Hot real estate market can't always be cooled by legislation
Politicians hoping to solve the Greater Toronto Area’s housing affordability crisis with legislation should proceed with caution, says Toronto real estate lawyer Peter Neilson.
Ontario Premier Kathleen Wynne has announced plans to introduce a 15-per-cent foreign buyer tax in the Greater Golden Horseshoe Area, taking in communities all the way from the Niagara Region to Peterborough.
Buyers who are not citizens, permanent residents of Canadian corporation will have to pay the levy, which mirrors similar measures imposed last year in B.C.
Ontario’s Finance Minister Charles Sousa initially rejected the idea of copying the B.C. tax in Ontario, but has since backtracked, as house prices continued to rise. In Toronto, they hit an average of more than $900,000 in March, which represented a 33-per-cent spike over the same month in 2016.
But Neilson, a partner with Shibley Righton LLP, says he’s not sure changes to the law are always the right way to cool a red-hot real estate market.
“Foreign buyers are certainly an easy target, but it may not solve the situation. If you’re an investor from abroad looking for a safe place to put your money, Toronto or Vancouver may still look cheap, even with a bit of extra tax on top. It is also not clear how much of an impact foreign buyers are having on the market. "It’s hard to know whether that kind of tax will substantially impact the market,” he tells AdvocateDaily.com..
In Vancouver, real estate company Royal LePage believes the cooling period that followed the introduction of B.C.’s tax in August may already be over. The firm reported a 12-per-cent hike in the average price of a Greater Vancouver home over the first three months of 2017, to $1.2 million.
"There is now reason to believe that the market correction underway in Vancouver may be short-lived," Royal LePage CEO Phil Soper told the Canadian Press. "The principal victims of the B.C. government's foreign buyer tax were Canadians who had planned to sell or buy a home and were frightened away by unsubstantiated rhetoric in which the Chinese were entirely to blame for Vancouver's housing shortage.”
Neilson says he understands the Ontario government’s desire to act on the issue.
“There is definitely a problem because affordability is a big issue. For employers, it can be hard to get people to move to the city if they can’t afford to live here,” he says. "But you have to remember there are risks if the boom turns suddenly to a bust, instead of coming down gradually. That could impact many people. I hope that whatever else they implement is relatively benign because if it’s not, you could have a real disaster.”
Neilson says there’s a precedent for unwelcome government interference in the real estate industry, pointing to the provincial land speculation tax imposed in the mid-1970s on profits from land ownership.
“That tax absolutely clobbered the market, so I hope they don’t think of something like that,” he says.