OK. Let me start off by acknowledging that I am a real estate broker. Many readers may want to disqualify my comments based on that. So be it…you don’t need to read this.
There has been a lot of talk of late by many about how to address the high price of real estate in the GTA (Toronto and surrounding areas). Housing affordability is certainly an issue. Many are wanting the province to introduce a tax similar to Vancouver’s tax on foreign buyers. A Toronto Councillor was the latest to make the headlines. (opens in new tab). If you’re interested in how Canada compares worldwide, here’s a great study I found out of Australia. Compare Toronto prices to world markets (new tab).
Since Vancouver imposed a 15% tax on purchases by foreign buyers they have seen a decrease in sales volume although that cannot be entirely attributed to the imposition of the tax. Many believe that credit-worthiness is just tapped out (new tab) and partially to blame for the decrease in the number of sales.
Why not do the same in Toronto?
- Toronto is not the entire GTA. Unless this is instituted province-wide, Buyers would just be driven to the non-tax outlying GTA like Mississauga, Oakville, Burlington, and Milton.
- There is no mechanism to track whether a buyer is foreign in Ontario. There is a provision in the standard agreement for Sellers to provide residency status, but not Buyers, and this is data that is not currently aggregated to my knowledge. The only evidence I have seen is anecdotal at best that there is much foreign buyer influence at all in Toronto.
- While a tax may hinder sales of higher priced homes, foreign investors may just move their money to the mid-price market where the tax burden is not as onerous, thereby making the market for regular people even more competitive and thus driving prices up in the low to mid-range market.
- Who really wins? Great question.
– Politicians for seemingly doing the right thing for regular people like us.
– There are some who believe it will lower prices enough to make them ‘affordable’ for everyone. I would contest that. Property anywhere in Canada has never been affordable for everyone in my lifetime.
– Domestic investors because you may have just brought the price down (which is what the intent of the tax is) for them. Don’t kid yourselves; there’s lots of money around in Canada for investment in Real Estate and why not? It’s been the best thing going for quite a while.
- Who Loses? Needs to be asked. If such a tax did work to lower prices, who does that lower price impact. Sellers that’s who. All Sellers.Retirees – So here I am having worked my whole life to pay for a home and now because of some arbitrary tax applied, suddenly my net worth is no longer there. If I need the equity from my home to live reasonably in retirement (and many do otherwise reverse mortgages would no be so popular), that equity is suddenly reduced. Does any home-owing retiree benefit? No. In fact, they would be financially punished.Government Sellers – Any real estate the various levels of government will be selling would be impacted.People downsizing. If we assume a 15% drop in values 15% of that big family home is going to be a much larger drop than the smaller home they buy. They lose.
So Where’s the solution?
I am not going to pretend I have some magic answer to the affordability issue. Real Estate is like any other commodity, its value is based on supply and demand. That needs to be accepted. If government really wants to do something about it, and by the way interfere in the marketplace, then there must be other avenues to pursue.
Here’s some off the wall solutions. Make Toronto less desirable. One could make the argument that they should increase residential property taxes to fund the needed infrastructure improvements. Raise them far enough and that would dampen demand. Continue to do nothing timely to address the traffic, public transit. bicycle, pedestrian issues. Eventually, it will become such a dangerous, crowded unpleasant environment that few will want to live there.
So let’s get real. People want to live in the GTA. Supply is what it is and I see no government bodies encouraging construction of lower priced ‘affordable’ units, though they may give lip service to it.
We need to stop trying to be a world class city without world class prices. Enough of the rhetoric. Let the open market decide what real estate is worth.