Canada's Condominium Magazine

Toronto realtors warn against foreign tax, forecast another hot year in market

Expect another very strong year in the Toronto housing market. The Toronto Real Estate Board forecasts that home sales will once again come in at around 110,000 in 2017, just shy of the 113,133 sales reported for 2016. The forecast is based in part on an Ipsos poll of buyers’ intentions conducted late last year. The poll revealed that more first-time buyers intended to buy this year than did so last year, TREB reported.

A condition that is not likely to change in the coming months is the shortage of available homes for sale. The number of active listings at year end was the lowest since the year 2000, and this is “unlikely” to improve. As the continued strong demand for ownership runs up against a limited supply of listings, expect to see double-digit price growth for most home types, especially singles, semis and townhouses, the realtors group says, but the condo market will also remain tight. Average home prices will rise between 10 and 16 per cent, with a range of $800,000–$850,000.

It seems that many would-be home buyers are preparing as best they can for the pricey market by saving larger down payments. The average recent homebuyer managed to come up with 27.6 per cent down payment; first-time buyers plan an average down payment of 23.9 per cent. Buyers are using personal savings, RRSP contributions, gifts from family and friends, and equity in their current homes to boost their down payment.

The larger the down payment a purchaser has, the less impact the recent mortgage insurance premium hikes will have on the cost of the mortgage. It is estimated that having a down payment of less than 10 per cent, for example, could increase the lifetime cost of mortgage insurance by about $20,000.

TREB’s concerns about housing affordability in the tight Toronto market have made it a strong opponent of the Municipal Land Transfer Tax. The board has campaigned vigorously to abolish the tax outright. Recently Toronto City Council voted to harmonize the city’s LTT with the provincial tax, which would mean an overall increase of about $750 for the average Toronto buyer. However, council also voted to increase the rebate payable to first-time buyers from $2,000 to $4,000, largely offsetting the increase.

Housing affordability, and affordable home ownership in particular, is a growing concern. Home prices will increase well above the rate of inflation and income growth in 2017, as the supply of listings remains very constrained. While governments have been focusing their policy solutions on allaying demand, what is needed are policies that focus on the lack of available homes for sale and for rent. The public, private, and not-for-profit sectors need to come together to focus on innovative solutions to the housing supply issue.

Toronto Mayor John Tory and Vancouver Mayor Gregor Robertson. TREB does not want the city to follow Vancouver’s lead in taxing foreign home buyers. Photo credit Karman Wong

Another tax often discussed in Toronto and opposed by TREB is a foreign buyer tax. Since Vancouver introduced it last summer, there have been fears that Toronto would follow suit. TREB emphasises in its latest release that the number of foreign buyers active in the Toronto market is quite small—just 4.9 per cent of GTA transactions involving a TREB member involved a foreign buyer. The majority of foreign buyers either live in the home themselves (40 per cent), rent it out to tenants (25 per cent), or buy it for a family member to use (15 per cent).

According to TREB, an additional tax on foreign buyers would have unintended consequences, such as tightening market conditions further and causing prices to rise in neighbouring communities without such a tax. It could also affect rental supply by driving foreign investors from the market, as well as potentially affecting immigration.

Rather than focusing on curbing demand for housing, TREB says policymakers should be addressing the more fundamental question of supply. Otherwise, housing prices will continue to increase at well above the rate of inflation and income growth in 2017, pushing affordability even further out of reach.

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