Toronto city councillor, Mike Colle, has confirmed plans to propose the introduction of a speculation tax during the next council meeting in January 2022. The intention is to see new taxes applied to home buyers who are not buying principal residences and will target speculators and home flippers whose growing presence in the real estate market is believed to have helped drive up property prices to unprecedented levels.
Speculators are believed to make up as much as 25% of homebuyers in Ontario. The purchases they make are in anticipation that housing prices will further rise, allowing them to capitalize. According to the Toronto Regional Real Estate Board, the average selling price for all home types has risen by 21.7% over the past year, reaching $1,163,323. Colle has termed the spike in housing prices insanity. The UBS Global Real Estate Bubble Index 2021 ranks Toronto’s housing market as the world’s second-most vulnerable housing bubble.
Ontario does have a 15% non-resident speculation tax on the purchase or acquisition of an interest in residential properties bought by foreign businesses, taxable trustees, or individuals that are not permanent residents or citizens of Canada. This tax applies to properties located in the Greater Golden Horseshoe Region.
The enactment of this tax may have aided in cooling the market, but also led to litigation where closures were not completed due to buyers pulling out of purchase transactions. One such case resulted in record-breaking court awards of over $1.2 million to sellers who were adversely affected when a downturn resulted and the buyer pulled out of the deal. The province has also previously enacted a speculation tax in the 1970s while under the Bill Davis government that was later reduced and scrapped.
Colle is calling for the proposed tax to target domestic investors whose speculation and house flipping he blames for blowing up the Toronto market. He hopes it will allow those with reasonable incomes a better chance at owning a house.
Some experts however feel that the onus is on the central bank to salvage the situation by increasing interest rates. Like many other governments around the world, Canada has kept interest rates extremely low during the pandemic, spurring a high level of borrowing to finance home buying. Public policy professor, John Richards, has recommended several measures to curb property prices including raising interest rates, tightening mortgage rules and imposing a capital gains tax on flippers. He however acknowledges that the government may be fearful of setting off a recession by implementing such policies.
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