For immediate release: September 23, 2024
OTTAWA— As rents across Canada soar and housing becomes increasingly unaffordable, a new report from Canadians for Tax Fairness (C4TF) highlights the role of tax breaks in the finance and real estate sectors in deepening the housing affordability crisis. The report, titled "How tax breaks are worsening Canada's housing affordability crisis", exposes how preferential tax treatments are driving the financialization of housing and pushing rents to record highs.
In 2023, rents surged by 8%, far outpacing wage growth at just 5%, while the real estate sector collected a staggering $50.4 billion in profits—a 40% increase over pre-pandemic levels.
"The current tax system incentivizes financial firms to treat housing as a profit-making asset, not a basic human need," said Silas Xuereb, author of the report and researcher with C4TF. "These financialized landlords are dominating more of the market than ever while renters are left struggling with ever-rising housing costs."
“Our research has found that as profits have risen in the real estate sector, more and more of those profits are being derived through capital gains and Real Estate Investment Trusts (REITs), which receive massive tax breaks,” stated Katrina Miller, Executive Director of C4TF. “The government’s efforts to reduce the capital gains tax loophole are a good first step toward removing the tax incentives that support financialization of housing, but more action is needed.”
Over the last twenty years, the real estate sector’s profit from capital gains has increased by 700%. Firms in the real estate sector earned over a quarter of all corporate capital gains in Canada in 2021 and 2022. Recent moves to reduce the tax-free portion of the gain from 50% to 33% are welcomed by tax advocates but still allow for the preferential tax treatment of capital gains in real estate.
“What is particularly concerning is how our tax system is supporting the growth of REITs, which can take advantage of both tax breaks on capital gains and zero corporate income tax in order to generate higher after-tax profit,” commented Silas Xuereb, researcher for C4TF. “$100 million collected by residential REITs was passed on to investors, completely tax-free, in 2022.”
Residential REITs in Canada have gone from owning 0 rental units in 1996 to around 200,000 units today. More broadly, financial firms own 20-30% of all purpose-built rental housing stock in Canada today and are now the majority purchasers of multi-family dwellings.
"As long as tax policy favours financialized housing, the affordability crisis will only worsen," added Miller. "The government must act now to ensure tax fairness and to protect Canadians who are being squeezed out of their homes by rising rents."
The report calls on the government to build one million units of non-market affordable housing, paid for by ending the preferential tax treatment for REITs, including all inflation-adjusted capital gains as taxable income, and extending the underused housing tax to properties owned by Canadians.
Canadians for Tax Fairness is a non-profit, non-partisan organization that advocates for fair and progressive tax policies aimed at building a strong and sustainable economy, reducing inequalities, and funding quality public services.
Media contact:
Erica Shiner
Communications Coordinator - Canadians for Tax Fairness
erica.shiner@taxfairness.ca
