All three levels of government meet Tuesday in Toronto to figure out ways to cool the red-hot real estate market in the region, where average home prices have shot up 33 per cent in a year.
Immediately after figures revealed the average home in the Greater Toronto Area cost $916,567 in March, Finance Minister Bill Morneau called for today's meeting with his Ontario counterpart Charles Sousa, and Toronto Mayor John Tory.
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The politicians are reacting to growing political pressure to make home ownership less of a pipe dream for young people in the GTA, where the average home now costs more than 12 times the average household's gross annual income.
All signs indicate that various levels of government will bring in multiple measures.
"There isn't any one single thing a government can do to change a market dynamic," Premier Kathleen Wynne told reporters last week, promising a package of reforms, potentially before the April 27 provincial budget.
Here's some of what's being considered:
Tax measures targeting investors
There's a growing sense home prices are being driven higher not by people who want to own a home to live in themselves, but by those buying property as a profit-making venture.
In a speech Thursday, Sousa pointed the finger at people with "deep pockets ... crowding out families who are trying to put down roots." You can be certain that the province will push to impose tax changes that make speculating in residential real estate less profitable, levelling the playing field somewhat for first-time homebuyers.
Here are some measures that could be taken:
- Foreign buyers tax: After initially ruling out a tax like the one British Columbia slapped on non-resident buyers of homes, the Ontario government put it back on the table. Sherry Cooper, the chief economist for Dominion Lending Centres, is all but certain the province will take this step "because foreigners don't vote. It's an easy political move," she said in an interview with CBC News. There are no definitive numbers available on what proportion of real estate sales in the GTA go to foreigners, but there are indications it's not insignificant.
- Flipping tax: Some economists believe a better tax to cool the market would target speculators who bid up the price of houses and condos with the intent of selling for a quick profit. Such a tax on those who sell after holding for only a short term would indeed make flipping more expensive. But some wonder what it would do to the supply of homes if it discourages an investor from putting the home back on the market quickly.
- Capital gains tax rate: Right now, an investor who sells off any residential real estate that isn't his or her primary residence pays capital gains tax on just 50 per cent of the profit. Sousa wants Morneau to boost that rate. Sousa made the request before Morneau tabled his budget, and even though Ottawa declined to make the move at the time, Sousa will continue to press his case. (The sale of your primary residence is totally exempt from capital gains tax, and there is absolutely no move afoot to change that.)
- Real estate bidding wars: Sousa appeared to make this an issue last week, with comments spiced with salty language. He declined to offer specifics about what he's considering doing about bidding wars. Reporting by CBC-TV's Marketplace showed how a lack of transparency in the bidding process can drive up prices and put some buyers at a disadvantage. Ontario allows real estate agents to represent both the seller and a bidder, something that's banned in other provinces.
- Taxing vacant homes: This is a measure that Tory is pushing. It could have an impact on the rental market, by discouraging owners from merely sitting and waiting for the value of their property to rise every month. It's not clear how it would cool bidding wars.
- End cheap credit for speculators: Those investors looking for huge returns in the real estate market aren't all doing it with their own cash. The rules could be tightened around loans offered to speculators
- Density rules and development approvals: There is some agreement that there aren't enough homes for sale, but disagreement about what's to blame and how to fix it. Developers and some cities complain the province's Growth Plan for the Greater Golden Horseshoe is too restrictive in demanding high-density developments instead of allowing more detached homes that buyers are craving. (Wynne has hinted she is open to revisions). Others point the finger at municipalities for being too slow in approving developments, a process that can take 18 months.
- Resale homes: Most of Toronto's real estate sales involve existing homes rather than newly built ones. There's evidence that owners have become more reluctant to put houses up for sale, choking the supply. The reasons why are up for debate: is it the costs involved in a sale, from lawyers' fees to real-estate agent commissions? Is it fear of being unable to find another place to live? Is it simply they're waiting because they think prices will keep rising even more?
- Land supply: There is mixed evidence on this. Some say more land needs to be made available for housing development, or others say there's plenty. Wynne has ruled out opening the green belt protected area to build housing.
Morneau's meeting with Sousa and Tory is scheduled for Tuesday afternoon. It's not clear whether there will be any moves announced immediately afterward.