Federal Foreign Buyers Tax Has Power To Tilt Canadian Market

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Now that Prime Minister Justin Trudeau has been elected for a second term, it’s foreign homebuyers who actually have the most to lose. Both the New Democrats (NDP) and the Liberals voted to increase the speculation tax on foreign buyers. Trudeau released his new platform on the heels of summer news on Canada’s extreme housing crisis where, across the provinces, supply is low and demand is at emergency levels.

Trudeau’s platform promised to “limit the housing speculation that can drive up home prices” by adding a national tax on empty homes owned by foreign buyers living out of country. The goal is to implement a 1 per cent tax in order to copy a similar tax system in British Columbia.

READ: First-Time Home Buyers Incentive Limits Torontonians To Buying Condos

John Pasalis, president of the Toronto-based firm Realosophy Realty Inc. told HuffPostCanada that while Andrew Scheer’s Conservatives may have provided a market stimulus to increase home prices by modifying the mortgage stress test, the Liberal’s platform is actually superior.

“The big thing is certainly that we’re not going to see the demand-side stimulus that was promised by both the NDP and the Conservatives in the form of longer amortization and potential easing of the stress test. That’s a good thing because those policies would have probably just pushed prices up further,” he says.

In fact, Trudeau’s vacancy tax hike will keep housing prices from inflating.

READ: Ask An Agent: Is The First-Time Home Buyer’s Incentive Right For You?

“That policy could end up having a pretty big impact on the market both in Toronto and in other regions that have had a big uptick in investor demand, like Montreal and Ottawa…it’s kind of what we need right now, to cool things down rather than heat things up.″

Brian DePratto, senior economist at TD Bank, said that housing affordability remains a crucial issue that government can’t afford to overlook.

“Housing affordability remains a major concern for Canadians in the Toronto and Vancouver markets (among others). However, the measures in the Liberal platform are only likely to add further fuel to prices at a time when the market has already been gaining strength.″

READ: Everything You Need To Know About The First-Time Home Buyer Incentive

While DePratto noted that the higher price cap in major cities for the Liberal’s first-time home buyer program could provide short-term relief to buyers, this could ultimately help drive home prices two to three per cent higher over the next few years than they would otherwise be. First-time buyers need to have a total household income of $120,000 to qualify and a minimum 5 per cent down payment.

The Liberal’s first-time home buyer program provides a loan of up to 10 per cent of the home’s value. The amount to be paid back is determined on the value of the home at the time of repayment.

Phil Soper, president of Royal LePage, says he doubts that the vacancy tax will have much effect, adding that housing supply needs to be addressed first and foremost.

READ: Ask An Agent: A Foreign Buyers Guide To Toronto Real Estate

“I believe now they’ll probably move it farther along in terms of its ability to bring more housing to our biggest cities.″

Soper added that the federal government needs to fund other, more local, developers in order to address the increasingly desperate housing shortage.

“I think it will very much be an issue for the new government, and unlike energy and the environment, it will be one in which consensus will be easier to reach. So it may be one of those files that gets surprising attention so they can chalk up some wins.″

Trudeau still has time to employ other strategies and funding models to address the housing shortage – but only public pressure on the issue will ensure he does so.

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