LAND TRUST INITIATIVE (2023)

Issue

Canada is facing a continued affordable housing crisis, yet effort made by all levels of government have made very little discernable difference to Canadians.

Community Land Trusts already exist across Canada and a proven vehicle to combat the affordable housing crisis in perpetuity, but they are crippled by current Federal tax law in their ability to acquire land donations.

This policy looks to mirror a proven, and robust mechanism which was implemented in Canada in 2006 for ecological land donations, so that it also covers land donations to Community Land Trusts. This will provide a powerful incentive for individuals and corporations to donate land to Community Land Trusts across the nation, enabling them to provide affordable housing solutions in perpetuity, unlike any other models currently in existence in Canada.

Background

The Housing Gap - One in five Canadian households are at risk of homelessness, meaning that these households spend more than 50% of income on rent. It is estimated that the costs associated with homelessness (i.e., social services, emergency healthcare, shelters, policing) are in excess of $7 billion annually[1].

Household spending rose at a faster pace than inflation from 2017 to 2019 with “Shelter” remaining the largest budget item for households in 2019 up 8.4% from 2017[2].

Because of the severity of the problem, all levels of government are attempting actions to address the near-market gap, but to date these efforts have not materially affected the availability of affordable housing across Canada.

Land (The Key to Housing Affordability) - Recent studies in Canada indicate that land prices now comprise anywhere from 30% to 75% of the total sale price of a dwelling and are a major contributing factor for housing supply and pricing (CMHC, 2018).

As land becomes more valuable, there are increased incentives to build higher density and higher value buildings as well as to demolish older single-storey dwellings to replace them with more expensive homes[3].

This relationship is not new and is also not limited to Canada: many studies have been completed by economists around the world which find this same correlation. For example Knoll et al. (2017) find that land prices accounted for 80 per cent of the rise in global house prices since the Second World War[4].

Although housing affordability dynamics in Canada are complex, data shows that the key to finding a solution to the affordability housing crisis is intrinsically linked to availability and price of land.

Community Land Trusts - A Community Land Trust is a non-profit organization created to acquire and hold land for the benefit of the community. To do so, the trust acquires land and maintains ownership of it permanently. With prospective homeowners, it often enters into a long-term (most frequently, 99 years), renewable lease instead of a traditional sale. When the homeowner sells, the family earns only a portion of the increased property value. The remainder is kept by the trust, preserving the affordability for future low- to moderate-income families.

The first Community Land Trust was established in Canada in the 1970’s as a means to preserve the affordability of cooperative housing and to pool resources of isolated co-ops. According to a 2005 research paper, funded by CMHC, community land trusts (CLTs) are “an innovative approach to providing perpetually affordable housing to low- and moderate-income households.”[5]

Essentially, these Trusts are a fund designed to exist in perpetuity, managed over time so that cash outflows – used to acquire and hold land and buildings – match inflows such as revenues from lease fees, rent, donations, bequests, government support, interest and other sources. Donations given for land or purchases of land and buildings generally are not be used for the Trust’s operating costs.

By permanently limiting the land costs, Community Land Trusts help to ensure perpetual affordability so that the benefits accrue to each subsequent homeowner and hence guarantee that housing will remain affordable for future generations.

The Issue

Land Donations to Community Land Trusts

Most Community Land Trusts in Canada have not yet accumulated enough lease income to acquire additional parcels of land. As such, they are beholden to acts of philanthropy (land donations) from individuals, corporations or government bodies.

Many corporations and private landowners currently hold land titles for business operations, as passive income or for future growth. These individuals and corporations have a strong disincentive to donate land to a Community Land Trust because the tax credit or offset generated by the donation will not overcome the tax owing from the capital gain: They will lose the asset AND owe tax for doing so.

The result: parcels of land which are held in perpetuity (undeveloped) or sold. There is a strong tax disincentive to donate the land for affordable housing.

The Solution

Ecological Land Reserves – A Precedent

In the 2006 Budget, the federal government proposed to completely eliminate the capital gains tax on certain gifts of publicly listed securities and ecologically sensitive land.

The idea behind these measures was to provide the charitable sector with a "powerful set of tools" for raising funds and encouraging charitable giving. The idea was that donors would not be taxed on any of the capital gain accrued on the donated property and would receive the full benefit of the tax credit on the donation.

On June 6, 2006, the budget was introduced for third reading in the House of Commons and was passed by unanimous consent. From that moment forward donations of “ecologically important land” to registered Canadian charities and other qualified donees is eligible for a charitable donation tax credit (if the donor is an individual) or deduction (if the donor is a corporation) AND are exempt from capital gains tax.

Has this incentive proved successful? Between the inception of the program in 1995 and March 31, 2021, 1610 ecological gifts valued at over $977 million have been donated across Canada using this mechanism.

Implementing this policy could similarly mobilize almost a $1 billion dollars in private wealth for the public good: to provide affordable housing that will last in perpetuity.

Much thought and revisions were required for the Income Tax Act to enact this piece of legislation.

Furthermore, additions and revisions have been put in place over the years which has resulted in robust anti-avoidance rules and a proven mechanism to incentivize land donation by individuals and corporations for ecological conservatories. These mechanisms are proven and have stood the test of time.

THE CHAMBER RECOMMENDS

That the Provincial Government:

1. Make amendments and additions to the Income Tax Act to incentivize the donation of land to Land Trusts, for the purpose of developing affordable housing, by utilizing the same mechanisms as those already provided in the Act for individuals and corporations to make donations to ecological land reserves.
2. These changes will allow for donations of land to Community Land Trusts to be capital gains exempt; in addition a tax credit or deduction can be provided in exchange for the land, based on the fair market value.