Liberals' homebuyer tax rebate will get the spotlight, but other housing measures will do the heavy lifting

The Liberal government wants to double the rebate for first-time homebuyers, but other measures announced in today’s Fall Economic Statement will be more important to the province’s future
By John Michael McGrath - Published on November 14, 2016
Sold sign outside a home.
A real estate sold sign hangs in front of a west-end Toronto property, Nov. 4. (Graeme Roy/CP)

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It will be marginally easier to buy a starter home in Ontario starting Jan. 1, 2017. The Liberal government announced today it will double the current rebate for the provincial land transfer tax to a maximum of $4,000 for first-time homebuyers, and pay for it by raising the tax on homes that sell for $2 million and up.

Finance minister Charles Sousa says the rebate is revenue neutral; the government is now projecting balanced budgets for 2017 and 2018.

The measure is almost certain to feature in the Liberal party’s reelection bids as yet another measure designed to “help people in their everyday lives,” in Sousa’s words. Taxing the province’s "one per cent" to make it easier to buy a first home, the Liberals hope, will be a winning issue. But it is also, as the premier hinted in interviews last week, a small-scale change. In that sense, it’s a reasonable sibling to the HST rebate on electricity bills, announced earlier this fall.

There are a number of other measures in the fall economic statement, however, that won’t generate the same headlines as the land transfer tax rebate, but may actually have a larger effect on the housing market.

For starters, the Liberals are proposing to freeze property taxes levied by municipalities on apartment buildings. “Multi-residential” property taxes are, around the Greater Toronto Area, often much higher than property taxes on single-family homes — sometimes two or three times as high. (It’s just one of many ways municipal councils have historically discriminated against rental housing.) The government did announce today that it will be reviewing multi-residential municipal property taxes, but in the meantime they will remain frozen.

Since property tax increases generally get passed along to tenants, the government hopes the freeze will moderate some of the GTA's blistering rent increases. In the long term, if the province can force cities to narrow the tax gap between single-family and rental housing it may go a long way to encouraging the construction of purpose-built rental housing and potentially cooling the rental market a bit in the process.

Some cities, like Toronto, recognized the property-tax gap between apartments and single-family homes was a problem some time ago. Toronto has had a policy for more than a decade of increasing taxes on apartments more slowly than on other types of properties, but the gap has persisted. If the province does in fact freeze apartment property taxes, it follows that cities around the GTA will have to raise single-family property taxes more than they’d expected to balance things out.

Toronto tenants may not want to celebrate just yet: the vast majority of de facto rental units that have been built in the GTA over the last decade have been condos owned by investors who rent them out for income. These units (already exempt from Ontario’s rent-control regime) will be unaffected by the changes, because they’re currently taxed as single-family homes.

Another significant development: the provincial government plainly doesn’t know as much about the real estate market as it would like to, and it has realized that's a problem. To that end, it is also proposing to use the administration of the land transfer tax to start collecting data on owner nationality, property type (residential, commercial, agricultural, etc.) and whether a property is being used as a primary residence or as a rental property.

You read that right: the provincial government, charged by the constitution with regulating property and ensuring municipalities function properly, doesn’t know with any clarity who’s doing what with real estate in Ontario. Today’s measures will at least start to clear the fog.

What the government will do with that data is another matter entirely. One measure announced in the economic statement would restrict the land transfer tax rebate to citizens and permanent residents who bought homes before today (or are in the process of buying before today) but more aggressive steps might follow.

Other measures the government announced today will be felt primarily in the north, and won’t necessarily help affordability. The provincial land tax — a kind of property tax that applies in unincorporated areas (that is, places not administered by municipal governments) — will be increased, to narrow the gap between taxes paid inside and outside of northern municipalities.

Mayors and councils of northern municipalities have complained about people and jobs fleeing their cities for these artificially cheap unincorporated areas, but the province has its own interest: Ontario has been spending tens of millions of dollars more on services in unincorporated areas than it has been receiving in taxes. The changes to the Provincial Land Tax will make northern councils happy and help balance the province’s budget. What they won’t do is make life easier for people who choose to live in those unincorporated areas.

The real estate changes announced today will, on their own, not do a lot for the hottest parts of the GTA housing market. There’s a reason for that: the government admitted last year that the housing market contributed more than $1 billion in “found money” to the province’s treasury last year. The Liberals have a strong incentive not to strangle that golden goose so long as it’s still laying eggs. But they have at least tentatively opened the door to taking more substantial measures in the future.

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