The Government of Ontario is reconsidering a foreign buyers’ tax on housing.
Last year, Ontario Finance Minister Charles Sousa said the province wouldn’t follow the lead of British Columbia, which levied a 15% tax on homes purchased by foreign nationals in Metro Vancouver last year.
“A year ago I was thinking, ‘Let market forces prevail,”‘ he says. “But now I’m concerned about … the ability of people to enter the marketplace. [There are] bidding wars everywhere you go, it appears, and I’m sensitive to that.”
Home prices have been soaring in the Greater Toronto Area (GTA). According to the Toronto Real Estate Board (TREB), the average selling price reached $875,983 in February—a 27.7% increase on a year-over-year basis. And in Toronto, the average selling price of a detached home reached $1.57 million last month.
National Bank Financial notes there’s record-low supply in Toronto’s housing market when legitimate demand is robust. And the market is continuing to soar despite mortgage stress-testing rules that came into effect last fall.
“In the long run, supply has to be part of the solution, but it appears that more could be done to tame demand, and dulling the foreign bid for Toronto and environs could be part of a multi-pronged housing affordability strategy for Canada’s largest province,” say economists Warren Lovely and Stéfane Marion in a research note.
“We’re not saying that an incremental property transfer tax levied on foreign buyers is the silver bullet when it comes to arresting what CMHC terms “problematic conditions” in the greater Toronto region, but its time may have come,” they write.
But not all agree a tax on foreign buyers is the solution.
“The main culprit behind rapidly rising house prices is the GTA’s unbalanced market—housing supply cannot meet demand—not foreign buyers,” says Ontario Real Estate Association CEO Tim Hudak. “Before we pin a tax on foreigners, we need to address the elephant in the room and that’s the lack of housing supply.”
TREB president Larry Cerqua agrees.
“The fact that most foreign buyers are looking to purchase a home for their family, for personal use, or to provide a tight rental market with much-needed supply is something to be encouraged, as these actions are essential to Ontario’s economic success,” he says. “Imposing a tax on foreign buyers will not have the desired effect of cooling the housing market and could create adverse effects on the national, provincial and GTA economies.”