A new report on housing affordability is calling for a surtax on homes worth more than $1 million as a way to rein in skyrocketing home prices and fund affordable housing projects.

The report was published by Vancouver-based non-profit Generation Squeeze and received funding from the Canada Mortgage and Housing Corporation (CMHC) as part of the federal government’s National Housing Strategy, which allocates money for housing policy researchers.

The proposal would establish an annual surtax starting at 0.2 per cent for houses worth more than $1 million and then increasing to 0.5 per cent and one per cent for more expensive homes.

For individuals with limited income, such as seniors, the report suggests that the taxes could be deferred until the house is sold or inherited.

An RBC report from last month found that housing affordability in Canada is at its worst in 31 years.

“If a pandemic-induced recession is insufficient to slow down home prices, then we can no longer ignore the probability that our housing system is actually structured, even if unintentionally, to grow housing values out of reach for local earnings,” Generation Squeeze founder and University of British Columbia professor Paul Kershaw said in a news release.

Under current tax policies, all home sales are exempt from capital gains taxes as long as the house is the seller’s principal residence. The report argues that these policies have essentially turned real estate into a massive tax shelter.

Generation Squeeze believes a surtax would help disincentivize the use of expensive homes as a tax shelter for the wealthy and cool down rising house prices. Approximately 13 per cent of Ontario homes and 21 per cent of homes in B.C. are worth more than $1 million, as well as nine per cent of all homes nationwide.

The report estimates that the surtax could generate $4.54 billion in annual revenue, or $5.83 billion if the tax rate started at 0.5 per cent rather than 0.2 per cent.

That money could be used to build housing co-ops and affordable purpose-built rental homes. The authors also want to see the federal government fund a program that would buy low-density housing units and redevelop them into affordable multi-family developments, also known as “missing middle” housing.

Generation Squeeze also proposes the federal government create a new savings bond that would encourage investors to develop more affordable “missing middle” housing.

The report also calls on the CMHC and the Canadian Infrastructure Bank to align their mandates and incentivize lenders to bankroll affordable and energy efficient housing. In addition, the report says Statistics Canada should change the way it calculates its Consumer Price Index to better reflect the increases in housing costs.

“There is no silver bullet to solve housing unaffordability,” Kershaw said. “Instead, we need silver buckshot to address the range of policy tools that shape the housing system, beginning from the recognition that restoring affordability for all requires home prices to stall so earnings can catch up.”

This content was originally published here.