Sherry Cooper on whether a tax on foreign buyers would help with Toronto’s affordability problem
Dr. Sherry Cooper at a recent Post City Magazines real estate roundtable
Since British Columbia introduced a 15 per cent land transfer tax on foreign non-residents, there has been speculation that Ontario would do the same. So far, the effect in B.C. has been an apparent slowdown in home sales and price gains at the high end of the single-family home market.
This slowdown, however, was already in train before the August introduction of the new tax measure. Although single-family home prices have edged down in B.C. since August, average prices in that sector remain very high.
Foreign investment in residential real estate plays a relatively small role in the GTA. According to Canada Mortgage and Housing Corporation (CMHC), foreign ownership of condos is unlikely to be a major contributor to sellers’ market conditions in Toronto and environs characterized by low inventories of unsold homes and competitive bidding wars.
Based on research conducted in October and November 2016, the CMHC estimated that only 2.2 per cent of Toronto’s condos are owned by investors primarily residing abroad. Among the various regions in the GTA, Toronto centre has the greatest concentration of foreign ownership, at 3.5 per cent. The GTA outside of Toronto has a rate of 1.4 per cent. In consequence, taxing foreign buyers would likely have only a small impact on home prices — not sufficient to make housing affordable for average Canadian first-time buyers.
The real factor driving up home prices is the dearth of supply. With land supply already restricting the options for builders and its scarcity increasing the cost of land, the Fraser Institute says that red tape is costing builders disproportionately more in Toronto than in other cities, such as Hamilton, adding to the cost of homes. Costly and confusing regulations, long approval times, rezoning delays and overall uncertainty for developers both increase the costs and impede new homes from being built.
If the province and municipalities want affordable housing, they must take measures to increase the supply by eliminating unnecessary red tape and land use restrictions. They should also consider public housing projects and private-public partnerships to restructure availability of all types of housing.
Instead of a foreign buyer tax, a better alternative would be directing public funding and the creativity of planners and housing industry professionals to develop innovative and affordable housing types and ownership models that meet the needs for new home buyers.