A speculation tax could be one step further to becoming a reality in Toronto.
In response to soaring home prices that have made it increasingly unattainable for young people to purchase property, Toronto City Council agreed on Wednesday to ask the Ontario government to introduce a Home Speculation and Home Flipping Tax to crack down on people who own multiple properties. The motion was passed with overwhelming support for the initiative, with a 21:4 vote.
The goal is designed to target investors who are sweeping up homes and selling them for huge markups, resulting in defeating price hikes across the market. “Urgent action is needed to help stop the extreme increase in home prices in Toronto, driven by home flippers and land speculators who treat housing like a Bitcoin-type commodity,” reads the motion. The tax would be charged on the sale of non-principal residence homes.
The motion was put forth by Councillor Mike Colle, who represents Ward 8, Eglinton–Lawrence. A passionate voice for housing affordability, he says investor-driven price hikes are causing a ripple effect throughout Ontario. With Toronto’s sky-high housing costs (thanks, in part, to dollars-driven investors), residents are forced to relocate to other parts of the province -- and to other parts of the country --- resulting in price hikes in home costs and monthly rents in historically affordable regions.
"You can't buy a house for less than $1 million in Kingston anymore," says Colle. "It's ridiculous."
Daytime aerial view of Toronto cityscape
It highlights research from the Canadian Mortgage and Housing Corporation (CMHC) that shows home prices in Canada have risen a staggering 30% since the onset of the pandemic -- and speculation is partially to blame.
As for Toronto, the motion points to recent data from the Toronto Regional Real Estate Board (TRREB) that shows the city’s home prices have increased more than 20% over the last year, making the average selling price for a resale house or condo $1.16 million (up from $955,889 which was last November’s average).
“We have reached a historical high in the percentage of investors/speculators that are now buying homes; now 25% of homes are purchased by the investor class, which is more than double or three times as much as it normally is,” says Colle.
Previous Tax Attempt Extremely Unpopular
The idea of a home speculation tax is not new to Toronto. Back in the early 1970s, Ontario Premier Bill Davis implemented a 50% land speculation tax on purchasers buying and selling homes that were not their principal residence. While it was met with no shortage of backlash, the tax is credited with slowing the extreme increase in property values in Toronto in the 1970s. The tax was relatively short-lived, however; it was decreased to 20%, then scrapped all together.
The details of what Toronto’s modern day speculation tax would look like are not yet available.
“It’s not so much about the amount,” says Colle. “The key thing is that there needs to be something serious done by the Ontario government to let these manipulators they can’t get away with this. Right now there are no rules.”
Toronto skyline/Shutterstock
Naturally, not everyone is necessarily a fan of the idea -- especially those in the real estate and development industries. TRREB president Kevin Crigger wrote a letter to Toronto City Council addressing the motion.
“While TRREB appreciates the desire to address housing affordability challenges in Toronto, we urge the Executive Committee and City Council to be cautious with any potential consideration of a ‘Home Speculation Tax’ as this could primarily impact small-scale “mom and pop” investors who also happen to be a key source of supply for an already tight rental market,” wrote Crigger. “This would be on top of an existing substantial federal capital gains tax on these properties.”
In an exclusive article for STOREYS, Crigger outlined the following reasons why the introduction of a speculation tax would be a bad idea:
- Experts, including TRREB, agree that the current affordability challenges are largely a result of an inadequate supply of housing available for sale and rent, and as such, policies aimed at the demand side of the market will not have any sustainable long-term benefits.
- Discouraging small scale investor-owned housing also means discouraging the creation of rental housing supply, which will drive up rents (current average rent for a one-bedroom condominium apartment, in Toronto, is $2,080 per month, and $2,885 per month for a two-bedroom condo apartment).
- Past experience with the provincial Speculation Tax in 1974 indicates that such a tax could have ripple effects that would negatively impact not just investor-owned homes, but also the value and equity of other home-owners.
Critics of a potential speculation tax say investors have become scapegoats in today’s dramatic real estate climate. Admittedly, they are just one piece of a messy storm that has resulted in soaring home prices.
Tax Still Needs Provincial Green Light
Of course, members of the Ontario government are ones who need to be won over in order for such a tax to become a reality. And something tells us this likely won’t happen. Not surprisingly, the recommendations put forth by Ontario's newly appointed Housing Affordability Task Force did not include any penalty for purchasers of multiple properties. “The task force was just a front for the development industry to build as much as they want wherever they want,” says Colle. “It’s a joke.”
Read: Could Major Residential Zoning Changes Be Coming to Toronto's Neighbourhoods?
Colle points to interest groups who want to maintain the status quo -- the real estate industry, development, and financial industries. “They want to keep housing like a cryptocurrency you can bid on. There is so much money being made through development and mortgages,” says Colle. “People have to ask for some kind of penalty for all this out of control speculation.”
Colle urges other municipalities to follow Toronto's lead and introduce their own motions and for the public to urge the Province to consider the tax.
“The province doesn’t undertake any changes until people ask,” reiterates Colle. “So, it’s up to the people that are concerned about this housing disaster to speak up and ask the province to do something. They won’t look at it unless people take the time contact their local MPPs.”
With a looming election, the time for concerned Ontario residents to express their opinion is sooner rather than later.
