Challenge subsidies

Challenge subsidies Open letter re the Liberals' proposed tax credit for renters: Before I begin, full disclosure: I am a member of the Yukon Party. However, I am also a renter. And while I would not mind the $50 per month rental subsidy proposed by the

Open letter re the Liberals’ proposed tax credit for renters:

Before I begin, full disclosure: I am a member of the Yukon Party.

However, I am also a renter. And while I would not mind the $50 per month rental subsidy proposed by the Yukon Liberal Party, I do not believe the proposed tax credit is an effective way to go about dealing with either the housing crisis nor the connected high price of rent.

As a way of introduction to the subject, I note that all tax credits are designed by government to serve one of two broad purposes:

1) Encouragement for citizens to behave in a certain way (i.e. country A’s birth rate is dropping, a policy decision is made to grant a tax credit of $1,000 a child per year to encourage people to procreate); and/or

2) Subsidization of a portion of society by the government for policy reasons, really wealth distribution between sectors of society (i.e. province A determines single parents under a certain income are eligible for rental assistance).

I assume the proposed rental tax credit is not intended to encourage citizens to rent, rather than own, property, as that does not make much sense as a government policy.

Usually, government policy is designed to ease movement from renting to home ownership. Therefore, I assume the purpose of the rental tax credit must be to subsidize the price of rent (i.e. provide funds to renters from nonrenters, a policy of wealth distribution).

As I see it, the problems with the rental tax credit as a wealth-distribution scheme are twofold:

1) The rental tax credit will not actually reduce rental prices, nor will it permit anyone who currently cannot afford rent to suddenly be able to afford it. The problem lies in the fact that wealth is being transferred to all renters (and all prospective renters), not a subsection of renters.

As the housing supply has not increased, giving all renters $600 more in their pocket per year simply means all renters will have more money to compete over a static resource. The price of rent will simply increase to accommodate the increase in money available, leaving those marginalized individuals squarely back in the margins; and

2) Some of the wealth will be distributed between “have-not” homeowners and “have” renters, which is an inefficient structure of distribution. As there are really only two types of individuals in this scenario, renters and homeowners (i.e assume for the purposes of this letter that all Yukon taxpayers are either renters or homeowners), wealth is being transferred from all homeowners to all renters.

That set of “renters” must include some individuals who can easily afford the high price of rent, and the set of “homeowners” must include some individuals who are having a hard time making their mortgage payments.

By not clearly identifying the portion of “renters” that actually need help from government, we are creating a situation wherein homeowners who are not well off are forced to subsidize renters who are well-off.

If I may quickly digress, I recognize some may argue that the point in item two above is somewhat diluted by the fact that we receive 75 per cent of our territorial budget from the federal government, and we are, at least in some-way, simply fighting over the chopping up of those funds, rather than distributing wealth between sectors of Yukon society.

In answer, please note the $2.5 million proposed for the proposed rental tax credit is money that could have been used for projects for all citizens, and that, by choosing to direct the money to one sector instead of another, we create a back-door wealth transfer wherein wealth is transferred from the federal government to renters at the expense of homeowners.

Digression aside, I think we can all agree that a single individual making $100,000 a year probably does not need a rental subsidy, and that any program set up to provide such a subsidy was probably not thought all the way through.

In order for a subsidization scheme to be effective, a government must clearly define the sector of society deemed to require aid and, more importantly, identify the overall goals of the program and figure out how the transfer of wealth will achieve those goals.

The development of a government subsidization program must be more than a decision to give every renter $600 followed by the crossing of fingers, hoping (some would say against hope) that the subsidization will somehow result in affordable housing for all. The article does state this is some sort of “emergency measure,” but the money will not be going into pockets until after tax time, so I do not see how the endeavour will help with rents even in the short term.

If the Yukon government truly wants to take steps to alleviate the housing crisis generally, they must affect housing supply by either regulating in such a way as to see the creation of more affordable units (which will increase supply and lower prices) or capping rental prices (which, as shown time and again in rent control markets, simply creates an underground economy of off-the-book fees associated with rental units and does little to reduce actual rents).

If the Yukon government really wanted to think outside the box, it could attempt to affect supply by using its position as the single largest renter in the territory (through social assistance subsidies) to attempt to bargain in bulk for rental spaces. If the Yukon territory can find a way to lower its rental subsidies while also providing places for the recipients of those subsidies, rents will fall generally, as private renters are faced with artificial competition from set government rental subsidies.

This type of bargaining would only work with very large landlords, and may not be viable, but my point is what we need now in the territory, and Whitehorse in particular, are new ideas, not platitudes in the form of ineffective and inefficient tax credits.

Graham Lang