How the government could cool Toronto’s housing market

Five measures the Ontario government could take to reign in Toronto’s galloping housing market

A view of the downtown area of Toronto, Ontario. (IVY PHOTOS/Shutterstock)

A view of the downtown area of Toronto, Ontario. (IVY PHOTOS/Shutterstock)

TORONTO – The Ontario government is expected to unveil a suite of housing affordability measures in the coming days aimed at cooling soaring home prices in the Greater Toronto Area. Here are five potential measures the province could bring forward to tackle housing affordability.

Foreign buyers tax

Ontario Finance Minister Charles Sousa said last month that he’s considering a British Columbia-style foreign buyer’s tax – which he had ruled out last year.

The B.C. government implemented a 15-per-cent tax on property purchases in Metro Vancouver by buyers who aren’t citizens or permanent residents. Then, in January, B.C. Premier Christie Clark announced the tax would be lifted for those who have a work permit, in order to encourage more people to come to the province to work.

RELATED: Toronto Mayor John Tory lays out priorities for housing meeting

The number of sales in Metro Vancouver plunged in the wake of the new tax, but the market appears to have bounced back since. Sales leapt forward in the last month and prices climbed 12.3 per cent year-over-year to nearly $1.2 million in the first three months of 2017, according to a report from Royal LePage released Tuesday.

“Non-resident speculation tax”

The most recent possibility floated by the Ontario government is a “non-resident speculation tax,” but the province hasn’t yet said how exactly that tax would work.

Josh Gordon, an assistant professor at Simon Fraser University who studies the housing markets in Ontario and British Columbia, said one way to tax “non-resident speculation” would be to levy a foreign buyers tax but refund or offset it according to income tax paid in the province.

That way, foreigners coming to Ontario in order to work aren’t penalized, he said. Only people who have no connection to the local labour market would pay.

Regent Park in Toronto (Google Earth)

Regent Park in Toronto (Google Earth)

Speculation or flipping tax

Sousa has made it clear he wants to increase the taxes that some real estate speculators or, as he calls them, “property scalpers,” pay.

He has said speculators are reselling contracts for pre-construction homes multiple times before closing, using assignment clauses. However, Sousa hasn’t said exactly how he’ll make them pay more in tax.

RELATED: As uncertainty sets in, Toronto homeowners are cashing out

Sousa said he wants the federal government to close a “loophole” that allows so-called property scalpers to treat their profits as capital gains, which means only 50 per cent is taxable. However, his efforts to get Federal Finance Minister Bill Morneau to include capital gains changes in the federal budget were unsuccessful _ and Morneau signalled Tuesday no such changes are coming.

According to Gordon, another way of taxing speculation is to tax real estate sales when the seller has only owned the property for a short amount of time, with the highest rates for those who’ve owned the home less than six months. That kind of tax would discourage speculation and make it more expensive to “flip” homes, he said.

Progressive property surtax

Gordon has suggested the province could implement a progressive property surtax, which would be an annual surtax that only applies to homes appraised over a certain value. It would be refunded, or offset, according to income tax paid by the property owners, he said.

RELATED: Canadians are googling ‘housing bubble’ like mad

That means the progressive property surtax would apply to people who own an expensive home and speculators who own multiple expensive homes, but pay little-to-no income tax in Ontario, whether that’s because they’re foreign nationals or have otherwise avoided or evaded taxes, he said. Seniors who had paid into the Canada Pension Plan for five to 10 working years would be exempt.

According to one example provided by Gordon, the surtax could be 1 per cent on the first $1 million above an initial threshold of $800,000, rising to 2 or 3 per cent thereafter.

Toronto skyline (Shutterstock)

Toronto skyline (Shutterstock)

Vacant homes tax

Toronto Mayor John Tory has floated the possibility of a vacant home tax modelled after Vancouver’s, which came into effect this year.

Vancouver’s empty homes tax is one per cent of the value of the property and it applies to homes that aren’t being used as a principal residence or aren’t rented out for at least six months of the year. There are exemptions for homes that are under construction or were sold during the year, as well as condo units in buildings that prohibit renting.

RELATED: Inside the taming of CMHC

Owners must make a declaration about whether their property was vacant in 2017 by February 2018.

The City of Vancouver says those declarations will be subject to a “rigorous audit process” and owners who make a false declaration will be fined $10,000 per day plus payment of the tax. The city says the goal of the tax is boosting housing affordability and opening up more rental units.

Filed under:

How the government could cool Toronto’s housing market

  1. “He has said speculators are reselling contracts for pre-construction homes multiple times before closing, using assignment clauses.”

    A relative of mine purchased an assignment last year (with the intention of living in the condo). According to my relative’s real estate agent, the foreign seller was unloading 5 or 6 of these at the time in order to not take actual possession (which would mean getting his name on the land title), and thus not have to pay the foreign buyer’s tax. Due to the leverage involved in flipping an assignment, my relative estimates the seller made over 80% profit.

    So, BC’s foreign buyer’s tax has a loophole large enough to sail a battleship thru. And with the massive profits obtainable from assignment flipping, we can be sure to see non-residents continue to exploit this loophole. That the BC Liberals are *actively* ignoring this loophole is to their discredit.

    Another anecdote: prior to purchasing the assignment I had accompanied my relative to look at some pre-sale condos. At one of these places that had a ton of prospective buyers, I asked one of the salespeople to ballpark the percentage of foreign buyers. He estimated about 30%. Yes, this is just an anecdote, but it’s one that certainly aligns with the narrative that BC’s residents were (and likely still are, to some extent) being reamed in the housing market by cash laden foreign buyers.

    • Yes you are quite correct. Canadian Real Estate is a “bargain” for foreign buyers especially as our dollar has fallen. This exposes the real underlying conundrum. Is reasonable housing now to be considered a basic human right for Canadian citizens? And if so do we want the Canadian government (aka taxpayers) to be the landlord? Alternatively do we just continue to tackle these “Housing scalpers” via tax consequences? Donno. As long as real estate is a “safe place” for foreigners as well as speculators to park their money, the problem will persist.