Federal Tax Expenditures Favour Homeowners
By: Frank Clayton
June 25, 2020
The Economist magazine, in a provocative special report on housing, advocates for countries like Canada to stop pursuing homeownership as a policy goal: “The West’s obsession with homeownership undermines growth, fairness and public faith in capitalism”.1 Indeed, the President and Chief Executive Officer of the Canada Mortgage and Housing Corporation (CMHC) pre-empted The Economist in December of 2019, stating that: “Over-promotion of homeownership is both economically and socially counter-productive, contributing to the increasing division between rich and poor.”2
Are these sources right in that we in Canada are subsidizing homeownership to a much greater degree than private renter accommodation?
Government subsidies to renters paled in comparison to those to homeowners in Ontario in 2009
Yes, we are providing huge subsidies to homeowners.
A study I undertook in 2010 estimated that the three levels of government subsidized Ontario homeowners and renters together to the tune of $8.9 billion.3 Stunningly, 94% of these subsidies benefited homeowners, while only 6% benefited private renters. This gap is even more extraordinary given that renter households earn average incomes about half the average of homeowners.
Most of these subsidies to homeowners are what economists refer to as “tax expenditures” as opposed to “direct outlays”. Tax expenditures refer to measures aimed at achieving a public objective through preferential tax rates, exemptions, deductions, deferrals or tax credits at the cost of lower tax revenues.4 This contrasts with direct outlays which subsidize housing through direct expenditures.
What are the largest federal tax expenditures to homeowners and renters in 2017?
Homeowners remain by far the biggest beneficiaries of tax expenditures on housing from the federal government, accounting for nearly 90% of the national total of $18.2 billion in 2017, the latest estimates published (see Figure 1).5