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Is It Time to Abolish Property Tax Deferrals? · The Missing Middle Podcast

• 0:00
  SPEAKER_02: Property taxes need to rise over time to keep up with the growing city's needs.
• 0:04
  SPEAKER_02: But sometimes you see retired homeowners who are cash poor, despite having substantial home equity, say that rising property taxes is making life unaffordable for them.
• 0:15
  SPEAKER_02: Enter property tax deferrals.
• 0:17
  SPEAKER_00: Supporters argue they help seniors age in place, but critics say they function primarily as a political perk that subsidizes wealthy homeowners at the expense of younger generations.
• 0:28
  SPEAKER_02: Dan Demographics, we discuss why deferrals are often defended as anti-poverty measures while in reality making the housing market worse for young people trying to break in.
• 0:38
  SPEAKER_01: Demographics, hosted by Mike Moffitt and Kara Stern.
• 0:42
  SPEAKER_02: So let's start at the beginning.
• 0:43
  SPEAKER_02: Why do tax deferral programs exist in the first place?
• 0:46
  SPEAKER_00: It's simple because older people vote in municipal elections and younger people generally don't.
• 0:51
  SPEAKER_00: Plain and simple.
• 1:10
  SPEAKER_00: So governments are incentivized to give them benefits, often at the expense of non voters.
• 1:15
  SPEAKER_02: Not to go totally off brand here and start defending boomers, but I grew up hearing about seniors in poverty.
• 1:21
  SPEAKER_02: And I know that nowadays they're the group least likely to be in poverty.
• 1:24
  SPEAKER_02: And in fact, according to Stats Canada, poverty rates for seniors are half of what they are for non-seniors.
• 1:30
  SPEAKER_02: But they're also the most vulnerable group in the sense that if they do fall into poverty, like they can't just go back to work.
• 1:36
  SPEAKER_02: Like very few people are going to hire someone in their 80s, even if they have the capability to work.
• 1:41
  SPEAKER_02: And so it's very hard for them to get out of it in a way that doesn't apply to younger people.
• 1:45
  SPEAKER_00: That is true, but it that largely overstates it because they own a house that they can draw the equity from.
• 1:52
  SPEAKER_00: There are seniors in poverty, but those seniors in poverty are disproportionately renters, not homeowners.
• 1:58
  SPEAKER_00: And these programs don't help them at all.
• 2:01
  SPEAKER_00: Because if you have someone who bought their home in the 70s or 80s or 90s, you know, they've accumulated massive amounts of tax-free capital gains that they can use to finance whatever they need to finance.
• 2:15
  SPEAKER_00: And even if those seniors are cash constrained, there are ways to convert that real estate equity into cash without selling their homes.
• 2:24
  SPEAKER_00: They can borrow against that massive home equity through a home equity line of credit or HELOC.
• 2:29
  SPEAKER_00: They can use a reverse mortgage.
• 2:31
  SPEAKER_00: There's lots of commercial products available for them to draw down on that equity.
• 2:36
  SPEAKER_00: They don't need a government subsidized loan program.
• 2:39
  SPEAKER_02: I do feel like there's a legitimate problem with seniors being incentivized to stay in, especially in suburban homes, that require them to drive everywhere, because that's really isolating when they have to stop driving.
• 2:50
  SPEAKER_02: Like you think you have to maybe move out of your community to somewhere walkable where you don't have the support, or you just end up getting stuck in your home and maybe in a home that you can't take care of.
• 2:58
  SPEAKER_02: But we've had many conversations about how few options there are for seniors to downsize.
• 3:03
  SPEAKER_02: So right now it kind of seems like the only choice is moving out of their community perhaps into a condo, but that's not what people want to do typically.
• 3:12
  SPEAKER_02: And so I think it's a difficult thing to say, well, they have other options when sometimes they don't really well, they do have other options.
• 3:19
  SPEAKER_00: They could draw down against that equity.
• 3:20
  SPEAKER_00: They don't have to move out.
• 3:22
  SPEAKER_00: Again, I haven't seen this evidence that uh seniors have no options other than to either move into uh other property types or move into another city because they can borrow against that equity.
• 3:35
  SPEAKER_02: I want to assume good intentions to those who are arguing that these programs are designed to help seniors age in place.
• 3:41
  SPEAKER_02: So let's look at it and assume that whoever came up with this idea actually did have good intentions and they were worried about rising property taxes, taxing little old ladies out of their home.
• 3:50
  SPEAKER_02: And I can imagine a politician saying, like, what's the harm in letting her defer the taxes?
• 3:55
  SPEAKER_02: You know, the municipality is going to get the money in the end and there's interest charged on that.
• 3:59
  SPEAKER_00: Well, these programs aren't free.
• 4:00
  SPEAKER_00: The municipality has to finance them up with interest.
• 4:04
  SPEAKER_00: And the municipality pays those interest costs, which they make up for by either cutting services or more likely, raising property taxes on everyone else.
• 4:13
  SPEAKER_00: So you have this situation where you have seniors who have a low poverty rate that we're now subsidizing by raising property taxes on everyone else when everybody else has a higher poverty rate.
• 4:26
  SPEAKER_00: It's inherently regressive.
• 4:28
  SPEAKER_00: And it leads to some pretty incoherent policies at the municipal level.
• 4:32
  SPEAKER_00: Municipalities, on the one hand, you know, do things like restrict urban growth boundaries and impose other restrictions that limit the growth of family-sized homes because they say, well, seniors are going to downsize, but then they create subsidy programs that encourage seniors to not downsize.
• 4:51
  SPEAKER_00: There's just a level of incoherence here that doesn't make any sense until you look at it through a political lens and go, okay, politicians put these policies into place because they're very popular with the people who are most likely to vote.
• 5:04
  SPEAKER_02: Fair.
• 5:05
  SPEAKER_02: And I do think there is an incentive here for seniors to hold on to their family-sized homes long after they need the space.
• 5:11
  SPEAKER_02: And we know that there is a real shortage of family-friendly housing.
• 5:15
  SPEAKER_02: It also does contribute to distorting the demographics.
• 5:18
  SPEAKER_02: Like you end up with areas that have family-friendly housing and family-friendly amenities, like local schools, and those schools are closing because young families can't afford to move in.
• 5:26
  SPEAKER_02: So no kids go there.
• 5:28
  SPEAKER_02: And I get worried when I see like legislation that Doug Ford, for example, put forward that said that they may sell off schools that they considered underused.
• 5:35
  SPEAKER_02: So I see the solution as increasing the number of family-friendly homes in neighborhoods that already have those amenities.
• 5:42
  SPEAKER_02: And instead, it looks like what we're going to do is kind of like making this set in stone that we're going to say these are areas the kids don't get to live.
• 5:49
  SPEAKER_02: And that's a real problem.
• 5:51
  SPEAKER_02: I get very worried about how you can ever fix it once you take away those amenities.
• 5:55
  SPEAKER_00: Yeah, absolutely.
• 5:56
  SPEAKER_00: Like we should be able to create more family-friendly housing in neighborhoods with underused infrastructure rather than having to build new infrastructure, which again raises the property tax of everyone else.
• 6:06
  SPEAKER_00: So we create this cycle where municipalities are making these decisions to inadvertently raise property tax rates on renters and young home buyers who are already financially squeezed.
• 6:19
  SPEAKER_02: When I was researching for this episode, I started learning about how the property tax referral systems work in different parts of the country.
• 6:26
  SPEAKER_02: And I was completely outraged when I learned about BC's system.
• 6:30
  SPEAKER_02: What I had seen was they fixed some of it this year, and we'll we'll explain what they did.
• 6:34
  SPEAKER_02: But before this year, it could apply to anyone who's 55 and older with home equity, which actually that's that's still the rule.
• 6:41
  SPEAKER_02: There's no income test, there's no wealth test.
• 6:43
  SPEAKER_02: The average home price for someone enrolled in BC's property tax deferral program was$3.4 million before the recent world weeks.
• 6:51
  SPEAKER_02: What they did was they uh changed how much it would cost to defer it, but they haven't actually changed the qualification rules.
• 6:58
  SPEAKER_02: But it just became this like big way of borrowing money at very cheap rates.
• 7:03
  SPEAKER_00: Yeah, that's exactly what it is.
• 7:05
  SPEAKER_00: It became this investment trick where wealthy homeowners are essentially borrowing from the province at uh the prime rate minus 2%, which is way cheaper than they could get any bank loan, and then able to take that money and pump it into capital investments, pump it into stocks and bonds and everything like that.
• 7:24
  SPEAKER_00: BC, you know, has addressed this somewhat.
• 7:26
  SPEAKER_00: They bumped the rate to prime plus two rather than prime minus two, which does take away uh, you know, some of the benefits of this investment trick.
• 7:35
  SPEAKER_01: And the newly elected BC conservative government, they are promising to bring it back.
• 7:39
  SPEAKER_00: You know, let's think about this for a minute.
• 7:40
  SPEAKER_00: Like if you're a young homeowner, you're struggling to pay the bills in in much of the country, your property tax rates are going up faster than inflation.
• 7:49
  SPEAKER_00: You know, you're getting squeezed here.
• 7:51
  SPEAKER_00: You know, meanwhile, cities and provinces are they're using that money that is coming out of your property tax bill to give seniors a property tax deferral, which is basically just a low interest loan.
• 8:04
  SPEAKER_00: It's a loan that you'll get much lower rates than than at a bank.
• 8:08
  SPEAKER_00: So let's say you've got a senior in Vancouver who they bought their home, you know, decades ago for like 100 grand.
• 8:15
  SPEAKER_00: It's now worth like 5 million a year.
• 8:17
  SPEAKER_00: That allows them to defer around$20,000 in annual property taxes in perpetuity, which compounds over time.
• 8:25
  SPEAKER_02: It's well that they can take the entire property tax amount.
• 8:28
  SPEAKER_02: Like in some places, it's a matter of taking the amount that they owe and then looking at the increased amount and just being able to defer that increase.
• 8:35
  SPEAKER_02: But in BC, and I think in Alberta too, you can defer the entire amount.
• 8:39
  SPEAKER_02: And that tells me like the fact that there's no wealth test, no income test, and you don't have to pay anything.
• 8:44
  SPEAKER_02: Like this isn't about seniors in poverty that are having trouble on fixed incomes, keeping up with it.
• 8:49
  SPEAKER_00: Yeah, no, it's uh you've got people who could be earning a lot of money, have five, 10, 15 million dollar homes and able to use this.
• 8:57
  SPEAKER_00: You know, as an example, like let's say a family has$250,000 in deferred property taxes, which they could easily build up over 10, 15 years.
• 9:06
  SPEAKER_00: And the city is offering an interest rate on the deferral that's 2% less than what it costs the city to borrow at.
• 9:15
  SPEAKER_00: Well, you do the math there, it costs the city and really taxpayers$5,000 a year in interest cost between the spread of what the city is is lending to old people versus their own borrowing rate.
• 9:29
  SPEAKER_00: And the irony here is that then the homeowner can use that deferred property tax rate loan to buy the very debt that the city is issuing uh to finance these programs and pocket the$5,000 spread for themselves.
• 9:44
  SPEAKER_00: When uh you have a program like this, it's basically a straight$5,000 a year wealth transfer from municipal taxpayers to the owners of a multi-million dollar home.
• 9:55
  SPEAKER_00: It's completely regressive.
• 9:57
  SPEAKER_02: I want to assume good intentions, but when you spell it out like that, I'm like, how can they possibly think that this is the way to do an anti-poverty initiative?
• 10:04
  SPEAKER_02: It doesn't really make sense.
• 10:06
  SPEAKER_02: In Ontario, it is much tighter.
• 10:08
  SPEAKER_02: Like in Toronto, it differs depending on municipalities in Ontario, but Toronto defers tax increases.
• 10:13
  SPEAKER_02: They do use income thresholds.
• 10:15
  SPEAKER_02: It does feel like maybe there should be an outright home value ceiling.
• 10:19
  SPEAKER_02: Like that's something that happens in Manitoba.
• 10:21
  SPEAKER_02: I wonder whether there should be like, you know, to someone in a$3 million home, should they need to be eligible for tax deferrals?
• 10:27
  SPEAKER_02: Like I don't know what the number is, but I feel like there's a number where you can say, you know, it doesn't really make sense at that point to be doing it.
• 10:33
  SPEAKER_00: Yeah, I mean, in my mind, the number is zero.
• 10:35
  SPEAKER_00: Like I don't see why anybody should get this at any home prices, right?
• 10:39
  SPEAKER_00: Because why should renters who can't afford a home in the first place pay higher property tax rates because their landlords are paying higher property tax rates through their rents to subsidize wealthier homeowners?
• 10:51
  SPEAKER_00: You know, if if a city wants to run a deferral program that runs a profit or breaks even, you know, I think that's fine.
• 10:59
  SPEAKER_00: I have nothing against that, right?
• 11:00
  SPEAKER_00: It's the subsidy that's the issue.
• 11:02
  SPEAKER_00: And the other thing is, like, if we for some reason want to subsidize homeowners, why just seniors, right?
• 11:08
  SPEAKER_00: Like there are lots of young homeowners who are struggling to pay the bills.
• 11:12
  SPEAKER_00: You know, what if a family has another child and all of a sudden has extra expenses?
• 11:17
  SPEAKER_00: You know, why can't they defer their property tax bill, right?
• 11:20
  SPEAKER_00: It's instead, we offer these programs to one specific group under one specific scenario, but there's lots of other people who are financially stressed.
• 11:30
  SPEAKER_00: There are a lot of other people who kind of look at their monthly bills and go, uh, you know, might I might have to downsize here.
• 11:36
  SPEAKER_00: And a lot of those individuals don't have the option of using a HELOC or using a reverse mortgage because they haven't built up that equity in the first place.
• 11:45
  SPEAKER_02: I wonder if there's an issue here where the policy maybe was originally pitched when senior poverty was much higher, and now the policy is like it's doing something very different from what its supporters claim.
• 11:56
  SPEAKER_00: They certainly were uh pitched that way, absolutely.
• 12:00
  SPEAKER_00: But it but I think the policies are actually working as designed, right?
• 12:03
  SPEAKER_00: There's a big difference between how a program is sold and what the program is designed to do, right?
• 12:08
  SPEAKER_00: Those aren't always the same thing.
• 12:10
  SPEAKER_00: These programs were designed to protect homeowning voters and senior voters and preserve their wealth.
• 12:16
  SPEAKER_00: And that's precisely what they do.
• 12:18
  SPEAKER_00: And the political incentive here is to keep them intact because any attempt to tighten the rules gets attacked is taking away money from grandma's on fixed incomes.
• 12:27
  SPEAKER_00: And, you know, you're trying to foreclose on grandma's home, even though you know grandma's home is is worth four or five million dollars.
• 12:34
  SPEAKER_00: You know, if grandma wanted to, she could easily take out a reverse mortgage or HELOC on that, but she's just choosing not to.
• 12:41
  SPEAKER_02: Yeah, I'm definitely on board with taking away wealth transfers that go from young people to older people.
• 12:46
  SPEAKER_02: And economically, I can see the argument to get rid of it, but politically, this feels like something that has no possibility of going away.
• 12:53
  SPEAKER_02: I mean, we could just look at Mississauga's new mayor, Alvin Tedjo, who made a property tax deferral, a key part of his platform.
• 12:59
  SPEAKER_02: And he won what might be the biggest upset in the province in these municipal elections.
• 13:03
  SPEAKER_02: It's a really popular policy, especially among homeowners.
• 13:06
  SPEAKER_02: It's a losing political initiative to then try to take it away from seniors.
• 13:11
  SPEAKER_02: It'll be framed as taxing old ladies out of their homes.
• 13:14
  SPEAKER_02: It's a way to help seniors age in place.
• 13:16
  SPEAKER_02: I understand why politically it's a very good idea.
• 13:19
  SPEAKER_02: And we see that like seniors supported it.
• 13:21
  SPEAKER_02: I wonder whether Alvintejo would have won anyways, but it's very possible that a lot of people came out to support him for that because that was a key plank in his platform.
• 13:28
  SPEAKER_02: I don't know.
• 13:29
  SPEAKER_02: What do you think?
• 13:30
  SPEAKER_00: Yeah, no, it's tough to say.
• 13:31
  SPEAKER_00: And I think it shows that good politics is not always good policy, and vice versa.
• 13:36
  SPEAKER_00: You know, having policies that that make sense are not necessarily a political winner.
• 13:41
  SPEAKER_00: And, you know, you can be a political winner on policies that don't necessarily make economic sense, but they're quite popular.
• 13:47
  SPEAKER_02: And I must say that at least with Alvin Tedjo, he does have a pretty good, seems like it's a pretty good housing policy.
• 13:52
  SPEAKER_02: He does have uh plans to build more multiplexes.
• 13:55
  SPEAKER_02: So hopefully that'll, you know, balance it out.
• 13:57
  SPEAKER_02: But yeah, not a great idea to introduce another wealth transfer that didn't exist before.
• 14:02
  SPEAKER_02: Ideally, I understand this wouldn't exist at all, but I wonder if there's a way that we can like design a version that actually does help people in a terrible situation without making it too widespread.
• 14:13
  SPEAKER_02: So like I was trying to think like, how could you make this program viable that isn't just a wealth transfer?
• 14:19
  SPEAKER_02: And the way to do it, I guess, is strict income and asset means testing.
• 14:22
  SPEAKER_02: So you could reserve subsidized government deferrals for low-income, low asset households, like not multimillionaire homeowners trying to just like save money so they can pass it on to their kids.
• 14:34
  SPEAKER_02: For example, Manitoba, like I mentioned, you can't defer taxes on a property worth more than 300,000.
• 14:40
  SPEAKER_02: You said the number should be zero.
• 14:41
  SPEAKER_02: But I wonder if there's a version that you think is more like acceptable in your mind.
• 14:47
  SPEAKER_00: I certainly think some of those things can be improvements, but uh worry about the unintended consequences here, right?
• 14:52
  SPEAKER_00: That you're basically incentivizing seniors to stay illiquid.
• 14:56
  SPEAKER_00: You're looking at their kind of portfolio and and and going, hey, you know, we're encouraging you to have like 95% of your uh net worth tied up into a single illiquid asset.
• 15:07
  SPEAKER_00: I think that's a bad idea.
• 15:09
  SPEAKER_00: I think we should encourage people to have uh a diversified financial portfolio, you know, because there's risk here, right?
• 15:17
  SPEAKER_00: If if you know that senior has all of their net worth tied up in housing, and you know, God forbid the the housing market goes south and homes become more affordable, they they've lost 20, 30 percent of their net worth overnight, right?
• 15:31
  SPEAKER_00: That we should, if anything, be encouraging people to have a diversified portfolio, uh, not saying, okay, yeah, all of your net worth is tied up into one asset, and you know, as government, by God, we're gonna help you keep it that way.
• 15:46
  SPEAKER_02: And I guess anything that increases home prices will then make sure that younger generations also have all their money in that asset.
• 15:51
  SPEAKER_02: I'm thinking when you said that, I'm like, I think all of my money is in my house.
• 15:55
  SPEAKER_02: Like there's no extra money to put anywhere else.
• 15:57
  SPEAKER_02: And I think that's the case for a lot of younger people who had to buy in when home prices rose.
• 16:02
  SPEAKER_02: You definitely have to eliminate interest rate discounts.
• 16:05
  SPEAKER_02: So like taxpayers aren't extending cheap loans to wealthy estates.
• 16:09
  SPEAKER_02: Like if people have to defer, like, could you do it in a way where the city makes enough money that it isn't such a great deal for them that it's for helping people who absolutely need it, but it's not like an investment trick.
• 16:19
  SPEAKER_00: Yeah, and and this one I'm good with, right?
• 16:22
  SPEAKER_00: If, you know, in instead of having seniors take out a HELOC or a reverse mortgage, uh, that the city's the lender, I don't I don't have a problem uh with that in theory, so long as the interest rate uh that the city is is charging on this covers the cost.
• 16:38
  SPEAKER_00: So if the rate is one where the city's turning a profit or at worst break-even, I'm on board with it.
• 16:44
  SPEAKER_00: You know, I think again, the only thing I would say is, you know, could we extend it to everyone, not just seniors, right?
• 16:50
  SPEAKER_00: Because there are a lot of people who could use the support, uh, particularly, you know, cash-drapped young people.
• 16:56
  SPEAKER_02: And it doesn't help people who are renters.
• 16:58
  SPEAKER_02: You're right about that.
• 16:58
  SPEAKER_02: That probably the the seniors most likely to be in poverty are more likely to be renters, so, or at least the most vulnerable people, because they don't have as many options.
• 17:06
  SPEAKER_02: I guess the last thing we could do is just making sure you're enabling downsizing, like building more missing little housing, ideally in the existing community, so that seniors don't have to move farther away and they have an option to downsize them.
• 17:16
  SPEAKER_02: Although I guess I don't know how much that saves them on property taxes, really, but at least they might get some money out of it.
• 17:21
  SPEAKER_00: Yeah, I certainly think uh that uh, you know, seniors could sell a more expensive home uh and buy a less expensive home and take the equity uh out uh that way.
• 17:33
  SPEAKER_00: But again, that's they they have other options, like reverse mortgages.
• 17:37
  SPEAKER_00: And I actually worry about tying the downsizing conversation to the property deferral conversation because it presupposes the argument that the only way to deal with these affordability issues is to downsize.
• 17:54
  SPEAKER_00: And I think if we're then saying, oh, by the way, we're gonna create uh this kind of missing middle housing as a way to uh help you avoid sort of property taxes, it kind of concedes the argument here.
• 18:09
  SPEAKER_00: Uh, and I actually think it probably politically strengthens the argument for deferral programs if you're kind of tying these things together.
• 18:17
  SPEAKER_00: And as somebody who's all for liberalizing zoning, making it easier to build all kinds of homes, you know, I really don't think it's helpful to put the kind of stench of like, oh, these are these are homes for victims of property tax increases or things like that.
• 18:36
  SPEAKER_00: I just don't think it's a helpful conversation.
• 18:38
  SPEAKER_02: We know that good economics doesn't always make good politics.
• 18:41
  SPEAKER_02: And I wonder if you weren't an economist, you're not looking at this through that lens, but you were a politician trying to get out of the situation, how would you do it?
• 18:49
  SPEAKER_02: How would you sell it to voters?
• 18:50
  SPEAKER_00: Well, I'd start by being transparent about the costs, right?
• 18:53
  SPEAKER_00: It's hard to find out from a city like how much are these deferral programs costing?
• 18:59
  SPEAKER_00: They bury these costs here.
• 19:01
  SPEAKER_00: So, you know, I think letting voters know that how much these programs are costing and what effect that has on their property taxes.
• 19:10
  SPEAKER_00: I think if voters had, particularly non-senior voters, had access to that information, if they knew exactly how much these programs were costing them, there's a fighting chance that they go, you know what, this doesn't make any sense.
• 19:23
  SPEAKER_00: And they would be willing to support reforms.
• 19:25
  SPEAKER_00: And those reforms could be abolition or those reforms could be like, hey, let's just raise the rates on these.
• 19:31
  SPEAKER_00: So it's not uh as much of a subsidy.
• 19:33
  SPEAKER_00: Now, obviously, that's still an uphill battle, you know, given that seniors disproportionately vote in municipal elections, but at least a start, right?
• 19:41
  SPEAKER_00: That give voters the information they need to make informed choices.
• 19:45
  SPEAKER_00: Because right now they're not getting it.
• 19:47
  SPEAKER_00: And it's easy to assume that these programs have have zero cost when they don't.
• 19:53
  SPEAKER_02: So to wrap up, deferrals are frequently framed as a compassionate anti-poverty tool.
• 19:58
  SPEAKER_02: But when they're open to high wealth households and high-income households and price below market rates, especially in those situations and probably in all situations, they just shift the financial burdens onto younger, non-homeowning generations.
• 20:11
  SPEAKER_00: Yeah, they really do, because ultimately they're not an anti-poverty tool at all.
• 20:15
  SPEAKER_00: They're a wealth preservation tool and they're subsidies for older, wealthier homeowners.
• 20:21
  SPEAKER_00: And governments and politicians need to ask themselves whether these policies are serving the public interest or they're just politically expedient.
• 20:29
  SPEAKER_00: And right now, the answer is clear.
• 20:31
  SPEAKER_02: Thanks everyone for watching and listening.
• 20:33
  SPEAKER_02: Our producer is Meredith Martin, and this episode was edited by Canadian Sybil.
• 20:37
  SPEAKER_00: If you have any thoughts or questions about Happy Gilmore or other movies where grandma is taxed out of her home, please leave a comment on YouTube.
• 20:44
  SPEAKER_02: And we'll see you next time.