Canada's Condominium Magazine
It must be very tempting for Mayor John Tory, and Ontario Finance Minister Charles Sousa, to want to follow the lead of the British Columbia government and impose a hefty tax on foreign buyers of Toronto real estate. BC Premier Christy Clark announced the surprise 15 per cent surtax for Vancouver two weeks ago, and many have speculated that those foreign buyers will now shift their attention to Toronto rather than pay the tax in Vancouver. The BC tax takes effect today.
As things are now, foreign buyers who do come east will find Toronto less expensive than Vancouver, but perhaps not for long. Based on numbers published today by RE/MAX Hallmark Realty, average prices of single-detached homes in Toronto’s 416 area are up 16.4 per cent so far this year, compared to the same time last year. The overall average price is now $1,230,340. A year ago it was $1,056,688.
Double-digit price increases for detached homes are now being recorded in 90 per cent of neighbourhoods in the 416 area; in 57 per cent of them, average prices are now over $1 million. With more than 7,000 detached homes changing hands so far this year, the potential windfall from a 15 per cent tax could be huge. Calculating roughly, the 7,000 homes sold would have brought in about $8.6 billion. If even 5 per cent of buyers had been foreigners who would have been subject to the tax, the city and province would have taken in about $64.5 million. Tempting.
And those average prices, RE/MAX says, will continue to soar. For one thing, more and more homes are being bought for the land value. Teardown activity in Toronto, the realtor says, is “rampant,” with more and more applications for zoning variances and lot severances making their way through the system. Scarcity of land, “exacerbated” by the province’s greenbelt legislation, is the main reason, RE/MAX says, for those soaring prices. Builders and end users are competing for a limited number of properties for sale.
Average price will continue to soar in conjunction with improvements in housing stock. Teardown activity is rampant throughout Toronto and neighbouring Scarborough, as evidenced by the ever-increasing number of applications for zoning variances and lot severances. Scarcity of land, further exacerbated by the greenbelt to the north, east and west of the city, has also prompted double-digit increases of detached homes in 90 per cent of neighbourhoods in the 416 area code to date, with almost 57 per cent now reporting average prices in excess of $1 million.
But the mayor of Toronto says he is not about to rush into anything as far as a new tax is concerned. In his inimitable style, in which he seems to try to anticipate every possible objection when answering a question, the mayor told BNN, “I am not going to, at this stage, state that I have reached a conclusion myself based on what’s going on anywhere, including Vancouver, that any particular tool or mechanism should be used to try to cool off housing prices.” It’s a complicated matter, he added, and governments cannot micro manage, only macro manage.
It’s a complicated matter and an important one as well. According to the latest economic data from Statistics Canada, real estate and finance now account for fully 20 per cent of Canada’s GDP. Real estate is now the biggest industry in Canada, says the Financial Post, contributing 12.4 per cent of GDP. On the one hand, governments obviously do not want to do anything that would dampen that kind of economic growth at a time when the rest of the economy is barely growing at all. On the other hand, they have to consider the sustainability of Vancouver and Toronto’s hot housing markets. Mayor Tory admitted that he hasn’t ruled out a property tax for foreigners, but insisted that it would have to be “effective” and not something done for “show business or political purposes.”
A question of supply, not foreign demand
Rather than talk simply about home prices and the potential for a revenue boon for the city and the province, many observers of the unfolding scene have dumped on the idea of the tax on foreigners. Writing in the Toronto Star, the president of Diamante Urban Corp. real estate development company argued that the real problem in Toronto, the reason for the soaring prices of homes, is lack of supply. “A tax on foreign investors would not solve that supply problem.” It could even be illegal under the terms of the North American Free Trade Agreement (NAFTA), which prohibits discriminatory policies that punish foreigners while exempting locals.
Further, the tax would hamper development of condominiums, which are today benefiting from the presence of foreign investors in the market. That benefit is in the form of the 35 per cent down payment that foreign buyers are required to pay on a new condo. Local buyers can put down as little as 5 per cent. If foreign buyers were additionally required to pay a 15 per cent tax, they might very well decide to take their money elsewhere.
A similar case was made by the Urban Development Institute’s Jon Stovell, who blames most of Vancouver’s housing market excesses on lack of supply, not the activity of foreign investors, who make up at most 10 per cent of buyers. Supply is hindered by slow approvals processes and under-staffed local governments, he argues. While the city needs about 40,000 new homes approved each year, there are currently 70,000 “tied up” in approval processes. He wants the province and municipalities to work together to set mandatory growth targets to deal with the supply problem.
Top five areas for price appreciation (shown in red) of detached homes in the 416 in the first half of 2016
- Don Mills (C13) : 36.4 per cent increase, from $1,335,548 to $1,821,777
- Bayview Village (C15) : 31.8 per cent increase, from $1,252,000 to $1,649,510
- Lansing (C07) : increase of just over 29 per cent, from $1,257,458 to $1,624,017
- Bathurst Manor (C06) : increase of 26.9 per cent from $1,010,711 to $1,282,135
- Willowdale East (C14) : increase of 26.4 per cent, from $1,596,358 to $2,018,060