The dramatic increase in house prices has commanded incredible attention over the past few years and rightfully so–detached homes are officially costing buyers over $1 million in the 905 and even condos, the last bastion of affordable housing, are becoming significantly more expensive.
Now, it looks like the Ontario government is considering implementing a foreign buyer’s tax to help cool the wildly hot market.
According to a recent Globe and Mail article, Finance Minister Charles Sousa recently announced that he’s looking at a foreign buyer’s tax as one option to control the escalating cost of real estate. While many would celebrate the notion, the Toronto Real Estate Board (TREB) is urging the Ontario government to abandon the idea, emphasizing the fact that foreign ownership isn’t solely responsible for driving up prices–persistently low inventory is.
“The Toronto Real Estate Board strongly urges against the imposition of another provincial tax on foreign buyers, which would be in addition to existing provincial taxes on home buyers, including the land transfer tax that they already pay,” TREB representatives wrote in a news release. “An additional tax on foreign buyers would do little to address the real problem facing the GTA housing market; a supply shortage which is at more than a 15-year low.”
Sousa’s announcement is somewhat odd, especially considering the fact that the government announced as recently as last year that it had no plans to follow in British Columbia’s footsteps and impose such a tax. B.C. has been levying a 15 per cent tax on overseas buyers since July 2016.
“When the idea of introducing a foreign buyer tax in Ontario surfaced last year, TREB cautioned it would be a knee-jerk reaction before knowing whether a problem existed. There was little in the way of reliable data on the issue. To better understand the foreign buyer issue, TREB commissioned an Ipsos survey on foreign buying activity in the GTA, the results of which show that concerns about the effect of foreign buyers on the GTA market are widely overblown,” said TREB President, Larry Cerqua.
TREB reports that the survey, conducted in the fall of 2016, found that only an estimated 4.9 per cent of GTA transactions, in which TREB realtor members acted on behalf of a buyer, involved a foreign purchaser.
TREB also points out that the vast majority (80 per cent) of foreign buyers purchased a home as a residence, a home for another family member to live in, or as an investment to rent out to a tenant (meaning the majority of homes aren’t purchased by speculators who intend to leave them empty while they appreciate in value).
TREB says that while research into the issue is ongoing, governments should consider the benefits of foreign investment rather than the possible detriments.
“The fact that most foreign buyers are looking to purchase a home for their family, for personal use, or to provide a tight rental market with much needed supply is something to be encouraged, as these actions are essential to Ontario’s economic success. We can’t forget that immigration is the key driver of population growth in the GTA and, therefore, a key driver of economic growth as well,” said Cerqua. “Imposing a tax on foreign buyers will not have the desired effect of cooling the housing market and could create adverse effects on the national, provincial and GTA economies. It will do little to correct the real issue impacting housing affordability, which is the lack of available housing supply.”
Although people–especially frustrated first-time buyers–have been told repeatedly that the problem is low inventory, people are (naturally, perhaps) looking for other explanations for the wildly escalating prices. Even though most people know that houses in Brampton and beyond are more expensive than ever, buyers still want a home to call their own.
According to TREB, demand for ownership housing has grown over the past year, despite the dearth of listings. New listings entered into TREB’s MLS system in February were down on a year-over-year basis by 12.5 per cent.
“We can’t lose sight of the fact that we have experienced a persistent decline in the inventory of homes available for sale in the GTA. This issue has been acknowledged by provincial and local governments in Ontario, but now policy action is required. Demand focused policy changes will not provide long-term solutions for an affordable housing market,” said TREB Director of Market Analysis Jason Mercer.
TREB thinks all levels of government should work together to tackle the supply issue rather than impose a short-sighted tax.
“The provincial government should work with municipalities and related industry stakeholders to look at ways in which the supply of housing could be increased, including, potentially revisiting land use designations in built-up areas to allow for a broader array of home types to be built, streamlining the development approvals process, streamlining the permit process, and examining ways to incentivize land owners to develop,” said Cerqua.