Photo: James Bombales
Like non-residents scrambling to buy property before facing a new tax, there has been a groundswell of commentary from experts tackling Ontario’s landmark housing announcement today.
In case you couldn’t hear it over the condo construction, Ontario Premier Kathleen Wynne, before a scene of glass, steel and concrete in Toronto’s high-rising Liberty Village, this morning unveiled the province’s new “Fair Housing Plan,” a 16-point combination of sweeping changes and specific measures alike.
Tall-tower dwellers will doubtless appreciate the creation of timelines for elevator repairs, and many tenants will likely revel in the closing of a loophole for rent control, which is to be applied to all units, not just those built before November 1991 as is the case now.
But a foreign-buyer tax, not unlike the one BC tacked onto Metro Vancouver in August 2016, was the major demand-side measure Wynne announced. Should it pass, the 15-per-cent levy will be limited to a region of southern Ontario known as the Greater Golden Horseshoe, which includes the Greater Toronto Area as well as surrounding cities such as Hamilton, Waterloo, Orillia and Peterborough.
Economists from several of Canada’s largest banks have been quick to pile support on the move in general. Here’s what some of them said in finer detail.
1. The foreign-buyer tax will curb price growth, and then…
“Ultimately, it is unknown what degree of home sales are related to this speculative behavior,” reads a reaction from TD Chief Economist Beata Caranci, Senior Economist Michael Dolega and Economist Diana Petramala. They suggest it’s part of a “reasonable” attempt to rein in price growth and expect it will do just that and then some, supposing the market share of foreign buyers is around 5 to 10 per cent. In that environment, the move will weigh price gains down to 15 per cent this year and lead to outright declines next.
2. But prices might take a while to fall
The comparison to BC’s foreign-buyer tax is virtually inevitable, but RBC Chief Economist Craig Wright and Senior Economist Robert Hogue emphasize a key difference: timing. Not merely the fact that this tax came after BC’s, but that it came later on in the housing cycle. By the time policymakers on the west coast acted, the resale market was already softening. Not so in Toronto, where last month was a record breaker. “Therefore, any moderation in prices linked to the tax in the Toronto area is likely to take longer to materialize than Vancouver, where the effect was almost instantaneous.”
3. A lower share of foreign-investment will dampen the levy’s effect
Timing isn’t everything. Robert Kavcic, a BMO senior economist, argues foreign investment in Toronto real estate isn’t at Vancouver levels, another reason any impact on pricing here shouldn’t be as severe. “The move comes with more exemptions, and it was well telegraphed,” Kavcic states in a note. Exemptions include refugees and participants in Ontario Immigrant Nominee Program. The tax, if enacted, would be retroactively applied to all transactions from April 21st and on, but the government had hinted at this move ahead of time.
4. And the measure could send buyers to…
Are foreign homebuyers going to descend on Montreal now that they face additional taxes in Vancouver and Toronto? Desjardins Senior Economist Benoit P. Durocher, who says the levy “might” cool the market, entertains this possibility in his latest commentary. Quebec policymakers needn’t rush out the gates, though. “The presence of foreign investors in Montreal at the moment seems to be very limited, compared with Vancouver and Toronto,” Durocher explains. “There is no urgency to act, especially since the housing market in the Greater Montreal Area is much healthier.”