Rob Shaw: Two panels commissioned by the NDP recommended scrapping the Home Owner Grant. Here’s why they won’t do it.
The latest example of how BC’s grotesquely expensive housing market has made things politically uncomfortable for the governing New Democratic Party was on display recently when the finance ministry was forced to hike eligibility thresholds for its Home Owner Grant program by more than 21 per cent, just to keep up with skyrocketing prices of properties.
“B.C.’s Home Owner Grant threshold is set at $1.975 million for 2022, ensuring 92% of residential properties are covered by the grant that lowers the amount of property taxes people pay on their principal residence,” read the government news release.
To its credit, the BC NDP did not gloat about doing this.
Absent from the announcement on what was perhaps the single largest annual increase in the grant’s history was any claim whatsoever that the Home Owner Grant improves housing affordability or addresses the ongoing housing crisis. Because it doesn’t.
What it does do, however, is let the government continue to claim that most BC homeowners get a small break on their property taxes – a key political marker every government of every stripe has tried to maintain since WAC Bennett created the popular grant for what he called “the little people” in 1957.
Those “little people” (who own property) now have wealth on paper that is quite large, as BC’s real estate market continues to post record price hikes, driven by low interest rates and low supply.
All of this presents a problem for a New Democrat government that has twice campaigned on tackling the housing crisis and improving affordability. Every year that it raises the Home Owner Grant to keep the majority covered is a year it has to admit to itself that it has utterly failed to slow the runaway housing train.
The core of the problem is that the Home Owner Grant program is a classic collision of public policy and politics: It makes very little economic sense as a solution to the housing affordability problems faced by a modern government, and yet its enormous popularity has meant no government has had the courage to change it and face the inevitable backlash.
There are increasing arguments from economists and experts that instead of spending $1 billion annually to give predominantly wealthy homeowners a paltry $550 break on their property tax bill, the money could have greater impact to help vulnerable people afford rising rents, or lower-income residents get into the market as first-time buyers.
The current government has ample evidence of this policy argument.
An expert panel commissioned by the province in 2018 called the 65-year-old Home Owner Grant program “inconsistent with the principles of progressivity, administrative efficiency, and fairness.”
“The Home Owner Grant is a regressive feature of the tax system that is also fundamentally unfair and would be improved by using the income system to provide more progressive tax relief to homeowners and renters,” the panel wrote in its 2018 report, adding the program “largely benefits high-income individuals,” ignores renters and treats people differently depending on where they live in the province.
The panel was chaired by Lindsay Tedds, an economic research and policy analysis expert from the University of Victoria, and included UBC tax law professor David Duff and former NDP finance minister Paul Ramsey. Its mission was to find revenue replacements for Medical Services Plan premiums, but it did so by reviewing the existing tax system first.
The panel recommended replacing the Home Owner Grant with a new refundable tax credit for both renters and homeowners based on household income.
It would have been cleaner, fairer and more effective. But government ignored the advice.
Another expert panel in 2020 also called for the elimination of the grant, and for the money to be spent on affordable social housing projects.
“To bring more balance, we recommend extending new income tax benefits to renter households, and a phasing out of British Columbia’s Home Owner Grant program,” wrote the group, chaired by former NDP MLA and current ICBC chair Joy MacPhail.
It also called for “more equitable treatment of renters and homeowners” and noted the BC NDP had promised a $400 annual renter’s rebate in the 2017 and 2020 elections as one way to level the playing field between renters and the Home Owner Grant.
But the renter’s rebate is still nowhere to be seen. Mainly, that’s because it is also crummy public policy and would cost the government $200 million annually to deliver a paltry $33 monthly in rent relief, which won’t move the dial at all on housing affordability. Creating a new ineffective program to fix an existing one only doubles the problem.
Some argue that by excluding foreign buyers and investment properties from receiving the grant, the Home Owner Grant has grown into a crafty way to target housing speculators with higher property taxes.
Even if that was true, there is so much money to be made in housing speculation right now that a $550 annual difference in property taxes makes virtually no difference to a speculator already willing to pay the 12 per cent foreign buyers tax and two per cent speculation tax as the cost of doing business playing the market.
The biggest political problem is that homeowners have become conditioned to expect at least the $550 basic annual Home Owner Grant reduction as a kind of right earned over decades. They feel they already pay too many taxes, and expect this break every year on their principal residence.
Any government that threatens to take it away will face political consequences.
“Homeowners, who stand to benefit from both rising housing values and the tax advantages they are granted, also have considerable political influence, as they form the largest voting bloc in many jurisdictions and tend to have higher voter turnout than renters in local elections,” the expert panel chaired by MacPhail wrote in its report.
“Elected officials may be reluctant to take actions to significantly boost the supply and affordability of housing or change tax policies that favour incumbent homeowners because of the potential political backlash.
“This, in turn, is exacerbating housing shortages and the inequalities they accentuate.”
Translation: Any government that goes after the Home Owner Grant will have a political uprising on its hands by voters guaranteed to show up at the polls next election.
Which is clearly why no government has done it before.
Still, the current BC NDP government did twice promise voters it would make the tough decisions required to bring fairness and sanity to the market.
Objectively, it has failed, as house prices have risen astronomically since taking office in 2017.
There are few easy decisions left to make on the housing file. All the levers that might actually accomplish something are likely to anger some sort of voter block.
But former finance minister Carole James put it best in one of the BC NDP’s first budgets, before the party started making the kind of political compromises that governing parties make that inevitably pull them away from their core values in exchange for holding office just a few years longer.
“When you look at the value of homes, when you look at the additional resources that have been gained from those homes, we believe people can afford to pay a little bit more to be able to provide support to help build affordable housing,” James said in 2018.
That argument holds as true today as it did almost four years ago. And it could apply directly to the Home Owner Grant – an archaic and unfair program whose $1 billion cost could be better spent elsewhere fighting the affordable housing crisis.