Developers want to import a U.S. tax break called “opportunity zones” to Ontario
Real estate lobbyists want the provincial government to roll back the land transfer tax and introduce so-called “opportunity zones” in Ontario, but some politicians are calling the ideas pandemic opportunism.
The Ontario Real Estate Association (OREA) wants Doug Ford’s government to give home buyers a six-month holiday from the Ontario and Toronto Land Transfer Tax (LTT), along with other incentives it argues will stimulate Ontario’s economy during the COVID-19 crisis.
One of those incentives is opportunity zones, which you might have heard mentioned in the last debate between U.S. presidential candidates Donald Trump and Joe Biden. That tax break has been adopted stateside and embraced by Democrats and Republicans alike.
“In the last economic downturn we had it was real estate that helped keep Ontario’s head above water,” OREA CEO Tim Hudak tells NOW. He describes how incentivizing home sales will help Ontario weather the economic impact of COVID-19.
“Our national association estimates that for every home bought, there are about $90,000 in spinoff expenditures. That could include [spending on] new furniture, appliances, renovation projects, moving and the list goes on and on,” he adds.
Parkdale-High Park city councillor Gord Perks isn’t buying it, and calls the proposition a disingenuous cash grab that takes advantage of COVID-19 fears.
“Tim Hudak is paid by a bunch of people who get rich off land speculation,” Perks says. He explains that the OREA’s proposals are meant to help turn a bigger profit for billionaire investment portfolios hovering over real estate in Toronto, the golden horseshoe and areas like Owen Sound or Orillia.
“What he’s doing here is helping rich people get richer by destroying the quality of life for people who live in Ontario.”
The OREA, the Toronto Regional Real Estate Board (TREBB) and others will be meeting with Ontario MPPs to discuss the measures, Hudak says.
In their report, Rebuilding Ontario: A Framework For Recovery, the OREA makes 15 recommendations, including a time-limited municipal grant to fund planning and development staff. The goal is to expedite approval timelines for buildings under construction. And they call on the government to bring back a Home Renovation Tax Credit.
They hope the Ontario government can incorporate the recommendations in the November economic update or the spring budget report.
What a Land Transfer Tax holiday would mean for Toronto
After Ontario empowered city hall with new revenue tools in the City Of Toronto Act in 2007, former Mayor David Miller introduced Toronto’s Land Transfer Tax and the Vehicle Registration tax. Among revenue options that were being researched at the time, Perks says they “emerged as cheap to administer, fair and worth doing.”
On a $1-million home, Toronto buyers pay provincial and municipal LTT of roughly $33,000. That figure comes to a quarter less for first-time home buyers after rebate.
The OREA wants a six-month Ontario and Toronto Land Transfer Tax holiday on a home’s first $600,000. It also recommends the LTT rebate for first-time home buyers be increased from $4,000 to $6,000. According to Altus Consulting Group, these changes would add more than 32,000 homes to the Ontario real estate market supply.
“When more homes are purchased that means that more jobs are created not only in real estate but also in the broader economy,” says Hudak.
The real estate sector considers the Land Transfer Tax prohibitive. They say it discourages homeowners who are looking to upsize or downsize according to their needs. People living in starter homes refrain from trading up to a bigger property, meaning there’s one less affordable house in the market. And empty nesters are discouraged from putting their property on the market.
I wonder whether in the Toronto real estate market, a tax break would only fuel house prices to rise further. Incentives like plunging mortgage rates tend to encourage buyers to spend more, making the Toronto real estate market scalding hot.
“What this does is bring in more housing supply,” Hudak reiterates, getting to the heart of Toronto’s affordability issue.
But the city of Toronto relies on the LTT to partially fund services. At a time when the city is facing a $1.3 billion shortfall this year, Perks says now is not the time to cut the tax.
Lawvin Hadisi, Mayor John Tory’s press secretary, points out in a statement to NOW that the city is also facing a projected $1.5 billion shortfall for next year.
In an email to NOW, Hadisi gives no indication that the city would entertain a municipal LTT holiday, especially since Toronto “cannot raise property taxes beyond the rate of inflation at a time when people are already facing economic hardship.”
“The OREA proposal seems focused on the provincial Land Transfer Tax and that would be a decision for the province,” she adds. “But it is important to note that Toronto and the GTA real estate market has remained strong despite the impact of the pandemic.”
The city was projected to collect $800 million in revenue from the LTT in 2020, Perks notes. Even with the pandemic slowing down transactions, it will bring in roughly $630 million.
“A six-month holiday would cost us $400 million,” says Perks. “It’s a staggering amount of money for the city of Toronto to lose. Everything that people rely on to survive during the pandemic – efforts to house people, run a transit system and provide childcare – would be dramatically impacted.
“Mr. Hudak is trying to make the rich get richer by devastating the ability of government to deliver essential services in the middle of the worst crises we had in a century,” Perks adds.
“Nobody is building faster than Toronto”
Perks believes the OREA is making up a problem that doesn’t exist to facilitate land speculators.
“Guys like Hudak try to convince people that we’re not building enough,” he says, adding that there is more construction in Toronto than anywhere else in the continent. “And the reason we’re not building enough is because there’s all kinds of taxes and fees. He’s wrong on both counts.”
According to Better Dwelling’s Crane index, Toronto had 124 cranes in the sky in Q3 2020, more than any other major city in North America. Seattle came in second with 43.
Even during the pandemic, Toronto’s Land Transfer Tax is bringing twice what it did 10 years ago ($279 million), an indication that real estate is booming.
Perks adds that the only limitation on construction is the price of steel, which is around $700 per net tonne according to Stelco Holdings, Inc. Supplies can’t keep up with the construction in Toronto.
“That’s what sets the ceiling of how much we can build: materials and trained trades people. And we’re always bouncing off that ceiling.”
Opportunity zones in Ontario
The OREA also wants to bring a tax break called opportunity zones to Ontario. The practice involves identifying areas with high rates of poverty or at-risk populations, and then luring investments to those areas.
The idea was proposed in the U.S. by a group of senators, including Cory Booker, and became law in 2017 as part of President Donald Trump’s sweeping changes to the U.S. tax code.
“It’s one of the rare things that Democrats and Republicans both agree on,” says Hudak.
Napster co-founder and former Facebook president Sean Parker is responsible for opportunity zones in the U.S. His lobbying organization, Economic Innovation Group, came up with the tax break.
A New York Times report describes opportunity zones as “a once-in-a-generation bonanza for elite investors.”
The tax break allows investors to delay paying capital gains taxes on stocks and other investments as long as they spend the money on government-certified opportunity zones. They can then avoid paying federal tax on development projects, like luxury apartment buildings and hotels. Critics say the “high-risk” communities see little benefit, while investors see high returns.
In Toronto, an opportunity zone sounds a lot like Regent Park or Villaways, areas that shipped out residents living in public housing to make way for condos serving a new community.
Perks believes that land speculators will have a hand in deciding what areas in Ontario should be classified as opportunity zones.
“[Hudak] will have been advised where ‘there’s gold in them thar hills,’” says Perks. “Go dig it out and who cares what the consequences are for the people who live there.”
He assumes the developments will target locations that are estimated to be valuable in a decade, as if working with a treasure map. If the OREA asks for reduced red tape and funding to expedite approvals, Perks warns the Planning Act could be undermined. The act ensures developers don’t build something completely uninhabitable as fast as possible.
“Nobody wants to live in poverty,” says Hudak, when I question how an opportunity zone would be deployed. “People want job opportunity. And the government through its zoning policies can ensure that the housing that will come along with it can be affordable. You want to have a mix obviously of affordable homes, entry level homes, rentals and social housing.
“This is really a job creation initiative. It’s focused on helping existing businesses there grow and new businesses to invest and put people on payroll. And obviously there’s spinoffs on the housing side. But you need to make sure there’s affordable housing when developing these areas.”
NOW reached out to Ontario Housing Minister Steve Clark’s office for comment. A rep directed us to the government’s More Homes, More Choice action plan, which is very much in line with the OREA’s goal. The plan includes measures like cutting red tape and doing away with rent control to entice more construction.
In a statement to NOW, MPP Sara Singh, the NDP’s housing critic, said the province should emphasize non-profit and co-op housing and strengthening inclusionary zoning regulations.
“I look forward to reviewing OREA’s proposals,” she said. “In the meantime, I’m extremely concerned about the lack of opportunity for young families to get into a home they can afford. We need to look at proposals including funding the construction of non-profit and co-op housing, seed money for co-op bid development and making inclusionary zoning regulations as effective as possible.
“We need to look at options that are proven to support home-ownership like laneway developments,” she adds. “And we need to properly crack down on speculators – including domestic speculation.”
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