. Ontario isn't as extreme as BC but I get the sense that you still could learn something by taking into account that "relatively low property taxes and high sales taxes benefit the wealthier members of society at the expense of lower income folks" This is correlation and not necessarily causation but one can look to the US to see that states with sales tax tend to have lower property taxes than their neighbour's without.

[@dougpatterson7494]

I could afford the down-payment and, with housemates, the mortgage and other costs of owning a 380k home with annual property taxes in the 4k range. I wouldn't be able to afford the mortgage on an 800k home with taxes of only $2400/year.

[@john_pasalis]

There are builders who build custom homes on lots on spec, but not as many today. That said, removing the HST on these would make them more financially viable for builders but they aren't really creating much new housing. They are just taking a small home and building a much larger new home on the same lot.

[@ManBearPigXII]

house prices are wildly detached from wages, it's that simple. Taxes on new builds doesn't matter because your average Canadian is priced out by over %50 percent anyways. Rich people and debt addicts can try passing mortgages back and forth for profit like they're investing on the stock market all they want but at some point the bubble will pop. The endless stream of immigrants is over, so good luck off loading million dollar homes when the average Canadian salary is $54K. All the COVID mortgages will be renewed by the end of 2026. Let's see how the real estate investors handle being cash flow negative for a year or 2 after.

[@EvilUSEmpire]

Houses are consumer products as well. The reason people speculate or invest is to protect themselves from inflation (increase of money supply) so if the government which you worship doesn't produce money out of thin air, money would not become worthless, people would invest more productivity. Let's say in industries and mining and energy etc. they wouldn't rush in to housing as much. You broke the trust by banning work, taxing income and capital gains on stocks etc. Too much regulations and therefore people only see housing s safe place to protect themselves from inflation that you created. If people didn't have to rush to housing developers and sellers couldn't increase the price and prices would become stable.

[@Matt-YT]

Actually, the housing market is very similar to the oil/gas market!!! Gas/oil is traded! It is stored transported... and oil companies drill where they make more profits. In some locations where the rock is amazing, the regulator can impose high taxes, and the oil company can still make money. And some locations the the rock is poor, the regulator has to impose very favorable terms (lower taxes, faster permitting, free infrastructure...) to incentivize oil companies to drill! Sometimes regulators impose too high taxes: all oil companies go somewhere else.

[@igors8858]

There's just too much taxes on everyone including developers. I know a few families that would have moved to slightly more expensive houses if there wasn't transfer taxes but instead just stayed and renovated. If they did move, it would open up the lower priced homes.

[@dutchgirl7603]

Exactly. As a single woman in her 60's I was considering downsizing into more of a retirement house. My out of pocket expenses were 50k. Land transfer tax, real estate fees, lawyers, moving cost. The real kicker is those retirement homes on a smaller lot are not any cheaper then what I would get for my bungalow on a double town lot. 50k goes a long way towards yard maintenance when that time comes. So I'm staying eventhough this is a great family house.

[@judealvares4660]

I'm wondering, can housing un-affordability be the solution? let the major cities get as unaffordable as they like, and incentivise companies to open offices in secondary cities. the goal should be to populate this beautiful big country of ours as opposed to making housing affordable in major cities

[@judealvares4660]

you could also introduce a city specific living wage, 50k maybe for toronto?

[@cptstubing]

Basically let it fail. That's what seems to be happening now.

[@stephanienguyen6992]

Without RICH PARENTS or ASSETS = peoples can't AFFORD IT.........

[@supernovabrightstar]

Higher taxes are making everything unaffordable not only housing.

[@ani_ds12]

Not just homes, but everything

[@stephanienguyen6992]

NO NO NO NO NO = Canadian Governments = can't not fix it, too late as the Home Prices 10 to 15X Times 😂😂😂😂😂

[@playbak]

The idea that developers would pass on tax breaks to the home buyers is laughable.

[@jonathanwiebe7222]

Agree.... The all in price is what the market can bear...

[@Paul-d9q2z]

John gets it.

[@JimCCorn]

Pickering just hired a DEI manager at over $100K per annum while their property taxes are double what they are in Toronto. They should stick to garbage collection and snow removal and forget the other crap.