Politicians often fail to mention landlords when they talk about affordable housing. In election campaigns, it’s more appealing to speak about families and their daily struggle to keep a roof over their heads.
For Marg Gordon, federal investments in social housing, rental supports, and other subsidies are all good measures worthy of attention.
But according to the CEO of the B.C. Apartment Owners and Managers Association, the private sector also has a role in making housing affordable. And she says the government has a long way to go in providing proper tax incentives.
“If we’re looking at tax deferrals on real-estate investments, then we’re moving in the right direction,” Gordon told the Georgia Straight in a phone interview. “It could reduce the cost of rental housing. It could improve affordability and would definitely improve housing supply. And supply and demand is how costs can be controlled.”
She was referring to long-standing proposals to institute two changes to the Income Tax Act.
One seeks to allow real property owners to postpone paying tax on capital gains when they sell as long as they reinvest their profit in another income property within a year. The other also involves a payment deferral, and covers tax due on the cost of depreciation deducted from rental income, an item usually called the capital cost allowance.
Gordon noted that many people don’t realize that other businesses are allowed to roll over their capital-gains tax.
“For example, if you own a shoe store in Vancouver and you want to relocate and move to Nanaimo, you have up to a year from the sale of that business to roll your capital gains over into the new business,” she said. “It’s just deferred. It doesn’t mean you never pay it. But you can’t do it as a landlord. It just doesn’t make sense.”
Gordon believes the prospect of an immediate and heavy tax burden has kept property owners from putting up additional purpose-built rental buildings for most of the past three decades. It also explains why many multi-unit residential properties have been left to age and decay.
According to the Canadian Real Estate Association, tax deferrals would address what it calls the “lock-in effect”. This refers to owners preferring to hold on to their low-revenue assets rather than invest in new properties because of taxes.
“The lock-in effect is readily demonstrated by the underutilized and often boarded-up buildings found in deteriorating urban cores across the country,” states an association paper.
It estimates deferred revenue on capital gains at $258 million, and at $157 million on the recapture of capital cost allowances, for a total of $415 million.
“This is a modest and manageable amount that must be considered against offsetting revenues,” the CREA paper notes. “There would be some immediate offsets from fees generated by reinvestments. This revenue stream would grow in future years and, combined with spin-off benefits, would far surpass [forgone] tax revenues.”
The lobbying for tax-law changes has been going on for so long that veteran realtor Andrew Peck even recalls a promise made by the Conservatives while they were on the opposition benches before the 2006 election.
Peck, broker-owner of Vancouver-based Royal Pacific Realty, says the Conservatives indicated that they were in favour of delaying capital-gains taxes.
“And then when they went into government, they’ve done nothing on it,” Peck told the Straight in a phone interview.
Ontario-based housing economist Marion Steele has been arguing for tax reforms, suggesting that government-financed affordable housing puts great strain on public budgets.
“There is thus a need to consider alternative financing mechanisms, particularly tax expenditures, and other supply-side measures to encourage an increase in the stock of multi-unit rental accommodation and to make such housing more affordable,” Steele, an associate professor emeritus at the University of Guelph, wrote in the research paper “Increasing the Affordability of Rental Housing in Canada: An Assessment of Alternative Supply-Side Measures”.
In a phone interview from Guelph, Steele told the Straight that tax incentives can also offset the trend of property owners turning to condo development instead of rental housing.