Could Toronto’s Double Land Transfer Tax Explain Why New Listings Are Down?
New listings in the City of Toronto declined in October from a year earlier, yet housing sales still increased, and according to a real estate broker in the city, not only would there would be more parity but home prices wouldn’t grow as quickly if the municipal land transfer tax were dissolved.
“The double land transfer tax is one reason not to move,” Davelle Morrison of Bosley Real Estate Ltd. said of the City of Toronto and provincial levies. “If we didn’t have the additional land transfer tax in Toronto, absolutely, there would be a lot of Torontonians who would start moving and it would open up supply if people weren’t paying that tax, but I recognize that government has gotten so used to that money that they won’t give it up. However, it’s a factor for people when they are deciding whether or not they will sell.”
Morrison could be right about municipal officials having no intention of forgoing the municipal land transfer tax — it has raised more than $6.4 billion since it was introduced in 2008. Moreover, she scathed the municipal government because she doesn’t believe it’s serious about creating affordable housing in the city, citing additional levies developers pay that get passed onto consumers.
New listings in the City of Toronto fell to 5,140 last month from 7,824 in October 2020, while the average price of a home grew to $1,122,463 from $1,027,280 despite the number of sales only increasing by 300 to 3,794.
“With the double land transfer tax, real estate commissions and the cost of moving, people are deciding not to sell their homes and to just renovate instead,” said Morrison. “People think it’s cheaper to renovate than to move.”
RBC Economics just released a report about housing inventory decreasing Canada-wide, including by between 8-55% in major markets. The report also noted that sales in the 905 were particularly hot in October and, in Durham, Halton and Peel Regions, homes sold for 7-15% over asking while spending no more than 15 days on the market from initial listing. GTA-wide, new listings were down by nearly a third last month to 11,740 from 17,806 in October of last year.
But could activity in the 905 be more frenetic as a consequence of the double land transfer tax in the City of Toronto?
“Both single-detached homes and condo apartments became more expensive — rising by 29% and 15% y/y, respectively. Parts of the 905 area are especially hot,” said the report from Robert Hogue, Senior Economist at RBC Economics. “Clearly, demand for suburban homes shows no signs of abating as pandemic restrictions ease, while condo demand is rebounding solidly (condo sales soared 29% y/y across the entire GTA in October).”
“Take a $1.6 million house and sell it and move to another $1.6 million house. The provincial and municipal transfer taxes in Toronto are about $57,000, and if you pay 5% commission on your $1.6 million sale, that’s $80,000, so with lawyer and mover fees you’re at about $140,000 to move. I see more people putting that money towards improving their current houses and staying put. This is contributing to the supply and demand imbalance, putting upward pressures on prices.”