Should the Government Step in On Toronto’s Housing Market?

toronto housing market

The federal government is reluctant to act on the Toronto housing market.

When it comes to the housing market, Ontario is at a turning point.

House prices across the province are still soaring, especially in Toronto and the GTA. Wealthy investors are turning to bidding wars in hopes of cashing in on the market, elbowing out first-time home buyers in the process. And now, two of Canada’s big banks are warn customers of a potential crash.

In response, some are calling for the government to step in and do something to cool the market before the housing bubble bursts. Here is a rundown of the proposed solutions.

House-Flip Tax

Ontario’s Finance Minister, Charles Sousa proposed a 50% increase on capital gains for non-principal residences.

This would apply to buyers who purchase property as an investment (not as their main residence) and later sell it. In other words, it would affect “house flippers” who buy an affordable property and add value in order to sell it at a higher price.

The capital gains tax applies to the profit from the sale, and Sousa has asked federal minister Bill Morneau to increase that tax in order to “reduce the incentive for people to make speculative purchases.”

Jean Francois Perrault, chief economist of Scotia Bank, agrees with Sousa’s suggestion. However, he also recommends giving buyers a break if they hold onto the property for at least a year before selling it.

Real estate broker Frank Leo offers a counterpoint. “When you start taxing and controlling the market…it’s taking money out of the market. And real estate right now is fuelling the economic engine. Do you really want to stop the engine?”

Foreign Buyer Tax

Another prominent suggestion to cool Toronto’s housing market is a tax on non-Canadians home buyers.

Vancouver, itself in the midst of a housing bubble, introduced a 15% foreign buyer tax this year. The measure was aimed at addressing low vacancy rates and high real estate prices in the city.

Before the change, a full 10% of buyers in Vancouver were foreigners. Since the increase, housing prices have gone down.

Finance Minister Charles Sousa says a foreign tax is one of the options on the table in Ontario. However, it is not clear to what extent foreign buyers are driving up prices in the province. Only about 5% of buyers in Toronto are non-Canadians, and Ontario has received a greater share of migrants from other provinces in recent years.

The Ontario Real Estate Association is against the proposal, arguing that the majority of foreign buyers are not investors, but immigrants or permanent residents who actually plan to live in the homes they buy.

“Scapegoating foreigners as the reason for increasing home prices is not based on sound public policy or reliable data,” says CEO Tim Hudak. The former Progressive Conservative leader accuses supporters of engaging in, “the cheap politics of division.”

Impact of the Federal Budget

Many expected that the Liberal budget would address the concerns about Toronto’s housing market. However, the budget offers no changes that would dissuade bidding wars or cool the market.

Why won’t the federal government intervene? Prime Minister Justin Trudeau says it’s because of the “tremendous differences and variances between the housing markets in Vancouver and Toronto and housing markets in other cities.”

This suggests that any potential resolution will have to come from the provincial level.

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