Toronto city councilor seeks remedy to problem of flippers and domestic investors, but experts warn of side effects
As the housing heat continues seemingly unabated in several Canadian urban centres, including the scorching-hot GTA, one city councillor hopes to solve the problem by putting a chill in the market.
For foreign corporations or individuals who are not citizens or permanent citizens of Canada, Ontario already imposes a 15% non-resident speculation tax on purchases of properties located in the Greater Golden Horseshoe region.
But Mike Colle, a Toronto councillor representing Ward 8, Eglinton–Lawrence, is planning to ask the Ontario government for a new tax to curb domestic sources of exuberance.
"$1.3 million for a starter home in Toronto. This is insanity," he said in an interview with CBC News.
While he acknowledged multiple factors are contributing to Toronto’s housing-market euphoria, Colle argued much of it could be attributed to people who buy and flip houses and condos for their income, as well as speculators who bet that housing prices will only go up.
Some experts have already voiced concerns at property prices that are rising far faster than household incomes. But some voices, including BMO Capital Markets Senior Economist Robert Kavcic, also stress that certain remedies could have undesirable side effects, depending on how they’re administered.
“We did caution that the rate of the tax matters a lot,” Kavcic told CBC News, referring to a report he co-authored earlier this year that called for action to address runaway home prices. “[O]ver what period the tax cut gets phased out matters a lot, whether it's deductible against capital gains and various other aspects ultimately do matter a lot.”
Another expert, real estate lawyer Bob Aaron, recalled an ill-fated 50% speculation tax on non-principal residences introduced by the Bill Davis government on April 9, 1974. The next day, he said he answered countless calls from buyers trying to get out of purchases, as well as sellers who wanted to hold them to their word.
"There were years of litigation after that. There was … blood in the streets when people saw the equity in their home was just evaporating overnight," Aaron told CBC News. In time, the tax was lowered to 20%, and was eventually scrapped.
An overly high speculation tax could also hurt another important group of stakeholders. As Murtaza Haider, a professor of data science and real estate management at Toronto's Ryerson University explained, introducing a domestic speculation tax could take a large amount of rental stock away from the market as investors pull out.
“We solve the problem for just a short period of 12 to 18 months for the would-be owners, but may end up creating a bigger problem for renters," Haider said. "What really needs to be done is you have to inundate the market with new supply, so that those price pressures could ease.”
