Photo: James Bombales
In an attempt to cool a red hot housing market, the Ontario government introduced its Fair Housing Plan in April, complete with a foreign buyers’ tax. According to one expert, the tax could be the key to achieving the province’s affordable housing goals.
In a recent blog post, Ryerson Centre for Urban Research and Land Development senior researcher Diana Petramala writes that, while the tax has successfully cooled Ontario’s housing market, it hasn’t led to a price correction, leaving home ownership still outside the reach of many would-be buyers.
In order to actually address the province’s affordable housing crisis, Petramala argues that the revenue from the tax should be invested into subsidized and other forms of affordable housing.
The 15 per cent non-resident speculation tax applies to all non-resident purchases made in the Greater Golden Horseshoe after April 20th.
“When we look at the effects of this tax, we can see that it’s been successful in cooling the market since its implementation,” Petramala tells BuzzBuzzNews. “The question now is, what is the province going to do with the revenue, and can it be put towards the issue of housing affordability.”
Petramala points to New South Wales, Australia, as an example of how governments can use tax revenue to address affordable housing issues.
The Australian state implemented a foreign buyers’ tax, while simultaneously reducing the land transfer tax on first-time buyers and providing subsidies for new home construction.
“I like the idea of providing more tax relief for first-time home buyers particularly,” says Petramala. “But the best way to improve affordability across the board is going to be supply, which is where using the revenue to create subsidies for new home construction comes into play.”
According to Ontario government data, foreign buyers purchased 2,553 housing units across the GTA from April 24th to August 18th. Petramala estimates that the total tax revenue from the sales would be $300 million, well over the $125 million the province has dedicated to support affordable rental housing over the next five years.
“I think it is important to stress that the province had no idea how much they would be earning from this tax, which they implemented very recently,” says Petramala, acknowledging that the province had not been previously tracking foreign buyer sales activity. “At the same time, now that we have an idea of what revenues will look like moving forward, they can create a more targeted policy.”
Petramala says that, if it chooses to put the tax revenue towards affordable housing, the government will have to decide which initiatives it wants to prioritize.
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Options include putting more resources towards affordable rental for lower income families, and subsidizing the creation of “missing middle housing” in the GTA — mid-level housing such as townhouses, duplexes and triplexes, which are more affordable for middle income families.
Petramala doesn’t know what the best option is — but she hopes to see a discussion about it start in the coming months.
“I think the true success of this tax will lie in not just how much it cools the housing market, but what the government chooses to do with the money it generates,” says Petramala. “And hopefully it will consider putting it towards housing affordability.”