Against a significant shortage of listings, demand for home-ownership in Toronto continues to skyrocket. As such, a lot of the blame has been pointed at the presence—and activity—of foreign buyers in our market. And with debate raging that we might be approaching a bubble, the following question has not only been asked…
Could a provincial tax on foreign buyers—which would serve in addition to existing provincial taxes on home buyers, including the land transfer tax that they already pay—effectively address the problem?
… But apparently answered, too.
That’s because Ontario’s Liberal government made it known this week that they will officially slap a 15% tax on home purchases by non-resident foreigners. The move comes in the wake of average home prices in the GTA jumping 33% in a year.
Which means the question now becomes: Will this tax actually work?
Likely not. At least that’s the position of no less an authority than the Toronto Real Estate Board.
In a March news release, the largest organization of its kind in Canada—serving more than 45,000 members across the GTA—strongly cautioned against the institution of any type of foreign buyers tax in Ontario.
TREB was of the mind that it would do little to quell the true challenge confronting Toronto’s housing market: the supply shortage itself, currently estimated to be at more than a 15-year low.
The notion of introducing a foreign buyers tax in Ontario was first floated around last summer. TREB President Larry Cerqua also warned against it then, calling it a “knee-jerk reaction”, especially without concrete proof a problem even existed. In his opinion, there just wasn’t enough in the way of reliable data to make such a conclusive judgment.
To gain better insight into the foreign buyer issue, TREB commissioned a survey on Toronto’s foreign buying activity in the fall of 2016. It surprisingly found that concerns about the effect of foreign buyers on the city’s market were perhaps excessively inflated.
Not only did the survey indicate that only an estimated 4.9% of GTA transactions involved a foreign purchaser, but 80% of them either bought a home as a residence, or for another family member to live in, or as a rental investment.
According to Cerqua, these are actions that should be encouraged, as they’re integral to Ontario’s economic success.
In his words: “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. 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.”
The reality of the matter is that demand-centric policy changes do not offer long-term solutions for an affordable housing market. After all, Toronto has been experiencing a consistent decline in inventory for available resale homes. Provincial and local governments have acknowledged the dilemma, but more targeted policy action is required—not shortsighted tax on foreign buyers.
The point may be moot now, since the tax will be happening. But for argument’s sake, what kind of action could instead be taken?
For our part, we believe—like Cerqua—that the provincial government can work with municipalities and industry stakeholders to evaluate alternative opportunities to increase housing supply, including potentially revisiting land use designations in built-up areas. Doing so would enable a greater variety of home types to be built, plus streamline both the development approval and permit processes.
Another recommendation—which TREB has gone on the record proposing—would be to explore options that may incentivize land-owners to develop.
While we can’t ensure the Ontario government will pursue either idea, we can guarantee you this: the debate ain’t likely to die down anytime soon, especially now that the foreign buyers tax is on.