Taxing foreigners no answer to Toronto’s housing woes

The idea might have some intuitive appeal but misses the bigger point – Toronto needs more housing

By Steve Lafleur
and Josef Filipowicz
The Fraser Institute

VANCOUVER, B.C. Mar. 19, 2017/ Troy Media/ – The idea of a tax on foreign homebuyers has reared its head in Ontario once again.

After British Columbia last year announced it would tax foreign buyers an extra 15 per cent on residential real estate in Metro Vancouver, Ontario Finance Minister Charles Sousa said he would look “very closely” at doing the same.

A few months later, however, Ontario Premier Kathleen Wynne said Ontario would not “go down the road that British Columbia has gone down.”

toronto housing
Steve Lafleur

But now Minister Sousa has once more raised the spectre of a tax on foreign home purchases. While the idea might have some intuitive appeal, it misses the bigger point – Toronto needs more housing.

It’s true that Toronto home prices have skyrocketed in recent years, but if policymakers want to address housing issues there are more important factors they should focus on. Specifically, they should take a hard look at why the supply of new homes is not keeping up with growth in demand.

Namely, regulatory red tape that holds back the construction of new housing.

Instead of trying to micromanage the housing market by taxing certain categories of buyers, Queen’s Park and city halls across the Greater Toronto Area (GTA) should focus on reducing these barriers to new homebuilding.

The Fraser Institute recently measured how long it takes to obtain a typical building permit, the costs and fees associated with obtaining that permit, how often rezoning is required, and how much local councils and residents oppose new homes across the GTA.

Some highlights. Permit timelines range from 14 to 24 months, costs and fees in Oakville are triple what they are in Hamilton, and local opposition to new homes presents a strong deterrent to builders in Toronto.

toronto housing
Josef Filipowicz

The consequences? Fewer new housing units get built, while the GTA remains a magnet for new residents and investment. More potential buyers and renters bidding on a dwindling pool of listings inevitably push prices up.

So what can be done?

Reducing some of these barriers would make it easier and more financially attractive to construct new housing units, which would, over time, reduce housing prices.

Despite musings from Queen’s Park, taxing foreign homebuyers won’t do anything about the red tape interfering with the construction of new houses, townhomes, and apartments. What’s more, it could lead to a host of unintended consequences.

For example, if the tax is limited to the GTA, it might simply nudge buyers towards cities further down the 401 or 400 highways – or to Canada’s other major urban centres, presenting a new set of challenges. Additionally, if the tax applies to people moving to Canada for work, it could become a barrier to attracting high-skilled workers to the GTA.

Policymakers are right to be concerned about housing affordability, but a jarring shift in policy could change market expectations, leading to unpredictable consequences. The province and municipalities should better ensure that regulations allow for timely construction of new housing to meet pent-up demand.

Introducing a tax on foreign homeowners, while potentially politically expedient, ultimately misses the point and could make things worse.

Steve Lafleur and Josef Filipowicz are analysts at the Fraser Institute.

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