Sousa says Ottawa's help needed to cool real estate market

Finance Minister Charles Sousa says there is a limit to what the province can do.

Thestar.com
March 28, 2017
By Robert Benzie

Finance Minister Charles Sousa is injecting some reality into the real estate market.

Sousa admitted Tuesday there is a limit to how much he can do to cool off Toronto’s scorching house prices without help from the federal government.

“There are individuals that are going into subdivisions that are buying 10, 40, 50 homes - holding paper - and flipping it ... and they’re crowding out families who are trying to buy,” the treasurer said.

“We can’t do that without the CRA,” he said, referring to the Canada Revenue Agency.

The provincial government had hoped federal Finance Minister Bill Morneau would increase the capital gains inclusion rate for non-principal residences in last week’s budget.

With the average detached Toronto home having jumped 35 per cent year over year to $1.5 million last month, Sousa asked Morneau to make the tax change.

“Those were some of the requests that were made in terms of what degree of capital gains can we not exempt,” the Ontario minister said.

Currently, only 50 per cent of the capital gain on a non-principal home counts taxable income, which has led to speculators flipping houses in the red-hot Greater Toronto market.

While Morneau did not act, Queen’s Park is considering its options to help make housing more affordable.

“Levels of government have to coordinate,” said Sousa, who is expected table his own budget on either April 13 or April 27.

“No one decision is effective - there’s unintended consequences from anything that we do,” he said, adding the province is mindful that any action it takes could have adverse effects for homeowners

“I don’t want to be doing anything that may be harming others.”

One option is a British Columbia-style tax on foreign homebuyers.

Vancouver’s 15 per cent levy - which Sousa discussed last week with B.C. Finance Minister Mike de Jong - is popular with voters.

But provincial insiders warn it would not have as much impact on the Toronto market as it had out west.

There is also a risk of the measure leading to fewer rental units because many foreign investors buy condos in Toronto and then lease them out.

Real estate industry advocates have said prices are soaring because there aren’t enough new homes being built - in part due to restrictive land-use policies designed to curb urban sprawl.

Ryerson University’s City Building Institute issued a report earlier this month recommending the foreign-buyers’ tax or a property tax changes to cool things down.

The study warned “as housing bubbles are allowed to expand, many are hurt or drawn into unsustainable financial situations.”

“When housing bubbles unwind, there is major collateral damage, and people are hurt through little or no fault of their own. And the historical record is that they do unwind, essentially without fail.”

Asked Tuesday if he believed Toronto was in a real estate bubble, Sousa chose his words carefully: “I don’t want to speculate. I certainly don’t want to create any more … intensity into the market – the uncertainty is evident.”