Canada's Condominium Magazine

Ontario Real Estate Association blasts Toronto land transfer tax

The Ontario Real Estate Association (OREA) has come out with all guns blazing against Toronto’s Municipal Land Transfer Tax (MLTT), citing several new reports that condemn the tax as a job-killing, economy-stifling wet blanket that must be repealed. Since the tax took effect in 2008, OREA says, Toronto has lost out on almost 40,000 home resales, lost $2.3 billion in economic activity and lost nearly 15,000 full-time jobs. Those lost jobs would have pumped three-quarters of a billion dollars of wages and salaries into the local economy.

With a recent Ipsos Reid survey, an Altus Group study and a C.D. Howe Institute study to back it up, OREA says flatly that the MLTT is “bad for our economy.” Costa Poulopoulos, OREA president paints a grim picture. “For one, it kills jobs. With an unemployment rate worse than the national rate and even that of the province as a whole, the City of Toronto could have used those jobs. It also adds to household debt and pushes the dream of home ownership even further away.”

OREA’s case is based mainly on the Altus Group study, which in turn relies heavily on the C.D. Howe Institute study (Stuck in Place: The Effect of Land Transfer Taxes on Housing Transactions), authored by Benjamin Dachis. Assuming that real estate transaction costs affect household mobility, Dachis sought to isolate the effects of the MLTT on household mobility by analyzing home sales in Toronto between 2005 and 2012. He found a 16 per cent decline in sales volume for that period, with the effect of the tax varying according to the price of the home. The negative effect was found to be greatest on lower-priced homes, with sale prices below the median market value. Those least able to afford the added cost of the tax, he argues, stayed put. The cost of moving house before the tax was implemented was about 7.8 per cent of the average property value. The addition of the tax, Dachis claims, increased transaction costs on a Toronto property by 14 per cent.

Residential property taxes provide a more reliable revenue source for municipalities and are less harmful than LTTs to the functioning of labour markets. Therefore, Toronto should limit itself to its traditional revenue-raising tools and replace the LTT with a revenue-equivalent property tax levy . . . Toronto should repeal its LTT and replace lost revenue by increasing its residential property tax, for which it has fiscal room.

Stuck in Place: The Effect of Land Transfer Taxes on Housing Transactions

Other “potential effects” of the tax include government revenue volatility, commercial real estate market distortions, and higher construction costs.

The report concludes that Toronto should scrap the tax and rely on conventional property taxes.

The Altus Group report accepts that 16 per cent decline in housing sales put forward by Dachis, referring to them as “lost” transactions totaling 38,278 units that did not take place because of the MLTT. Thus, even though the Toronto real estate market has had several record-setting sales years since the tax took effect, the Altus report, and OREA, argue that sales would have been even higher without the tax.

“Given that these transactions occurred despite the effects of the MLTT (which caused a 16% decrease in resale transactions across the city), the potential total number of resale transactions in the City of Toronto should have been 239,244 units.”

The Altus report goes on to break down the lost employment, by industry, in the city of Toronto in the years 2008–2013, due to the MLTT. About 30,000 jobs were “lost” in manufacturing, professional services, retail and wholesale, construction, FIRE (fire, insurance, real estate) and other.

Removing the tax would undo all of these negatives: the city would enjoy $1.9 billion in economic activity; see an increase of $990 million in GDP; welcome 12,570 new jobs paying $650 million in wages and salaries.

The Ipsos Reid survey provides additional ammunition for the anti-MLTT arsenal in the form of Torontonians’ opinions about the tax. While most still think owning a home is “the Canadian Dream,” two-thirds say the MLTT would make it harder to realize the dream and would impact their decision to buy a home in Toronto. It would also force them to spend less on renovations, new furniture and appliances, and reduce the price they could afford to pay for a home.

Auberge on the Park-Tridel


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