Recently, news surfaced that the province of Ontario is reconsidering taxing foreign buyers on real estate transactions. The Toronto Real Estate Board (TREB) was quick to voice its opposition of the idea. According to TREB, a foreign buyer tax would do little to address the issue of the supply shortage; inventory has hit a 15-year low.
“When the idea of introducing a foreign buyer tax in Ontario surfaced last year, TREB cautioned it would be a knee-jerk reaction before knowing whether a problem existed,” says TREB President, Larry Cerqua. “There was little in the way of reliable data on the issue. To better understand the foreign buyer issue, TREB commissioned an Ipsos survey on foreign buying activity in the GTA, the results of which show that concerns about the effect of foreign buyers on the GTA market are widely overblown.”
The survey, which was conducted in fall 2016, found that an estimated 4.9% of GTA transactions (with a TREB Realtor member representing the buyer) involved a foreign buyer. 80% of the foreign buyers were either purchasing as a primary residence, a home for a family member, or as an investment to rent out to a tenant.
“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,” Cerqua explains. “We can’t forget that immigration is the key driver of population growth in the GTA and, therefore, a key driver of economic growth as well. 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. It will do little to correct the real issue impacting housing affordability, which is the lack of available housing supply.”
In February 2017, new listings in the GTA dropped by 12.5% compared to the same period the previous year. Inventory is down to about one-month of supply. That means that if no new listings became available, it would only take one month to completely run out of resale inventory (at current sales trends). TREB says that there are parts of the GTA where inventory can be measured in weeks!
“We can’t lose sight of the fact that we have experienced a persistent decline in the inventory of homes available for sale in the GTA,” says TREB Director of Market Analysis, Jason Mercer. “This issue has been acknowledged by provincial and local governments in Ontario, but now policy action is required. Demand focused policy changes will not provide long-term solutions for an affordable housing market.”
“The provincial government should work with municipalities and related industry stakeholders to look at ways in which the supply of housing could be increased, including, potentially revisiting land use designations in built-up areas to allow for a broader array of home types to be built, streamlining the development approvals process, streamlining the permit process, and examining ways to incentivize land owners to develop,” adds Cerqua.
There are mixed feelings about the way the 15% land transfer tax in British Columbia has affected their housing market. Do you think that a foreign buyer tax would be helpful in Ontario or do you agree with TREB? How do you think a foreign buyer tax would affect the new home market?