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Posted in Housing, Industry Trends, Newsworthy, Tax Law

Councillor Mike Colle proposed a new speculation tax at Toronto City Council on Dec. 15.

With the goal of making housing in Toronto more affordable, the thinking appears to be that a new levy (in addition to the already existing capital gains tax) to the sale of homes that are not principal residences would deter speculation and eliminate “home flippers” from the tightest, most competitive housing market on record.

According to Colle, “These people are just essentially blowing up the market in Toronto … There are other factors, but this is one factor that I want the provincial government to wake up and look at.”

Speculation in Toronto real estate has probably been underestimated for too long as a significant force contributing to the current housing crisis. It is now estimated that a full quarter of the buyer pool is made up of investment buyers. Such investors compete with end users and drive-up prices.

Some figures now show that mortgages held by investors have doubled over the past year.

Just last month, the Bank of Canada raised the alarm that speculative activity was putting our country’s housing market at a higher risk of correction.

“A sudden influx of investors in the housing market likely contributed to the rapid price increases we saw earlier this year,” Bank of Canada’s deputy governor Paul Beaudry said in a speech to the Ontario Securities Commission. “That can expose the market to a higher chance of a correction.”

“The damage can spread far beyond the investors,” Beaudry said. “That’s because, for many households, their wealth and access to low-cost credit are tied to the value of their home.”

The Toronto Regional Real Estate Board wasted no time in coming out in opposition, largely emphasizing the unintended consequences such a tax would have on ownership and the rental housing markets, and strongly voicing their position that the critical issue is supply, supply, supply.

I will admit that I cringed a little when I first read reports that TRREB had cited the potential harms such a tax might impose on “mom and pop investors.”

As both a realtor and member of TRREB whom on a weekly basis is on the receiving end of fairly no-holds-barred reader feedback, I am hyperaware of how the public perceives professionals in my industry. And I wish that as an organization they wouldn’t make their position on every issue seem so transparently informed by a desire to keep the market humming, no matter what. Particularly because the vast majority of the agents actively working in this market hate these conditions, full-stop.

Personally, I think taxes, particularly a tax like this, are the low-hanging fruit of solutions; we need something nuanced. For it to have any impact whatsoever, implementation will matter and as history has shown, between the Foreign Buyers Tax that barely made a dent in 2017 and the 1974 Speculation Tax that basically blew things up, we need to keep a level head.

But also, why go straight for a tax when we can tinker with access to the cheap money that is fuelling the speculation?

Things are how they are because of insufficient supply, yes, but also the rock bottom interest rates coupled with sky-rocketing home prices and resulting equity.

If the goal is to first eliminate the speculation that is putting us all at risk, as in, dabbling investors over-leveraging themselves such that any sort of small correction could be seismic in proportion, why not examine the lending policies that help them wade into dark waters?

Imagine the impact simply limiting the capacity of buyers to access funds for down payment via home equity lines of credit could have? It probably wouldn’t do much to curb the behemoth institutional investors, but it would certainly add a safety buffer to everyone else dabbling in making “guaranteed returns” while also removing some of the competition from the marketplace.

Access to cheap money is driving this.

But it must be noted that none of this would be happening if we had even close to sufficient supply.

Best case scenario, we wave a magic wand and remove all speculation and investment from the real estate market (which in and of itself would pose an issue as who is then going to own the housing that makes up our rental housing inventory?), the void in demand of that 25% will simply be filled up by end-users.

On an offer night with 12 offers, if you remove three of them, you still have nine buyers in competition. Prices won’t come down.

Realtors keep bringing the conversation back to supply because that’s the problem here.

Don’t believe me? Well, here’s a little stat for you. For the month of December in the entire GTA we are projected to have just over 6,000 properties available for sale. Let’s compare that to December 1996, when population was roughly half of what it is today. 16,964 properties were available for sale. We now have double the population and a little over a third of the inventory.

Would love to know what a speculation tax is going to do in the face of that.


Story by: Toronto Sun