Housing as a vehicle for profit making damages social relations.
As house prices have sky-rocketed the value of land acts like a black hole on the broader society that lives on that same land - it crushes dreams, warps lives and tears apart at the fabric of the surrounding community.
Actually, your piece was great too! I’m really tired of Embiggendance agenda stuff blaming the faintest whiff of democratic voice in planning systems as the cause of all of this.
Nice one Grace. Brutally true, especially here in New Zealand. How much impact has precarious housing had on our collective ability to dream, create, and develop a world full of meaningful, people centric, and equitable enterprises? And yet, the failed neoliberal experiment rolls on, supported in its existential malevolence by myopic, self-serving politicians aka, the useful idiots of capitalism. Result: neoliberalism is now more free than ever to go completely feral. Thanks Ronnie. Thanks Maggie. Nice one.
Don't get me started!!!! Oh, go on then :) "de-financialize, and de-commodify housing": Break up the cartels and actually implement the Self-Build, Housing, and recent Levelling up Acts... Enforce biodiversity net gain and carbon impact assessments and advertise the plots available. We can build our own healthy, highly insulated low carbon homes if we believe we can, but it's another chink in our culture that's been errored over the generations. Almost half of Germany's new builds have some form of owner input such as "group build" networks. But most people in the UK don't even know they can register with their local authority, let alone get financial assistance to build. And "affordable" can now mean part ownership models with associated rent and service fees!! Grrrrr, time for some funny cat videos ;)
Thank you again, Grace. The system is so rigged. We need to change the monetary system because you can't pay off debt with debt. We have a 300 year old privatized money system isuing all money as interest-bearing debt for loans that has perpetrated a myth that government issues the money. If they did we would not be so deeply in debt and we would have a stable and prosperous economy. We the people have many good ideas but we have to influence on public policy, only money does. The people want their money system back. Indeed the US could house its entire homeless population several times over in the existing stock without building any new homes. It is yet another consequence of usury-money created privately by profit-motivated institutions. monetaryalliance.org
Good article & I agree with the conclusions. The tricky bit, politically, is what happens to all of the people buying their primary residence on a mortgage as of now. Are the banks to write down mortgage balances as prices fall, or will mortgage payers just get put into negative equity? They won't like that and won't vote for parties that propose it. And if they get stuck in their home waiting for a price rise that won't come, but see newer buyers getting bargains & a booming social housing sector, they will be ripe pickings for any party wanting to reverse the changes (as many were for the Thatcher government that broke it)
The obvious way to (partially) provide recompense is to make the losses tax deductible. It's a social problem, therefore a socialized cost is justifiable.
But there really are no losses unless you move. The value of a home is intrinsic. But it seems likely that many would move just to be able to crystallize and write off their losses, because it would actually make sense for them.
I agree with Mark re compensating for losses, but I've written about this before and there's no need to let the market tumble, you just have to let it stagnate until prices are eroded by ordinary inflation. If you imposed rent controls and landlords started selling, the public sector should buy up homes appropriate for social housing at reasonable prices and let them out at below market rents, placing a floor below the amount prices would fall while rapidly expanding the provision of an important public good.
"there's no need to let the market tumble, you just have to let it stagnate until prices are eroded by ordinary inflation."
Um, have you crunched the numbers to see how long this would actually take?
No doubt the London market doesn't reflect the whole UK any more than Toronto reflects the whole of Canada, but I'll have to use Toronto as it's what I know, and it's where we've seen a lot of the housing pain (yes, I know Vancouver is worse, but Toronto is closer to home for me).
In 1977, both average and median house price over average and median wages in Toronto was 4.9. In 2021 those multiples topped out at 19.2 and 16.6 respectively. Using August 2025 YTD housing data we're back to 13.8 for average and 14.9 for median. The drop represents an average yearly drop of 6.1% for the average multiple and 4.5% for the median multiple. Note that inflation is not a factor for multiple calculations as the dollars divide out (it's a ratio, there are no units).
If we assumed a continuous drop in the multiples at the rates seen over the last four years (highly unlikely, but let's go with it for now), it would still take 22 years to reach the same average multiple as 1977 and 17 years for the median multiple of that year. To get back to the 1966 average multiple would only take 14 years, and 18 for the median multiple.
Would you be content with it taking the better part of a generation to unwind the gross inequity in our housing markets? Personally, I wouldn't. And that's assuming the quite a hefty drop per year that we've seen post-COVID. Merely stagnating house prices would take incredibly longer - at wage increases equal to the Bank of Canada target inflation rate of 2%, about 55 years for 1977 levels and 45 years for 1966 levels. (Yes, house prices lagged wage increases from the mid-60s to the mid-70s here.)
Regardless of the numerical analysis, the underlying reason to implement the proposal that I outlined below is that people (and their incomes, from whatever source), should be treated equally and housing is a scarce commodity that needs to be regulated for the good of society. That housing needs a major price correction I take as almost too obvious to be disputable. Even if I agreed with your idea for the government to buy up housing stock, as a taxpayer I would not be happy if they did it at today's inflated prices. Suggesting they could do it at "reasonable prices" seems highly unlikely.
** FYI the above analysis depends on house prices from the Toronto Regional Real Estate Board (TRREB) and Greater Toronto Area (GTA) wage data from StatsCan (the federal government stats agency). Unfortunately I have only found wage data back to 1977, average house prices back to 1966 and median house prices back to 1996. Also, StatsCan only has wage data published up to 2023. Calculations of data outside those ranges are deflated based on the Canadian Consumer Price Index (CPI) - not ideal obviously but it's what I had to work with. Another wrinkle is that the GTA area is not congruent for StatsCan and TRREB. Oh well ...
You don’t have to, because the public sector would be setting the price at which the houses were being taken off the market and rented out, which - along with monetary policy - would give you an immense amount of control over what the market actually did.
I'd rather a market based solution (even if constrained by government policy) rather than depend on a supposedly objective civil service and/or their political masters.
Didn't you just argue that politicians are in the pocket of the billionaires? What on earth makes you think this would work out well?
The market is just as controlled by billionaires as the state - and you’d have to democratize state institutions before attempting anything like this. I’m going to end the discussion here as I discuss all this in my book so feel free to read if you’re interested!
Love this piece! A great explanation for how so many people (myself included) have been bred into this hyper-individualistic environment of capitalism, leaving community and social connection by the wayside - it is ours to undo!
Great work Grace. I’ve always struggled to make myself cynical enough to believe in narratives like, “In fact, the neoliberal vision was twofold: make surviving harder for the poor, and make prosperity dependent on financial markets for the rich. If you have security of tenure in good social housing, you’ll be less scared of losing your job, and therefore more likely to organise as part of a union. Commodifying housing was a critical part of Thatcher’s plan to attack the power of the working class.” It’s just so bloody evil. It represents an investment in deliberate, premeditated, refined thinking to develop strategy to make life impossibly hard for nearly everyone on earth. That is incredibly bad intent and utterly despicable.
Why would humans - particularly our elected representatives - want to pursue policy and strategies that hurt other humans? Surely, not just for profit. I feel like a complete muppet. These days, any qualms I once had believing in capitalism’s deliberate ongoing attack on everyday people have now completely evaporated. Capitalism now elicits a visceral response in my brain. We-the-people need to take back control. It’s time. Capitalism had a chance to throw us a bone and it couldn’t be bothered. Now, capitalism has gone completely rogue. And you’re right Grace, it’s time to connect with each other, strengthen our communities, and organise. Then we fight back. ✊✊✊
I agree with what Grace has written about the causes and only disagree with her socialist solution, rather than a market based solution, something I believe will work better. Also, there are other parts to the basic explanation.
(I've posted this before, but hey, I still believe it's the way forward!)
Any economic price issue is going to be dependent on only two factors: supply and demand. Many discussions, in North America at least, limit the problem to one of supply (blaming mostly poor government policy in immigration, overregulation of developers, insufficient low income/goverment housing etc.) however the demand problem here is undeniably driven in large part by personal residence gains being (largely in the U.S., and completely in Canada, and in the UK, except on death for larger estates) tax free. People consider house prices to be a sure thing because of it, and investors are happy to ride on the coattails of this optimistic wave in spite of their own gains being taxable. Investor demand has been a major factor on house price inflation. The fact that there are no policy restrictions on single family dwellings as an investment is a critical part of the puzzle.
Another social change that has undeniably affected demand is the rise of two income families since the 60s. House prices as a multiple of average wages have increased substantially, but compared to total family income, not nearly as much. That families with two incomes could afford to pay more for a house resulted in higher prices should have surprised no one, but that problem wouldn’t have fit the feminist ideology of the 70s. Don’t misunderstand me, I support a woman’s right to choose her career, but the socio-economic consequences are what they are. The market cares not a whit for ideology. I do think that it’s unfortunate that motherhood was not acknowledged as a higher calling and supported as such by social policy, society in general, and no doubt most of all, by men. But that’s all irrelevant now, there’s not much likelihood of putting the genie back in that bottle, and any policies that might are beyond the scope of this discussion in any case.
So here’s my solution:
(Below I use CPI - Consumer Price Index as an abbreviation for the relevant national government compiled inflation measure.)
Implement principal residence gains taxation so that capital gains will be calculated after adjusting original cost for CPI since month of purchase. Restrict SINGLE FAMILY HOME ownership to RESIDENT ADULT INDIVIDUALS (not businesses/corporations), and only one (1) home per adult individual, implemented as follows:
1) Establish an initial implementation date. All houses purchased after this date will be subject to tax on CPI adjusted gain (with CPI adjusted losses deductible against other income) and restricted as described above. Note this is a trivial calculation - see note 9.
2) housing currently owned outside the above restriction must be sold within two years of initial implementation date, or be expropriated and sold at auction (with buyer eligibility restricted as described above obviously).
3) ALL housing sold after five years after initial implementation date will be subject to tax (with losses deductible) as described above.
The two year and five year windows would give ample time for markets to adjust to a new reality and prices to reflect that. Clearly, during the initial two year window there would be a significant increase in the number of homes for sale. This increased supply and the forced sale of investment properties into a new tax regime will significantly reduce housing prices.
Note that the new tax policy negates the need to differentiate between a principal residence and an investment property for capital gains purposes. Also, the housing restriction doesn’t require one to live in the home they own (they could rent elsewhere, or live with someone else). It also operates on an individual, not family basis. In other words there would still be a rental market for single family homes. Obviously it wouldn’t be as big, but neither would it need to be since housing would be more affordable to purchase. Clearly pricing for other rental markets (non single family dwellings) would be affected also, and no doubt overall inflation, and therefore interest rates, currency value and foreign investment too. To the extent that Capital is greatly and negatively impacted, I see that as a risk assumed, regardless of current governments insisting that tax free housing gains will remain a sacred cow. It can be done. It only takes government will.
Other notes
1) housing capital cost (including purchase costs, e.g. legal, transfer taxes etc.) may be adjusted by capital improvements (again, CPI adjusted), but all operating costs such as utilities, regular maintenance, municipal taxes and mortgage interest are PERSONAL housing costs and therefore not deductible. Note that mortgage interest is sometimes considered a capital cost for tax purposes, but not necessarily, and in this instance would be explicitly excluded from being deductible, since it is related to how much home you’re buying, which is a personal, not an investment decision. Differentiating between capital (taxable) vs. operating (personal) is crucial in understanding why taxation does NOT imply deductibility for operating expenses.
2) residences would not be subject to capital gains tax until sold (no tax on accrued gains), however, utilizing (i.e. realizing) appreciating house value by remortgaging or otherwise encumbering based on an appreciated value would trigger a deemed disposition (with attendant tax) and reacquisition at the current value.
3) regulations will be required to ensure beneficial ownership truly resides with the owner (to avoid investment workarounds to the one home per individual rule)
4) taxes due on sale could be paid over five years (or perhaps some longer period if more commensurate with the time the residence was owned), or when the new house is sold, whichever comes first. This would, however, require differentiating principal residences from investment property.
5) the housing restriction would probably need to be restricted to urban areas or somehow made not applicable to non-urban vacation property. This would be fairly problematic to define, and I confess I don’t have a good solution (possibly based on no. of km from a population centre of a given size or density?). But I’m confident it is possible. At the very least, a simple (though not sufficient) definition would be that excluded vacation property would not be habitable year round.
6) restricting home ownership to residents is already done in some Caribbean, European and Asian countries, i.e. it’s not unheard of in the rest of the world.
7) this is NOT some sort of communist plot (sorry, I realize that may not be a pejorative in this space ...), I’m a capitalist by definition. Rather it utilizes a market solution to a market problem, albeit by simply restricting entry into the market for the good of society. Capitalism (i.e. some people) always needs some sort of restraint to avoid the tragedy of the commons. Capitalism should serve society, not the other way around.
8) expanding this treatment of capital gains (making 100% of the CPI adjusted gain taxable) to all investments would be preferred, as part of a greater tax reform. Note that some may claim this would be unduly onerous to active investors, to which I reply: “software.” This isn’t 1966.
9) in case anyone reading this doesn’t realize how the CPI adjustments are made: CPI adjusted gain = net current proceeds (after selling costs, like normal) - (original purchase price x current CPI/purchase CPI). It’s elementary school level arithmetic.
10) short term rental restrictions (AirBnB etc.) OUGHT to be a local zoning issue. I suggest that it remain so at least until the above changes work themselves through the market (presumably reducing the number of such rentals) and that it be revisited only if necessary.
11) The corollary to full taxation is that CPI adjusted losses should also be deductible. This is only reasonable, especially for those who would find that their recently purchased home is now worth a fraction of its purchase price. Spreading the cost of this implementation across the entire tax base (via loss deductibility) is also reasonable because all society (through democracy and political leadership) is responsible for the current bubble. Individual responsibility is also maintained for buying into a bubble. (Tax loss deductibility isn't a tax loss credit, but it could be in part if politically necessary). Of course, no one who purchased their personal home at the top of the market need sell since the usability of the home won't change just because its market value has, as long as they can still manage its operating and carrying costs, things which won't necessarily change.
That’s not why it can’t operate as a free market - it can’t operate as a free market because there’s no such thing as free markets in a capitalist economy. I wrote a book about it!
Hi Grace. Your correct, there is no free market. It’s always skewed because we have not taken control of the ‘flow’ of money. Our money. The money we all need to trust will come back! But trust isn’t enough, we can see it doesent come back freely from SPENDING. It comes back with debt, interest and in the case of investors, future profits take, attached to it. Marks piece was thoughtful and for a retired accountant a great effort. But we are in the trap of trying to fix a broken system using the tools that, that broken system uses. Tax is such a terrible bludgeon that prevents and frustrates prosperity and happiness. My view has always been simplify the whole thing. Just have one tax. Vat. Do away with everything else. But for the new one tax system to work, you need two things happen every month. All or most MONEY to be SPENT. Because any economy is only as good as the money that flows within it. So to restrict SPENDING is to restrict the supply of MONEY. The resulting tsunami of SPENDING that would follow a rule to SPEND money within a month would see so much movement if MONEY that the Vat take alone would be more than enough to give our government the tax income it needs to go our bidding. You can’t buck the market for too long. It will always follow its path. But taking the money out of pockets into the system increases everything. We can have higher incomes for ease of payment of debts. To show those on benefits work really ties pay! Not just that jobs will be created in a flash. Higher pensions to take those out of poverty. An increase of four fold is achievable or more! And ironically the rich will be richer also from earning all that new profits from all that new SPENDING! But they too have to SPEND it do they can become wealthier from that money when they go SPEND it on assets goods etc.. as for house purchases, let’s be able to afford a mortgage. But why do rates have to be so high? Just for Banks to profiteer? No nil Percentage loans for a house and a car. But make it at last based on a proper wage to afford their loan. As money income is virtually guaranteed by the system, affordability won’t need to be questioned. The state can step in when things change. They will be getting in so much money from Vat alone, it’ll be easy to do then! One bank, one pension the state one. No need for anything else. That’s the power of all our money moving all at once! Perpetual tsunami autonomously each month. Mike, all that tax talk won’t be needed! Sorry, but they’ll be do much money and do much wealth created by free SPENDING that we won’t need to be in the vice grip ever again. MS=R. Money multiplied by SPENDING equals revenue for us and Revenue for tax. The more money the SPENDING the more money is triggered for tax take from VAT. All our problems will fade. Once again our Councils who control the land can build their own homes from proper funding from the tsunami of tax take every month. Get the money flow right and every funding problem disappears! In a stroke!
I agree with some of your points Mark, but it's really important to remember that 'market-based' solutions don't work for housing because it's not a real market. Firstly, it's impossible to reliably expand and contract supply (buy land, they're not making it anymore). Secondly, the housing market is and always has been dependent upon the state - state policy has just as much, if not more, of an impact on house prices than the allegedly neutral and objective forces of 'supply and demand'. Finally, for all the reasons I've outlined in the piece, the role of finance also skews the nominally 'free' market.
You'll have seen that I've written a great deal about how capitalism isn't ever a truly 'free market' system - my book, Vulture Capitalism, was all about this. Which is why 'market-based' solutions never really work. They're also not really 'market based' as they're guided by a state, which is itself subject to the whims of billionaires and the politicians in their pockets. And the 'socialist' solution of building social housing is far from revolutionary! It's how left and right governments expanded the housing stock in the UK for decades after the Second World War.
OK, so I don't have an Oxbridge economics degree (or any kind of economics degree actually, but as a retired CPA, I do know at least a little bit about it), but that's the first time I've heard someone assert that a commodity with physical supply constraints can't (by definition?) operate in a free market. Don't all commodities markets have supply constraints? Some are just more absolute and um, constraining than others. Heck, all markets have constraints of some sort. To suggest that that means they therefore can't be free seems vapid.
Sure, government policy has had an outsize impact on housing markets, as it does others, though mostly to a lesser degree. And certainly there are political problems with their impact. As I've written before, the solution to the politics is sortition. Suggesting that market based solutions never work because we have lousy governance is defeatist at best in my view.
Further, I don't think UK government policy in the postwar period is what you want to suggest we emulate. But maybe that's just me ...and no, I'm not a Thatcherite. Her pendulum didn't have to swing so far back.
Grace’s article really hits the nail of the pronounced housing affordability issue, which results in great unhappiness and misery for the majority of young people not only in UK but also in China.In China ,we once had a very popular ,handsome,charismatic leader(the previous Party Secretary of Chongqing Municipality)called Mr.Bo Xilai https://en.wikipedia.org/wiki/Bo_Xilai
(his father was the old revolutionary generation with Mao Zedong) who has implemented the low-rent housing and public rental housing in Chongqing and earned huge credit and great applause from the mass .Mr.Bo has also investigated and heavily fined the Wal-Mart branch and the Genetically-Modified Food in Chongqing. As a result, owning to the dominance of neoliberal atmosphere in China more than 10 years, a coup has taken place by the vested interest group, and Mr.Bo has been wrong accused, charged and imprisoned due to his pro-grassroot policies. What a tragedy! Till now many ordinary Chinese still don’t know the deep reasons for his imprisonment. The news coverages won’t tell them the truth. It’s a fierce class struggle of the alliance of Chinese robber barons and transnational capitalists against the 99% of the grassroots. From this political upheaval in China, we can see under the heavy-handed monopoly of ruling power in China ,how difficult it is to let the 99% share the wealth and live a decent life!
Even though the road ahead is bumpy ,we can’t bow our head down and give in.
Housing as a vehicle for profit making damages social relations.
As house prices have sky-rocketed the value of land acts like a black hole on the broader society that lives on that same land - it crushes dreams, warps lives and tears apart at the fabric of the surrounding community.
I actually wrote about the finacialisation of housing and how it operates akin to a black hole here: https://www.griffithreview.com/articles/the-housing-black-hole/
Great piece!!
Actually, your piece was great too! I’m really tired of Embiggendance agenda stuff blaming the faintest whiff of democratic voice in planning systems as the cause of all of this.
Nice one Grace. Brutally true, especially here in New Zealand. How much impact has precarious housing had on our collective ability to dream, create, and develop a world full of meaningful, people centric, and equitable enterprises? And yet, the failed neoliberal experiment rolls on, supported in its existential malevolence by myopic, self-serving politicians aka, the useful idiots of capitalism. Result: neoliberalism is now more free than ever to go completely feral. Thanks Ronnie. Thanks Maggie. Nice one.
Totally - NZ is another fantastic case study of this kind of financialization of housing. Solidarity!
✊
Don't get me started!!!! Oh, go on then :) "de-financialize, and de-commodify housing": Break up the cartels and actually implement the Self-Build, Housing, and recent Levelling up Acts... Enforce biodiversity net gain and carbon impact assessments and advertise the plots available. We can build our own healthy, highly insulated low carbon homes if we believe we can, but it's another chink in our culture that's been errored over the generations. Almost half of Germany's new builds have some form of owner input such as "group build" networks. But most people in the UK don't even know they can register with their local authority, let alone get financial assistance to build. And "affordable" can now mean part ownership models with associated rent and service fees!! Grrrrr, time for some funny cat videos ;)
Yes, yes, and yes!!
Thank you again, Grace. The system is so rigged. We need to change the monetary system because you can't pay off debt with debt. We have a 300 year old privatized money system isuing all money as interest-bearing debt for loans that has perpetrated a myth that government issues the money. If they did we would not be so deeply in debt and we would have a stable and prosperous economy. We the people have many good ideas but we have to influence on public policy, only money does. The people want their money system back. Indeed the US could house its entire homeless population several times over in the existing stock without building any new homes. It is yet another consequence of usury-money created privately by profit-motivated institutions. monetaryalliance.org
Good article & I agree with the conclusions. The tricky bit, politically, is what happens to all of the people buying their primary residence on a mortgage as of now. Are the banks to write down mortgage balances as prices fall, or will mortgage payers just get put into negative equity? They won't like that and won't vote for parties that propose it. And if they get stuck in their home waiting for a price rise that won't come, but see newer buyers getting bargains & a booming social housing sector, they will be ripe pickings for any party wanting to reverse the changes (as many were for the Thatcher government that broke it)
The obvious way to (partially) provide recompense is to make the losses tax deductible. It's a social problem, therefore a socialized cost is justifiable.
But there really are no losses unless you move. The value of a home is intrinsic. But it seems likely that many would move just to be able to crystallize and write off their losses, because it would actually make sense for them.
I agree with Mark re compensating for losses, but I've written about this before and there's no need to let the market tumble, you just have to let it stagnate until prices are eroded by ordinary inflation. If you imposed rent controls and landlords started selling, the public sector should buy up homes appropriate for social housing at reasonable prices and let them out at below market rents, placing a floor below the amount prices would fall while rapidly expanding the provision of an important public good.
"there's no need to let the market tumble, you just have to let it stagnate until prices are eroded by ordinary inflation."
Um, have you crunched the numbers to see how long this would actually take?
No doubt the London market doesn't reflect the whole UK any more than Toronto reflects the whole of Canada, but I'll have to use Toronto as it's what I know, and it's where we've seen a lot of the housing pain (yes, I know Vancouver is worse, but Toronto is closer to home for me).
In 1977, both average and median house price over average and median wages in Toronto was 4.9. In 2021 those multiples topped out at 19.2 and 16.6 respectively. Using August 2025 YTD housing data we're back to 13.8 for average and 14.9 for median. The drop represents an average yearly drop of 6.1% for the average multiple and 4.5% for the median multiple. Note that inflation is not a factor for multiple calculations as the dollars divide out (it's a ratio, there are no units).
If we assumed a continuous drop in the multiples at the rates seen over the last four years (highly unlikely, but let's go with it for now), it would still take 22 years to reach the same average multiple as 1977 and 17 years for the median multiple of that year. To get back to the 1966 average multiple would only take 14 years, and 18 for the median multiple.
Would you be content with it taking the better part of a generation to unwind the gross inequity in our housing markets? Personally, I wouldn't. And that's assuming the quite a hefty drop per year that we've seen post-COVID. Merely stagnating house prices would take incredibly longer - at wage increases equal to the Bank of Canada target inflation rate of 2%, about 55 years for 1977 levels and 45 years for 1966 levels. (Yes, house prices lagged wage increases from the mid-60s to the mid-70s here.)
Regardless of the numerical analysis, the underlying reason to implement the proposal that I outlined below is that people (and their incomes, from whatever source), should be treated equally and housing is a scarce commodity that needs to be regulated for the good of society. That housing needs a major price correction I take as almost too obvious to be disputable. Even if I agreed with your idea for the government to buy up housing stock, as a taxpayer I would not be happy if they did it at today's inflated prices. Suggesting they could do it at "reasonable prices" seems highly unlikely.
** FYI the above analysis depends on house prices from the Toronto Regional Real Estate Board (TRREB) and Greater Toronto Area (GTA) wage data from StatsCan (the federal government stats agency). Unfortunately I have only found wage data back to 1977, average house prices back to 1966 and median house prices back to 1996. Also, StatsCan only has wage data published up to 2023. Calculations of data outside those ranges are deflated based on the Canadian Consumer Price Index (CPI) - not ideal obviously but it's what I had to work with. Another wrinkle is that the GTA area is not congruent for StatsCan and TRREB. Oh well ...
You don’t have to, because the public sector would be setting the price at which the houses were being taken off the market and rented out, which - along with monetary policy - would give you an immense amount of control over what the market actually did.
So, government expropriation?
I'd rather a market based solution (even if constrained by government policy) rather than depend on a supposedly objective civil service and/or their political masters.
Didn't you just argue that politicians are in the pocket of the billionaires? What on earth makes you think this would work out well?
The market is just as controlled by billionaires as the state - and you’d have to democratize state institutions before attempting anything like this. I’m going to end the discussion here as I discuss all this in my book so feel free to read if you’re interested!
Absolutely true, that's why a very bearded guy considered rentiers the real enemies many years ago...
100%
Love this piece! A great explanation for how so many people (myself included) have been bred into this hyper-individualistic environment of capitalism, leaving community and social connection by the wayside - it is ours to undo!
Absolutely! I really think you'll like my next book, when I eventually manage to finish it...!
Can't wait!
Great work Grace. I’ve always struggled to make myself cynical enough to believe in narratives like, “In fact, the neoliberal vision was twofold: make surviving harder for the poor, and make prosperity dependent on financial markets for the rich. If you have security of tenure in good social housing, you’ll be less scared of losing your job, and therefore more likely to organise as part of a union. Commodifying housing was a critical part of Thatcher’s plan to attack the power of the working class.” It’s just so bloody evil. It represents an investment in deliberate, premeditated, refined thinking to develop strategy to make life impossibly hard for nearly everyone on earth. That is incredibly bad intent and utterly despicable.
Why would humans - particularly our elected representatives - want to pursue policy and strategies that hurt other humans? Surely, not just for profit. I feel like a complete muppet. These days, any qualms I once had believing in capitalism’s deliberate ongoing attack on everyday people have now completely evaporated. Capitalism now elicits a visceral response in my brain. We-the-people need to take back control. It’s time. Capitalism had a chance to throw us a bone and it couldn’t be bothered. Now, capitalism has gone completely rogue. And you’re right Grace, it’s time to connect with each other, strengthen our communities, and organise. Then we fight back. ✊✊✊
I agree with what Grace has written about the causes and only disagree with her socialist solution, rather than a market based solution, something I believe will work better. Also, there are other parts to the basic explanation.
(I've posted this before, but hey, I still believe it's the way forward!)
Any economic price issue is going to be dependent on only two factors: supply and demand. Many discussions, in North America at least, limit the problem to one of supply (blaming mostly poor government policy in immigration, overregulation of developers, insufficient low income/goverment housing etc.) however the demand problem here is undeniably driven in large part by personal residence gains being (largely in the U.S., and completely in Canada, and in the UK, except on death for larger estates) tax free. People consider house prices to be a sure thing because of it, and investors are happy to ride on the coattails of this optimistic wave in spite of their own gains being taxable. Investor demand has been a major factor on house price inflation. The fact that there are no policy restrictions on single family dwellings as an investment is a critical part of the puzzle.
Another social change that has undeniably affected demand is the rise of two income families since the 60s. House prices as a multiple of average wages have increased substantially, but compared to total family income, not nearly as much. That families with two incomes could afford to pay more for a house resulted in higher prices should have surprised no one, but that problem wouldn’t have fit the feminist ideology of the 70s. Don’t misunderstand me, I support a woman’s right to choose her career, but the socio-economic consequences are what they are. The market cares not a whit for ideology. I do think that it’s unfortunate that motherhood was not acknowledged as a higher calling and supported as such by social policy, society in general, and no doubt most of all, by men. But that’s all irrelevant now, there’s not much likelihood of putting the genie back in that bottle, and any policies that might are beyond the scope of this discussion in any case.
So here’s my solution:
(Below I use CPI - Consumer Price Index as an abbreviation for the relevant national government compiled inflation measure.)
Implement principal residence gains taxation so that capital gains will be calculated after adjusting original cost for CPI since month of purchase. Restrict SINGLE FAMILY HOME ownership to RESIDENT ADULT INDIVIDUALS (not businesses/corporations), and only one (1) home per adult individual, implemented as follows:
1) Establish an initial implementation date. All houses purchased after this date will be subject to tax on CPI adjusted gain (with CPI adjusted losses deductible against other income) and restricted as described above. Note this is a trivial calculation - see note 9.
2) housing currently owned outside the above restriction must be sold within two years of initial implementation date, or be expropriated and sold at auction (with buyer eligibility restricted as described above obviously).
3) ALL housing sold after five years after initial implementation date will be subject to tax (with losses deductible) as described above.
The two year and five year windows would give ample time for markets to adjust to a new reality and prices to reflect that. Clearly, during the initial two year window there would be a significant increase in the number of homes for sale. This increased supply and the forced sale of investment properties into a new tax regime will significantly reduce housing prices.
Note that the new tax policy negates the need to differentiate between a principal residence and an investment property for capital gains purposes. Also, the housing restriction doesn’t require one to live in the home they own (they could rent elsewhere, or live with someone else). It also operates on an individual, not family basis. In other words there would still be a rental market for single family homes. Obviously it wouldn’t be as big, but neither would it need to be since housing would be more affordable to purchase. Clearly pricing for other rental markets (non single family dwellings) would be affected also, and no doubt overall inflation, and therefore interest rates, currency value and foreign investment too. To the extent that Capital is greatly and negatively impacted, I see that as a risk assumed, regardless of current governments insisting that tax free housing gains will remain a sacred cow. It can be done. It only takes government will.
Other notes
1) housing capital cost (including purchase costs, e.g. legal, transfer taxes etc.) may be adjusted by capital improvements (again, CPI adjusted), but all operating costs such as utilities, regular maintenance, municipal taxes and mortgage interest are PERSONAL housing costs and therefore not deductible. Note that mortgage interest is sometimes considered a capital cost for tax purposes, but not necessarily, and in this instance would be explicitly excluded from being deductible, since it is related to how much home you’re buying, which is a personal, not an investment decision. Differentiating between capital (taxable) vs. operating (personal) is crucial in understanding why taxation does NOT imply deductibility for operating expenses.
2) residences would not be subject to capital gains tax until sold (no tax on accrued gains), however, utilizing (i.e. realizing) appreciating house value by remortgaging or otherwise encumbering based on an appreciated value would trigger a deemed disposition (with attendant tax) and reacquisition at the current value.
3) regulations will be required to ensure beneficial ownership truly resides with the owner (to avoid investment workarounds to the one home per individual rule)
4) taxes due on sale could be paid over five years (or perhaps some longer period if more commensurate with the time the residence was owned), or when the new house is sold, whichever comes first. This would, however, require differentiating principal residences from investment property.
5) the housing restriction would probably need to be restricted to urban areas or somehow made not applicable to non-urban vacation property. This would be fairly problematic to define, and I confess I don’t have a good solution (possibly based on no. of km from a population centre of a given size or density?). But I’m confident it is possible. At the very least, a simple (though not sufficient) definition would be that excluded vacation property would not be habitable year round.
6) restricting home ownership to residents is already done in some Caribbean, European and Asian countries, i.e. it’s not unheard of in the rest of the world.
7) this is NOT some sort of communist plot (sorry, I realize that may not be a pejorative in this space ...), I’m a capitalist by definition. Rather it utilizes a market solution to a market problem, albeit by simply restricting entry into the market for the good of society. Capitalism (i.e. some people) always needs some sort of restraint to avoid the tragedy of the commons. Capitalism should serve society, not the other way around.
8) expanding this treatment of capital gains (making 100% of the CPI adjusted gain taxable) to all investments would be preferred, as part of a greater tax reform. Note that some may claim this would be unduly onerous to active investors, to which I reply: “software.” This isn’t 1966.
9) in case anyone reading this doesn’t realize how the CPI adjustments are made: CPI adjusted gain = net current proceeds (after selling costs, like normal) - (original purchase price x current CPI/purchase CPI). It’s elementary school level arithmetic.
10) short term rental restrictions (AirBnB etc.) OUGHT to be a local zoning issue. I suggest that it remain so at least until the above changes work themselves through the market (presumably reducing the number of such rentals) and that it be revisited only if necessary.
11) The corollary to full taxation is that CPI adjusted losses should also be deductible. This is only reasonable, especially for those who would find that their recently purchased home is now worth a fraction of its purchase price. Spreading the cost of this implementation across the entire tax base (via loss deductibility) is also reasonable because all society (through democracy and political leadership) is responsible for the current bubble. Individual responsibility is also maintained for buying into a bubble. (Tax loss deductibility isn't a tax loss credit, but it could be in part if politically necessary). Of course, no one who purchased their personal home at the top of the market need sell since the usability of the home won't change just because its market value has, as long as they can still manage its operating and carrying costs, things which won't necessarily change.
That’s not why it can’t operate as a free market - it can’t operate as a free market because there’s no such thing as free markets in a capitalist economy. I wrote a book about it!
Hi Grace. Your correct, there is no free market. It’s always skewed because we have not taken control of the ‘flow’ of money. Our money. The money we all need to trust will come back! But trust isn’t enough, we can see it doesent come back freely from SPENDING. It comes back with debt, interest and in the case of investors, future profits take, attached to it. Marks piece was thoughtful and for a retired accountant a great effort. But we are in the trap of trying to fix a broken system using the tools that, that broken system uses. Tax is such a terrible bludgeon that prevents and frustrates prosperity and happiness. My view has always been simplify the whole thing. Just have one tax. Vat. Do away with everything else. But for the new one tax system to work, you need two things happen every month. All or most MONEY to be SPENT. Because any economy is only as good as the money that flows within it. So to restrict SPENDING is to restrict the supply of MONEY. The resulting tsunami of SPENDING that would follow a rule to SPEND money within a month would see so much movement if MONEY that the Vat take alone would be more than enough to give our government the tax income it needs to go our bidding. You can’t buck the market for too long. It will always follow its path. But taking the money out of pockets into the system increases everything. We can have higher incomes for ease of payment of debts. To show those on benefits work really ties pay! Not just that jobs will be created in a flash. Higher pensions to take those out of poverty. An increase of four fold is achievable or more! And ironically the rich will be richer also from earning all that new profits from all that new SPENDING! But they too have to SPEND it do they can become wealthier from that money when they go SPEND it on assets goods etc.. as for house purchases, let’s be able to afford a mortgage. But why do rates have to be so high? Just for Banks to profiteer? No nil Percentage loans for a house and a car. But make it at last based on a proper wage to afford their loan. As money income is virtually guaranteed by the system, affordability won’t need to be questioned. The state can step in when things change. They will be getting in so much money from Vat alone, it’ll be easy to do then! One bank, one pension the state one. No need for anything else. That’s the power of all our money moving all at once! Perpetual tsunami autonomously each month. Mike, all that tax talk won’t be needed! Sorry, but they’ll be do much money and do much wealth created by free SPENDING that we won’t need to be in the vice grip ever again. MS=R. Money multiplied by SPENDING equals revenue for us and Revenue for tax. The more money the SPENDING the more money is triggered for tax take from VAT. All our problems will fade. Once again our Councils who control the land can build their own homes from proper funding from the tsunami of tax take every month. Get the money flow right and every funding problem disappears! In a stroke!
I agree with some of your points Mark, but it's really important to remember that 'market-based' solutions don't work for housing because it's not a real market. Firstly, it's impossible to reliably expand and contract supply (buy land, they're not making it anymore). Secondly, the housing market is and always has been dependent upon the state - state policy has just as much, if not more, of an impact on house prices than the allegedly neutral and objective forces of 'supply and demand'. Finally, for all the reasons I've outlined in the piece, the role of finance also skews the nominally 'free' market.
You'll have seen that I've written a great deal about how capitalism isn't ever a truly 'free market' system - my book, Vulture Capitalism, was all about this. Which is why 'market-based' solutions never really work. They're also not really 'market based' as they're guided by a state, which is itself subject to the whims of billionaires and the politicians in their pockets. And the 'socialist' solution of building social housing is far from revolutionary! It's how left and right governments expanded the housing stock in the UK for decades after the Second World War.
OK, so I don't have an Oxbridge economics degree (or any kind of economics degree actually, but as a retired CPA, I do know at least a little bit about it), but that's the first time I've heard someone assert that a commodity with physical supply constraints can't (by definition?) operate in a free market. Don't all commodities markets have supply constraints? Some are just more absolute and um, constraining than others. Heck, all markets have constraints of some sort. To suggest that that means they therefore can't be free seems vapid.
Sure, government policy has had an outsize impact on housing markets, as it does others, though mostly to a lesser degree. And certainly there are political problems with their impact. As I've written before, the solution to the politics is sortition. Suggesting that market based solutions never work because we have lousy governance is defeatist at best in my view.
Further, I don't think UK government policy in the postwar period is what you want to suggest we emulate. But maybe that's just me ...and no, I'm not a Thatcherite. Her pendulum didn't have to swing so far back.
Too good 👌
Grace’s article really hits the nail of the pronounced housing affordability issue, which results in great unhappiness and misery for the majority of young people not only in UK but also in China.In China ,we once had a very popular ,handsome,charismatic leader(the previous Party Secretary of Chongqing Municipality)called Mr.Bo Xilai https://en.wikipedia.org/wiki/Bo_Xilai
(his father was the old revolutionary generation with Mao Zedong) who has implemented the low-rent housing and public rental housing in Chongqing and earned huge credit and great applause from the mass .Mr.Bo has also investigated and heavily fined the Wal-Mart branch and the Genetically-Modified Food in Chongqing. As a result, owning to the dominance of neoliberal atmosphere in China more than 10 years, a coup has taken place by the vested interest group, and Mr.Bo has been wrong accused, charged and imprisoned due to his pro-grassroot policies. What a tragedy! Till now many ordinary Chinese still don’t know the deep reasons for his imprisonment. The news coverages won’t tell them the truth. It’s a fierce class struggle of the alliance of Chinese robber barons and transnational capitalists against the 99% of the grassroots. From this political upheaval in China, we can see under the heavy-handed monopoly of ruling power in China ,how difficult it is to let the 99% share the wealth and live a decent life!
Even though the road ahead is bumpy ,we can’t bow our head down and give in.