Governments rule out housing measures that would boost Toronto demand

Theglobeandmail.com
April 18, 2017
By Janet McFarland

The federal and Ontario governments have agreed not to introduce any new measures that would stoke demand for housing in Canada to avoid driving Toronto house prices any higher, effectively ruling out expanding programs to help first-time home buyers.

Federal Finance Minister Bill Morneau emerged from a meeting on Tuesday in Toronto with Ontario Finance Minister Charles Sousa and Toronto Mayor John Tory to offer few concrete details of new measures the trio will introduce to help cool Toronto’s overheated housing market.

They said they agreed to hold quarterly meetings to discuss housing issues in the Greater Toronto Area and will share more data on home-buyer trends.

Ottawa also said Canada Revenue Agency will dedicate more resources to ensuring people pay the full amount of capital-gains tax when they sell investment properties that are not their principal residence.

The three levels of government have also reached an agreement that none of them will introduce any new policies that would further fuel sales.

“Short-term, we have agreed to refrain from introducing new measures for buyers, which would impact housing prices in the GTA by boosting demand,” Mr. Morneau said.

That means the federal and Ontario governments will not expand help for new home buyers, including the Ontario government’s tax credit for first-time buyers, which is seen as having the potential to add more fuel to demand for housing in the Toronto region, where prices have been soaring.

It also means Ottawa will not raise the limits on the existing program that allows first-time buyers to deduct up to $25,000 from their registered retirement savings plans to help fund a down payment on a house. The Canadian Home Builders’ Association and others have proposed raising the $25,000 level to help new buyers get into highly expensive markets.

Mr. Sousa said the Toronto housing issue is “urgent” and said he understands “people are expecting action.”

“The fundamental problem is that housing prices are not only high, they’ve increased too dramatically. While I recognize that market forces will prevail, there is urgency in dealing with this spike,” he said.

Bank of Nova Scotia chief economist Jean-François Perrault said he would like the ministers to more clearly explain what they mean by measures that raise demand.

“What they mean by that is up for debate,” he said. “A break for first-time home buyers would stimulate demand, but maybe they’ll couch it in terms of affordability.”

While Ontario has studied ideas for new taxes on foreign buyers and speculators as a way of cooling demand, there was no mention of any agreement on such measures from Tuesday’s meeting. However, Mr. Sousa said afterward he still intends to unveil a package of various reforms in the next week.

“We’ve made it very clear we will be coming out with a suite of options, a number of measures that are intended to stabilize market activity without unintended consequences,” he said.

Asked whether they would include new taxes, he simply replied: “Stay tuned.”

Ontario officials have suggested one option being considered is a tax on foreign speculators, but Mr. Sousa would not comment on the proposal.

Toronto realtor John Pasalis, president of Realosophy Realty Inc., said Tuesday a tax on foreign speculators would target too small a piece of the market to make a significant impact on pricing in Toronto.

“This kind of a policy is designed to make it look like the government is trying to do something to cool the market when in fact they are really doing nothing,” he said.

Many foreign buyers would avoid the tax by holding properties beyond the time limit defined as speculative - typically set at one or two years, Mr. Pasalis said.

“Even that small subset will just hold on longer,” he said. “Most foreign investors are looking for somewhere to park their money, not make a quick buck.”

Christopher Alexander, regional director for Ontario and Atlantic Canada at Re/Max, said he was happy the three levels of government did not commit to any new tax measures at their meeting because he does not think a foreign-buyers tax is the solution to Toronto’s housing-price issues.

“I feel the potential for negative impact was a lot greater than positive,” he said.

Mr. Alexander said he feels governments do not have enough data yet to determine whether a tax on foreign buyers or speculators is warranted.

Mr. Morneau said the federal government will share its relevant data on housing markets with other levels of government. In his March budget, Mr. Morneau allocated more money to Statistics Canada for data collection on foreign buyers in Canada, but those data are not ready yet.

Quebec Finance Minister Carlos Leitao is also urging his federal and provincial counterparts to work on better methods to collect data on housing, saying in an interview that a lot of current commentary on the influx of foreign money in Canada is based on anecdotes.

Mr. Leitao said he is monitoring Ontario’s policy choices “very closely” because measures such as a foreign-buyers tax in the Toronto region could push more speculators toward the Montreal market.

“We will have to monitor the situation very closely because we saw that there was indeed some spillovers from the decisions made in Vancouver and some money moves on to the GTA,” he said. “And there’s that risk that we will find some spillover from whatever is done in the GTA.”