The Ontario government on Thursday announced a series of measures, including a tax on foreign buyers and expanded rent control, aimed at curbing the city’s soaring real estate prices. Home prices in the Toronto region rose 6.2 percent in March, the biggest one-month gain on record, according to a benchmark price index by the Canadian Real Estate Association, and jumped almost 30 percent in the past 12 months.
The Ontario government on Thursday announced a series of measures, including a tax on foreign buyers and expanded rent control, aimed at curbing the city’s soaring real estate prices. Home prices in the Toronto region rose 6.2 percent in March, the biggest one-month gain on record, according to a benchmark price index by the Canadian Real Estate Association, and jumped almost 30 percent in the past 12 months.
Non-resident speculation tax
The center piece of Ontario’s new housing strategy is a 15-per-cent tax on home purchases by foreign buyers in the Greater Golden Horseshoe, from the Niagara region to Peterborough.
The measure, which resembles Vancouver’s foreign-buyers tax, will apply to most buyers who aren’t citizens or permanent residents, as well as foreign companies. It will take effect as of April 21, 2017.
About 8 per cent of home buyers in Greater Toronto are non-residents, according to the province.
Under the tax, non-residents will need to prove that they have a legitimate reason for buying property in Ontario that goes beyond investing. The tax is not aimed at new Canadians, according to Premier Kathleen Wynne. It will be reimbursed to buyers who become permanent residents within four years of a sale, and won’t apply to international students enrolled full-time for at least two years or someone who has been legally working in Ontario for at least one year. To qualify for a rebate, the property must also be considered someone’s principal residence.
“Most banks can’t survive a 50 percent drop in real estate values, It’s going to come down, and a lot of people are going to get hurt.”
Expanding rent control
Among the most controversial moves announced Thursday is a plan to bring all private rental apartments under the province’s rent-control regime, which currently only covers buildings completed before November, 1991. Rent hikes across the board will be held to around inflation, and capped at 2.5 per cent a year, although landlords can still apply for special increases if they do renovations or upgrades. Rents can be raised when a tenant moves out.
Expanded rent control could affect the condominium market. Many people buy condos with the thought of renting them out, hoping to sell or move in later. If what they can get from rent falls, they are less likely to buy in the first place and developers are less likely to build. So the result of expanding rent controls could be to reduce the supply of new housing. That is the very opposite of what a city in the grip of an affordability crunch needs.
New York brought in “temporary” rent control during the Second World War. It has stayed in place in various forms ever since, with a predictable outcome. As Mr. Tal puts it in his report, “Roughly half of the apartments in the city are under rent control, the other half is constantly under-supplied with a clear impact on prices.”
The result is a two-class housing system. Tenants hang on for decades to cheap, often crumbling rent-controlled apartments while everyone else scrambles to find a decent place.
Development charge rebate
In Toronto, development charges for new apartments can run up to $24,638 a unit. A $125-million, five-year program to rebate a portion of development charges aims to spur the construction of new apartment buildings. The government says it will work with municipalities to target projects where the need is greatest.
While developers welcome the rebate, some question its efficacy. Mr. Chalmers says any rebate helps, but he thinks the funding might be spread too thin. “It doesn’t seem like a ton of money to me over a province the size of Ontario.”
Vacant homes tax
The threat of dark condos downtown, or million-dollar-plus homes lying empty in the suburbs, has prompted widespread concern. The province is giving Toronto and certain other municipalities the required taxing power to target vacant homes.
Vancouver just brought in a similar tax, but it remains unclear what effect it will have.
Toronto officials are now studying utility data to come up with a more accurate number than a rough estimate of 65,000 of empty houses from census data.
Tax fairness for new apartment buildings
Tenant groups and landlords agree on few things, but one of them is that apartment buildings are taxed unfairly.
In Toronto, they pay a property tax rate around 2.7 times what a taxpayer with a comparable single-family home pays. Landlords pass those costs onto tenants.
Toronto’s tax ratio has come down slowly, but is not scheduled to achieve balance for several years. In some other municipalities, multi-residential buildings are taxed even more steeply. This year, the province froze tax rates on apartment buildings, mandating a zero-per-cent increase.
Provincial land for affordable housing
Sitting to the east of Toronto’s downtown core is a chunk of empty provincially owned land in the West Don Lands, near the Don River.
Mayor John Tory has been demanding Queen’s Park make the land, and other surplus government real estate like it, available for affordable housing.
