Thank you.
The Wall Street Journal has a video of the invisible role taxes play in American's housing shortage. It rediscovers Adam Smith's 250-year-old strategy of the land value tax. Smith said, “A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground.” Economists call this excess monopoly profit unearned income or economic rent or wealth extraction. Smith's tax was designed to recapture the unearned income, yet 250 years later the housing industry still charges what the market will bear, extracting whatever the purchaser can afford, particularity in the case of dual-income families.
If general income rises, the sale price rises. Conversely, competitive markets are about wealth creation. If general income rises, people can buy more goods at the same price. Land speculators compound the problem. They do not produce land but hope to make speculative profit as the growing community invests in roads, schools, fire stations, hospitals, etc.
In 1950 my parents bought a modest home for $13,000, which has increased 14,000% to $1.8 million today. The Bank of Canada inflation calculator equates the 1950 price to $160,000. As a tear-down, the lot would be $500 per square foot, yet the best farm land is $30,000 an acre, which is less than a dollar a square foot.
The shocking math of unaffordable housing cannot be bypassed.
The following recommendations are from brainstorming with my MP.
Recommendation one is that the federal government should partner with the provinces to build inexpensive campus residences on land owned by post-secondary institutions to free up off-campus residences.
Recommendation two is that the federal government should partner with the provinces and municipalities to build residences on their land.
Part (b) is that the land value tax encourages construction affordability. If property taxes were based on land value, it would encourage construction while discouraging land speculation. The current system is based on the buildings, which discourages construction. Higher land taxes make it too expensive to keep unproductive land, which would be sold to those who would develop the property fully.
Part (c) is about inclusionary zoning to address the flaw in the density strategy. In Professor Condon’s article “Radical Pro-Affordability”, he explains that Vancouver had a wonderful record from increasing density, but it had a terrible record on affordability. He has a graphic on the exponential land-price inflation despite high density. The increased density increases what a developer can pay for the lot, as per figure 12 in Condon's more detailed presentation. Inclusionary zoning enforces lower prices in rents, which reduce what developers can pay for land.
Recommendation three is to partner with provinces and municipalities to study inclusionary zones and the land tax, as California and Detroit are doing.
Recommendation four is to fund the expensive change in the property tax system.
Part (d) is that the role of banks is to fund housing bubbles while ignoring their own conservative high standards for business loans.
Recommendation five is to work with the banking industry to make it more conservative in its home appraisals.
Part (e) relates to a successful Canadian land tax precedent. I took a course with Marshall McLuhan in 1968. He liked to say that we drive into the future looking through the rear-view mirror. That's to remind us that we are not oracles and we must rely on our inventory of evidence-based knowledge, which we are prone to forget unfortunately. Adam Smith's land tax is a case in point. Smith's policy has repeated successes, including in Canada.
Professor England in “Land Value Taxation in Vancouver” explains how, in the early 20th century, land taxes curbed land and rent costs there, while increasing construction. Unfortunately, vested interests lobbied away the tax change, and Vancouver became extraordinarily expensive.
Part (f) is another tax change to discourage land speculation. I left this one for the end because it's a tax. Why do land sales qualify for capital gains exemptions? Land is not capital. Capital gains incentives are for productive ventures, not for land speculation.
Recommendation six is, to discourage land speculation and land-price inflation, slowly change our capital gains tax rules for commercial real estate sales so the land value gains are taxed as ordinary income.
Last, some other expert resources—I'll just say for now Milton Friedman, several Nobel Prize winners, major publications like The Economist magazine and the Financial Times—have all promoted the land value tax.
Thank you very much. I'll be happy to answer any questions later.