As real estate prices soar across Ontario, a Toronto city councillor is about to introduce a motion asking the provincial government to bring in a speculation tax aimed at putting a chill into the red-hot housing market.
Mike Colle, who represents Ward 8, Eglinton–Lawrence, told CBC News he’ll make the move when city council meets later this month.
“$1.3 million for a starter home in Toronto. This is insanity,” said Colle. “I’m asking the province to look at this as a way of slowing things down and ensuring that reasonable people with reasonable incomes have a chance at a house.”
The price of homes in Toronto is showing no sign of letting up. According to the Toronto Regional Real Estate Board, the average selling price for all home types combined in November rose by 21.7 per cent year-over-year to $1,163,323. (CBC)
As CBC News recently reported, investors now make up the largest segment of home buyers in Ontario; 25 per cent of homes are being snapped up by investors speculating that prices will only keep rising.
Colle is calling on the Ontario government to introduce a speculation tax on the sale of homes that are not principal residences to deter speculators and what he calls “home flippers.”
It wouldn’t be the first time a tax like this was introduced in Ontario. The Bill Davis government brought in a speculation tax in the 1970s to cool Ontario’s real estate market.
While some experts say the province needs to address sky-high prices that have outpaced incomes, they caution such a tax could have an “aggressive” impact. They further say the rate of the tax and how it’s implemented are crucial.
Others warn it could crash the market and that any measure to deter investors could have unintended consequences.
‘Blowing up the market’
Ontario already has a 15-per-cent non-resident speculation tax that applies when foreign corporations, or individuals who are not citizens or permanent residents of Canada, purchase or acquire property located in the Greater Golden Horseshoe Region.
Colle doesn’t say how high he believes the proposed tax should be, but he’s calling for a broader levy that would also target domestic investors who buy or flip multiple homes, treating housing like a “bitcoin-type commodity.”
“We’re talking about people that are in the buying and flipping of houses and condos for their income,” said 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.”
WATCH | The Canadian Real Estate Association reports double-digit increases this fall
Canadian Real Estate Association finds home prices continue to rise
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The Canadian Real Estate Association confirmed what so many frustrated house hunters already know — prices just keep going up. In some markets, like Toronto and Vancouver, people are just giving up in the face of million-dollar prices. 1:53
The Bank of Canada recently acknowledged for the first time that a sudden influx of investors is the likely contributor to rapid increases in housing prices.
“There are consequences on the other side if you just let an asset price run well in excess of what’s justified by income and employment,” said Robert Kavcic, senior economist with BMO Capital Markets.
Earlier this year, Kavcic co-authored a report that called on policy-makers to act “immediately” to address home prices across the country. The report makes a series of recommendations — the main one being for the Bank of Canada to increase interest rates.
Also on that list was some form of speculation tax.
Kavcic says while it would work to cool the market, it wouldn’t be the No. 1 recommendation.
“We did caution that the rate of the tax matters a lot, over 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,” he said.
“You really do have to be very careful how you craft such a measure, because it can be pretty aggressive and have a pretty big impact on the market.”
The shock of April 1974
Real estate lawyer Bob Aaron remembers that impact vividly. He was just a few years out of law school when the Bill Davis government introduced a 50-per-cent speculation tax on non-principal residences. It was later decreased to 20 per cent, then scrapped altogether.
“That was April 9, 1974 — the worst day of my career,” said Aaron, who remembers fielding endless calls the next day. They were from buyers trying to get out of purchases and from sellers wanting to make sure the deals were still going through.
“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,” he said.
Real estate lawyer Bob Aaron remembers the flood of calls he received in 1974 after then-Premier Bill Davis introduced a provincewide speculation tax. He says reintroducing a similar tax would bring on a market crash and long-term consequences for homeowners — just like it did back then. (Farrah Merali/CBC)
Any similar tax would bring on a market crash and long-term consequences for homeowners, Aaron says, much like he saw in 1974.
“I think what Mike Colle wants to do is repeal the law of supply and demand. I don’t know of any legislature in the country that is going to be able to do that,” he said.
Aaron also doubts how effective such a tax would be in the long term. That’s a concern shared by Murtaza Haider, a professor of data science and real estate management at Toronto’s Ryerson University.
Haider adds there could also be unintended consequences — the biggest one being the removal of a large amount of rental stock supplied by investors.
“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,” said Haider.
Murtaza Haider, a professor of data science and real estate management at Ryerson University, says there could be unintended consequences to a speculation tax — particularly for renters. (James Dunne/CBC)
“What really needs to be done is you have to inundate the market with new supply, so that those price pressures could ease. Anything other than that, it’s just going to be Band-Aid solutions trying to hide the problem.”
As for whether a speculation tax is on the table, Ontario’s Ministry of Finance told CBC News it does not “speculate” on tax policy, adding that there already is the non-resident speculation tax.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
