Gen Squeeze supporter Terry Bell calls out municipalities for using this mantra to deflect from years of either inadequately taxing homeowners or spending beyond their means
Great job Andrea! The existing incentives are all wrong. My 30-year-old trainer making around 90 K a year can't afford to buy a house. He lives with his parents. Yet he has the same mentality that my rich peers have when they sell their houses for 1.7 million- houses that they paid less than $90, 000 for in the late 80s early 90s. Both generations like the idea of owning a house as the best investment out there. House values should rise to keep up with inflation but not be a better investment than the stock market!! It's a shame we do not have leadership that says that this is all wrong. It's as bigger shame that young people like my trainer wanting to buy a house but can't get behind Generation Squeeze. Far from being an engaged citizen protesting for fairness, he like so many are passive consumers looking to get in on housing as the best investment out there. "The government should not interfere-that's socialism" says my trainer. No it's not, I say, its merely a matter of changing the incentivization...the rules to the game and seeing housing as an essential -basic need. That "merely" requires engaged citizens to have the will to actively speak out to make politicians take notice and address it.
"We don’t want to burden existing taxpayers for paying for infrastructure [...] to bring new people into the country," is honestly such an interesting comment on the part of the mayor. Population growth and the extra one-time infrastructure expansion costs that come with it genuinely are a little different than just factoring in infrastructure replacement appropriately (which as Terry notes municipalities also often don't collect enough revenue from existing taxpayers for in the first place). This link is about Australia but is also extremely relevant to Canada in terms of some of the ignored costs (some private, some public) of expanding capital stock. https://www.smh.com.au/opinion/the-huge-hidden-cost-of-population-growth-20160219-gmyddb.html
The very frustrating part is boomers themselves (who are not the only existing homeowners but I will pick on them anyway) were such enormous beneficiaries of public investment to accommodate them despite the claims they have paid their share. And, they will benefit from population growth both through increased housing demand and the economic growth to pay for services and benefits as they age. But there is a real difficulty for municipalities both because they don't have all the revenue sources other levels of government do (e.g., have more limited ability to benefit financially from growth) and also population growth might have diffuse benefits (say for the income tax base) but local infrastructure costs concentrated in municipalities that are growing faster than others. So definitely a tax shift makes sense, but I also think that it makes sense to acknowledge that the costs of growth are real costs (not just overspending) even while acknowledging new residents are not the only beneficiaries of growth. I saw "the beneficiaries of growth should pay for growth" once which is much less pithy than the original but also probably right.
Two generations ago many seniors were living in poverty (according to Stats Can the poverty rate for seniors even in 1976 was 36.9%). This is why the CPP (1966) and OAS (1952) were introduced. By 2021 the poverty rate for seniors was 7.4%. The capital gains exemption on housing was also part of that same picture (solidified in 1971). When housing (and let's remember it was often 1 person working) price to income ratio was 2 (1960's), not 12 (2023), and a down payment took a couple years to accumulate not 20 years, it was much easier to pay off that house during one's working years. Most boomer homeowners had their homes paid off much much earlier than a GenXer or Millenial can ever hope to pay off their home (even with 2 incomes) which leads to an extraordinary uphill battle to additionally save for retirement for the GenXer or Millenial.
Canadians nearing retirement without a workplace pension plan have median savings of only $3,000. Only 39% of Canadians have a workplace pension and only 27% have a defined benefit pension plan. So the principal residence is the main retirement savings vehicle for the large majority of Canadian. CPP/OAS/GIS do not make for luxury lifestyle by any measure and many people do not work full time for 40 years to get the maximum CPP (especially women who have a greater childcare/eldercare burden of responsibility).
I personally don't think that rising house prices inflate people's expectations of retirement, I believe Canadians are dependent on those rising house prices to supplement their government pensions and LTC costs.
I think the question is, how do we organize saving for retirement so that people don't rely on their principal residence as a defacto pension plan? And at the same time can we reduce housing prices by getting away from this financialization of housing?
If Canada were to impose a significant capital gains tax on the principal residence would Canadians avoid paying off their homes? Would one pay as little as possible for a long as possible, effectively making mortgage payments more like low cost rental rather than investment contributions? Without tax-free capital gains on the principal residence I believe most people would carry as much of a mortgage balance as they could their whole life - ie keep the gain as minimal as possible. And would those same folks then direct more of their income to actual retirement savings vehicles like RRSPs and TFSAs (and minimize mortgage payments)? Obviously this would be far better for the economy as more cash would flow into investments which supports enterprise and economic growth. Canada's productivity is low in part because we don’t invest much in business enterprise compared to other OECD countries, and we have much to much money tied up in non productive real estate.
Would the government ever consider incentivizing people to invest in RRSPs (ie beyond the tax break)? For example would the government consider matching contributions for say the first $3000 invested per year (a small amount compared to what they invest in a public sector employee's pension per year)?
Would housing prices drop since the principal residence is no longer a tax haven? Would Mom and Pop investors/ venture capital flee the housing sector? Would people move out of their homes in a more timely way when the house is too large for them after the kids move out?
I think we can't blame people for behaving the way they do and hoping for big gains in housing. They’re seeking financial security for themselves in just the way the system incentivizes them to.
If we don’t like this then we have change the rules of the game to incentivize different outcomes.
But this is wholesale change and it’s hard to imagine there would ever be the political will or even the planning time needed given the relatively short mandates of government.
There are so many problems in the housing file! Everywhere you look there are decisions made decades ago that hatched chickens that now come home to roost.
Glenn you mention your 30 year old trainer and how he hopes home prices will continue to clime so he too may one day cash in. The fact is the government made housing a defacto pension plan for those without pensions. It’s a TFSA that people are forced to contribute towards through mortgage payments. Almost everyone I know who does not have a public pension plan views their home as their future retirement fund, their long term care savings plan. CPP is insufficient to support a senior in retirement hence the generational disaster which is OAS and GIS but the home is the final backstop to fund retirement and care down the road.
Like the generational squeeze there is the public / private pension squeeze occurring simultaneously. Most individuals with a public pension plan (police, firefighters, teachers, nurses, government workers etc) enjoy generous employer contributions towards their plan (paid for by tax payers). So a public employee wins doubly - they have tax payer supported pensions (which are quite generous) PLUS a tax free retirement vehicle in the form of their home.
This is all to say that I do understand individuals like your trainer who very likely won’t be able to have both a house and fund his own retirement.
As taxpayers across the country we need to examine all of this. To my mind a tax free capital gain on a home plus a taxpayer supported public pension is double dipping. You can have one or the other but not both. We need to even the playing field for Canadians. We need to fairly and equitably distribute taxpayer money.
And finally, to this question of development charges. I agree that it is unfair to make new homeowners pay these costs. City taxes should cover infrastructure. The reality is that many cities undercharge - their mill rate is way, way below provincial averages (I’m looking at you Toronto, Markham, Vaughan, Oakville).
If you build infill housing you pay development charges and parkland fees. How is this logical when the parks and sewers are already there? My daughter built a house in an established neighbourhood on a tiny lot where a house had burnt down a decade before. Because she replaced it with a larger house than the one before the full DC charges applied and full parkland fees - $80,000 dollars. Why? And DC’s are charged per unit - replace a single home with a duplex increasing density and housing and you get to pay development charges for both houses even though the infrastructure and parks are already existing. And developers pass these costs on to buyers of course. How could they not.
Equity, fairness, transparency. Housing, pensions, tax resdistribution planning, it all needs an etch-a-sketch shake up.
As always thanks Gen Squeeze for shining a light on these important issues.
I think it's partially just that rising home prices inflated people's expectations for retirement, in terms of lifestyle and how much they should need to save. There seems to be some retroactive justification in terms of people claiming they 'need' these home prices to retire, because no one could reasonably have thought 30 years ago home prices would be 10+ times average incomes and planned around that. People my grandparents' age mostly seem to have seen their homes as part of stable retirement mostly in terms of lowering housing costs rather than a big investment. But people who see their home prices going up and up are going to feel less need to save even as they (often) become more able to do so closer to retirement after some expenses like daycare are out of the way. Many also have more expectation that they can meet their needs without drawing down their assets too much. You can't necessarily fill shoes that big with better policy.
We mostly accept that people's lifestyles and resources will vary over young adulthood (which you can see in frequent complaints that young people 'want everything all at once'). But there's a real social expectation, if not one reflected in benefits, that it's uniquely horrible for people's lifestyles to be more modest in retirement even if it's still adequate. Canada's retirement income system is mostly successful (especially for homeowners insulated from housing costs) at keeping people out of poverty, even to the degree very low-income people are often better off in retirement, but not as generous as say US social security in terms of income replacement for middle-income people. But it's not totally reasonable in the first place to expect that people can save enough (or even pay enough into contributory benefits) for 40-ish years of work to sustain 20-ish years of retirement at the same level of spending people enjoyed in their peak earning years. And this is especially true because people don't want the lifestyle they had when they were paying for mortgages and daycare, they want the lifestyle they had right before retirement where most of the big obligations are in the past. So I definitely see where some of the political pressure for rising home prices comes from, but I think I'd push back a little on the idea people 'need' rising home prices in the current system. I see it more that we expect supports for seniors to do a lot more than we expect safety nets for working age people to do. Although, I also get that loss aversion is a big political force.
Don’t get me wrong Glen, I think just about everyone is trying to maximize what they can get. That includes those buying homes and hoping the property grows in value, those with excellent public sector jobs and pensions who bargain for even better, well-off seniors who organize their affairs to maximize CPP and OAS payments. Humans are inherently greedy. They wish to protect their own and keep what they have and get more if they can.
I believe that we must face this fact and just learn to be more even handed in how government (ie taxpayer) money is shared out whether that be pensions, benefits, tax breaks. Some people are much greater recipients of government largesse and others not for no other reason than bad or outdated legislation.
And I agree that affordable housing is critical. That said governments at all levels would have more money available for building affordable housing if they property taxed homeowners appropriately(again looking at you toronto), put a capital gains tax on housing (a house is a home not an investment vehicle - but then you have to be prepared to better fund pension/LTC support for most Canadians), taxed estates over a certain value, income tested universal programs (by income I mean overall assets plus income), do away with income splitting for seniors unless you’re going to allow income splitting for all families at any stage of life etc.
There are a lot of inherently unjust and inequitable government programs and policies that favour one group over another. Why is it hard to change? Because people want to keep what they have and vote accordingly.
Some people are openly greedy like your trainer but there are plenty of thers who are greedy because it’s dumb not to be (seniors who income split and do everything they can to maximize CPP and OAS even if they are wealthy). Overt creed, covert greed. It’s all greed so we just have to figure out how to fairly treat everyone.
There can be no sacred cows.
Honestly it’s a hard row to hoe for any government that would seek to reevaluate any of the programs or tax breaks I mentioned. Getting elected would be almost impossible because... people are greedy.
What Generation Squeeze is up against is Societal GREED.
What my earlier example was trying to say is that even young people who cannot afford a house look to having a house not so much as shelter but as a way of growing their wealth with hopes that once they buy they too can make big easy money. That their homes value will continue to skyrocket. All the more reason for government to build affordable housing- lots of it and placing a restriction on what those houses can be resold for...so they remain affordable to those who are actually looking for a home not to grow an investment.
Great job Andrea! The existing incentives are all wrong. My 30-year-old trainer making around 90 K a year can't afford to buy a house. He lives with his parents. Yet he has the same mentality that my rich peers have when they sell their houses for 1.7 million- houses that they paid less than $90, 000 for in the late 80s early 90s. Both generations like the idea of owning a house as the best investment out there. House values should rise to keep up with inflation but not be a better investment than the stock market!! It's a shame we do not have leadership that says that this is all wrong. It's as bigger shame that young people like my trainer wanting to buy a house but can't get behind Generation Squeeze. Far from being an engaged citizen protesting for fairness, he like so many are passive consumers looking to get in on housing as the best investment out there. "The government should not interfere-that's socialism" says my trainer. No it's not, I say, its merely a matter of changing the incentivization...the rules to the game and seeing housing as an essential -basic need. That "merely" requires engaged citizens to have the will to actively speak out to make politicians take notice and address it.
"We don’t want to burden existing taxpayers for paying for infrastructure [...] to bring new people into the country," is honestly such an interesting comment on the part of the mayor. Population growth and the extra one-time infrastructure expansion costs that come with it genuinely are a little different than just factoring in infrastructure replacement appropriately (which as Terry notes municipalities also often don't collect enough revenue from existing taxpayers for in the first place). This link is about Australia but is also extremely relevant to Canada in terms of some of the ignored costs (some private, some public) of expanding capital stock. https://www.smh.com.au/opinion/the-huge-hidden-cost-of-population-growth-20160219-gmyddb.html
The very frustrating part is boomers themselves (who are not the only existing homeowners but I will pick on them anyway) were such enormous beneficiaries of public investment to accommodate them despite the claims they have paid their share. And, they will benefit from population growth both through increased housing demand and the economic growth to pay for services and benefits as they age. But there is a real difficulty for municipalities both because they don't have all the revenue sources other levels of government do (e.g., have more limited ability to benefit financially from growth) and also population growth might have diffuse benefits (say for the income tax base) but local infrastructure costs concentrated in municipalities that are growing faster than others. So definitely a tax shift makes sense, but I also think that it makes sense to acknowledge that the costs of growth are real costs (not just overspending) even while acknowledging new residents are not the only beneficiaries of growth. I saw "the beneficiaries of growth should pay for growth" once which is much less pithy than the original but also probably right.
Two generations ago many seniors were living in poverty (according to Stats Can the poverty rate for seniors even in 1976 was 36.9%). This is why the CPP (1966) and OAS (1952) were introduced. By 2021 the poverty rate for seniors was 7.4%. The capital gains exemption on housing was also part of that same picture (solidified in 1971). When housing (and let's remember it was often 1 person working) price to income ratio was 2 (1960's), not 12 (2023), and a down payment took a couple years to accumulate not 20 years, it was much easier to pay off that house during one's working years. Most boomer homeowners had their homes paid off much much earlier than a GenXer or Millenial can ever hope to pay off their home (even with 2 incomes) which leads to an extraordinary uphill battle to additionally save for retirement for the GenXer or Millenial.
Canadians nearing retirement without a workplace pension plan have median savings of only $3,000. Only 39% of Canadians have a workplace pension and only 27% have a defined benefit pension plan. So the principal residence is the main retirement savings vehicle for the large majority of Canadian. CPP/OAS/GIS do not make for luxury lifestyle by any measure and many people do not work full time for 40 years to get the maximum CPP (especially women who have a greater childcare/eldercare burden of responsibility).
I personally don't think that rising house prices inflate people's expectations of retirement, I believe Canadians are dependent on those rising house prices to supplement their government pensions and LTC costs.
I think the question is, how do we organize saving for retirement so that people don't rely on their principal residence as a defacto pension plan? And at the same time can we reduce housing prices by getting away from this financialization of housing?
If Canada were to impose a significant capital gains tax on the principal residence would Canadians avoid paying off their homes? Would one pay as little as possible for a long as possible, effectively making mortgage payments more like low cost rental rather than investment contributions? Without tax-free capital gains on the principal residence I believe most people would carry as much of a mortgage balance as they could their whole life - ie keep the gain as minimal as possible. And would those same folks then direct more of their income to actual retirement savings vehicles like RRSPs and TFSAs (and minimize mortgage payments)? Obviously this would be far better for the economy as more cash would flow into investments which supports enterprise and economic growth. Canada's productivity is low in part because we don’t invest much in business enterprise compared to other OECD countries, and we have much to much money tied up in non productive real estate.
Would the government ever consider incentivizing people to invest in RRSPs (ie beyond the tax break)? For example would the government consider matching contributions for say the first $3000 invested per year (a small amount compared to what they invest in a public sector employee's pension per year)?
Would housing prices drop since the principal residence is no longer a tax haven? Would Mom and Pop investors/ venture capital flee the housing sector? Would people move out of their homes in a more timely way when the house is too large for them after the kids move out?
I think we can't blame people for behaving the way they do and hoping for big gains in housing. They’re seeking financial security for themselves in just the way the system incentivizes them to.
If we don’t like this then we have change the rules of the game to incentivize different outcomes.
But this is wholesale change and it’s hard to imagine there would ever be the political will or even the planning time needed given the relatively short mandates of government.
There are so many problems in the housing file! Everywhere you look there are decisions made decades ago that hatched chickens that now come home to roost.
Glenn you mention your 30 year old trainer and how he hopes home prices will continue to clime so he too may one day cash in. The fact is the government made housing a defacto pension plan for those without pensions. It’s a TFSA that people are forced to contribute towards through mortgage payments. Almost everyone I know who does not have a public pension plan views their home as their future retirement fund, their long term care savings plan. CPP is insufficient to support a senior in retirement hence the generational disaster which is OAS and GIS but the home is the final backstop to fund retirement and care down the road.
Like the generational squeeze there is the public / private pension squeeze occurring simultaneously. Most individuals with a public pension plan (police, firefighters, teachers, nurses, government workers etc) enjoy generous employer contributions towards their plan (paid for by tax payers). So a public employee wins doubly - they have tax payer supported pensions (which are quite generous) PLUS a tax free retirement vehicle in the form of their home.
This is all to say that I do understand individuals like your trainer who very likely won’t be able to have both a house and fund his own retirement.
As taxpayers across the country we need to examine all of this. To my mind a tax free capital gain on a home plus a taxpayer supported public pension is double dipping. You can have one or the other but not both. We need to even the playing field for Canadians. We need to fairly and equitably distribute taxpayer money.
And finally, to this question of development charges. I agree that it is unfair to make new homeowners pay these costs. City taxes should cover infrastructure. The reality is that many cities undercharge - their mill rate is way, way below provincial averages (I’m looking at you Toronto, Markham, Vaughan, Oakville).
If you build infill housing you pay development charges and parkland fees. How is this logical when the parks and sewers are already there? My daughter built a house in an established neighbourhood on a tiny lot where a house had burnt down a decade before. Because she replaced it with a larger house than the one before the full DC charges applied and full parkland fees - $80,000 dollars. Why? And DC’s are charged per unit - replace a single home with a duplex increasing density and housing and you get to pay development charges for both houses even though the infrastructure and parks are already existing. And developers pass these costs on to buyers of course. How could they not.
Equity, fairness, transparency. Housing, pensions, tax resdistribution planning, it all needs an etch-a-sketch shake up.
As always thanks Gen Squeeze for shining a light on these important issues.
I think it's partially just that rising home prices inflated people's expectations for retirement, in terms of lifestyle and how much they should need to save. There seems to be some retroactive justification in terms of people claiming they 'need' these home prices to retire, because no one could reasonably have thought 30 years ago home prices would be 10+ times average incomes and planned around that. People my grandparents' age mostly seem to have seen their homes as part of stable retirement mostly in terms of lowering housing costs rather than a big investment. But people who see their home prices going up and up are going to feel less need to save even as they (often) become more able to do so closer to retirement after some expenses like daycare are out of the way. Many also have more expectation that they can meet their needs without drawing down their assets too much. You can't necessarily fill shoes that big with better policy.
We mostly accept that people's lifestyles and resources will vary over young adulthood (which you can see in frequent complaints that young people 'want everything all at once'). But there's a real social expectation, if not one reflected in benefits, that it's uniquely horrible for people's lifestyles to be more modest in retirement even if it's still adequate. Canada's retirement income system is mostly successful (especially for homeowners insulated from housing costs) at keeping people out of poverty, even to the degree very low-income people are often better off in retirement, but not as generous as say US social security in terms of income replacement for middle-income people. But it's not totally reasonable in the first place to expect that people can save enough (or even pay enough into contributory benefits) for 40-ish years of work to sustain 20-ish years of retirement at the same level of spending people enjoyed in their peak earning years. And this is especially true because people don't want the lifestyle they had when they were paying for mortgages and daycare, they want the lifestyle they had right before retirement where most of the big obligations are in the past. So I definitely see where some of the political pressure for rising home prices comes from, but I think I'd push back a little on the idea people 'need' rising home prices in the current system. I see it more that we expect supports for seniors to do a lot more than we expect safety nets for working age people to do. Although, I also get that loss aversion is a big political force.
Don’t get me wrong Glen, I think just about everyone is trying to maximize what they can get. That includes those buying homes and hoping the property grows in value, those with excellent public sector jobs and pensions who bargain for even better, well-off seniors who organize their affairs to maximize CPP and OAS payments. Humans are inherently greedy. They wish to protect their own and keep what they have and get more if they can.
I believe that we must face this fact and just learn to be more even handed in how government (ie taxpayer) money is shared out whether that be pensions, benefits, tax breaks. Some people are much greater recipients of government largesse and others not for no other reason than bad or outdated legislation.
And I agree that affordable housing is critical. That said governments at all levels would have more money available for building affordable housing if they property taxed homeowners appropriately(again looking at you toronto), put a capital gains tax on housing (a house is a home not an investment vehicle - but then you have to be prepared to better fund pension/LTC support for most Canadians), taxed estates over a certain value, income tested universal programs (by income I mean overall assets plus income), do away with income splitting for seniors unless you’re going to allow income splitting for all families at any stage of life etc.
There are a lot of inherently unjust and inequitable government programs and policies that favour one group over another. Why is it hard to change? Because people want to keep what they have and vote accordingly.
Some people are openly greedy like your trainer but there are plenty of thers who are greedy because it’s dumb not to be (seniors who income split and do everything they can to maximize CPP and OAS even if they are wealthy). Overt creed, covert greed. It’s all greed so we just have to figure out how to fairly treat everyone.
There can be no sacred cows.
Honestly it’s a hard row to hoe for any government that would seek to reevaluate any of the programs or tax breaks I mentioned. Getting elected would be almost impossible because... people are greedy.
What Generation Squeeze is up against is Societal GREED.
What my earlier example was trying to say is that even young people who cannot afford a house look to having a house not so much as shelter but as a way of growing their wealth with hopes that once they buy they too can make big easy money. That their homes value will continue to skyrocket. All the more reason for government to build affordable housing- lots of it and placing a restriction on what those houses can be resold for...so they remain affordable to those who are actually looking for a home not to grow an investment.