In the ever-evolving landscape of affordable housing, British Columbia is exploring innovative approaches to bridge the gap between homeowners and those struggling to find an affordable place to live. One economist, Alex Hemingway, has put forth a bold proposal for a more progressive property tax system that aims to not only generate significant revenue but also curb the skyrocketing home prices that have exacerbated inequality in the province.

Residential property values in British Columbia have surged by a staggering $1.7 trillion over the past two decades, leading to a growing disparity between homeowners and renters. Hemingway's policy proposal, outlined in a white paper published with the Canadian Centre for Policy Alternatives of B.C., suggests that property tax reform could be the key to addressing this inequality.

Hemingway's plan primarily focuses on increasing taxes on high-value properties and individuals who own multiple homes. By doing so, he envisions raising billions of dollars for public housing projects while simultaneously dampening long-term home price growth.

One of the cornerstones of Hemingway's proposal is the adjustment of property taxes on the most valuable properties in B.C. He suggests doubling the provincial property surtax on residential properties valued above $3 million and $4 million, as well as introducing a new bracket for properties above $7 million. This measure alone could generate an additional $580 million annually.

To further bolster public housing initiatives, Hemingway recommends applying extra property taxes to owners of multiple homes and properties valued at over $1.5 million. This proposal would affect just 12 percent of B.C. households but could contribute approximately $2 billion to public housing projects.

While property tax reform can be complex and contentious, Hemingway proposes the establishment of a citizen's assembly to engage in open discussions about the options. This approach would involve the public in shaping the future of affordable housing in the province.

Hemingway's proposal also encourages shifting the tax burden away from buildings and onto land, which could incentivize the construction of denser housing options—a move that aligns with the broader goal of addressing housing shortages.

In addition to these changes, Hemingway suggests considering a consistent property tax rate, rather than allowing it to fluctuate based on property values. Such stability could ensure that more land value gains are captured for the public good.

To address declining property values, Hemingway proposes implementing a rate floor, particularly in regions where home prices have become significantly misaligned with local incomes. Moreover, he suggests expanding property tax payment deferrals until a property is sold, potentially making this option available to a broader range of homeowners.

At the heart of Hemingway's proposal is a commitment to disincentivize housing and land as assets, thereby redirecting resources toward affordable housing initiatives and addressing inequality in the province.

While this proposal may seem ambitious, it aligns with the idea of a "tax shift" supported by think-tank Generation Squeeze. This plan aims to lower income and sales taxes while increasing property taxes on properties valued at over $1 million. Such a shift seeks to create a fairer tax system and fund the growing social and health needs of an aging population.

In a time when housing affordability is a pressing issue, Alex Hemingway's progressive property tax system proposal offers a compelling path forward. By generating revenue from those who have benefited most from soaring property values, British Columbia can take meaningful steps toward creating a more equitable housing landscape for all its residents.

The Bank of Canada has decided to maintain its benchmark interest rate at five percent as signs of an economic slowdown become increasingly evident. This decision aligns with the expectations of economists and financial experts. The central bank's rapid series of interest rate hikes since early 2022 has made significant progress in curbing runaway inflation.

It's worth noting that the effects of interest rate changes can take up to 18 months to fully materialize. With rates climbing from virtually zero to five percent in just over a year, there's a risk of over-tightening monetary policy, potentially causing an economic slowdown.

Recent financial indicators provide cause for concern. July's job data indicated a loss of approximately 6,000 jobs, with a slight uptick in the unemployment rate to 5.5 percent. Additionally, GDP data for the second quarter of 2023 revealed economic contraction, marking the first decline since the onset of the pandemic and suggesting the possibility of a mild recession.

Jim Thorne, a strategist at Toronto-based investment firm Wellington-Altus, is critical of the central bank's approach, suggesting that not only is there no valid reason for further rate hikes, but it's also challenging to justify some of the previous hikes retroactively. Thorne believes that the Bank of Canada should have stopped at 2.5 percent to allow the situation to stabilize, cautioning against using monetary policy as a precision tool, as it can have broad and unintended consequences.

Thorne predicts a hard landing for Canada's economy in the coming year due to excessive debt and strained consumers, rather than the hoped-for soft landing. He questions the rationale behind the Bank of Canada's continued rate increases, especially when real gross domestic income is in negative territory.

While some, like Thorne, fear that the central bank may have gone too far with rate hikes, the bank remains prepared to raise rates further if necessary, expressing concerns about persistent inflationary pressures.

Armine Yalnizyan, the Atkinson Fellow on the Future of Workers, argues that raising interest rates may not effectively address the inflation problem and could potentially worsen the situation.

Royce Mendes, an economist with Desjardins, points out that policymakers at the central bank are hesitant to rule out additional rate increases entirely, as prematurely signaling the end of rate hikes could disrupt financial conditions. However, he believes that the recent string of weak economic data makes it likely that the Bank of Canada has completed its rate hike cycle.

For homeowners like Shahan Ahmed, the decision to potentially halt rate hikes couldn't come soon enough. Ahmed, who owns a home in Brampton, purchased a second property for investment purposes in 2021. He anticipated that the rate on his variable-rate mortgage would increase gradually, but the rapid succession of interest rate hikes, often in sizable increments, caused his mortgage payment to nearly double. Struggling to cover his costs, Ahmed has taken on a second job and now works 15-hour days.

Despite the challenges, he's hesitant to sell his properties because doing so would result in a significant paper loss. Ahmed, like many others, hopes that there won't be any further rate hikes, as he and his family are at their breaking point, unable to absorb additional financial strain.

Reciprocity Logo The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Greater Vancouver REALTORS® (GVR), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the GVR, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the GVR, the FVREB or the CADREB.