Land transfer tax carries huge costs for Toronto, report says
Posted on May 9, 2014 in Mortgage Market Updates and NewsStudy commissioned by Ontario Real Estate Association claims municipal home sales levy has led to a $2.3B drop in economic activity, and repealing it would create thousands of jobs.
By: Susan Pigg Business Reporter
Toronto could see a $2-billion economic boost — and the creation of 12,000 new jobs over the next five years — if it repeals the municipal land transfer tax, says a new report.
“It’s bad for our economy and bad for homebuyers,” says Costa Poulopoulos, president of the Ontario Real Estate Association, which commissioned the report, released Tuesday.
It found that Toronto has seen an estimated decline of more than 38,000 home transactions since the tax was imposed in 2008, making home ownership more expensive and Toronto the only city in Canada where homebuyers are double-taxed: they have to pay both a municipal and a provincial land transfer tax on the purchase of a home.
That loss of sales has translated into a roughly $2.3-billion drop in economic activity in Toronto since 2008, and a $1.2-billion reduction in GDP, the report notes. It also says there would be nearly 15,000 more jobs in sectors from real estate to law to furniture and appliances stores without the Toronto-only land transfer tax.
The economic analysis was done by Altus Group Economic Consulting, relying heavily on two previous studies: a 2012 C.D. Howe Institute report that estimated the impact of the tax on housing transactions, as well as a 2013 study for the Canadian Real Estate Association that examined the economic impact of a typical house transaction in Ontario.
Altus researchers then took those reports one step further, looking back and also ahead at the economic fallout of the tax.
In fact, the economic damage is much bigger than the gain for the city, the report stresses, noting that the average revenue the municipal land transfer tax generated each year since 2008 has been $270.2 million.
The annual take now is about $350 million a year, thanks largely to soaring house prices. That’s close to double the amount collected in 2008.
Mayor Rob Ford had long vowed to scrap the land transfer tax but, when faced with strong resistence to getting rid of the lucrative source of revenue for the city, he talked about reducing it by 5 or 10 per cent instead. He has yet to follow through.
Land transfer taxes now add up to more than $14,000 in upfront costs on a $550,000 home purchase in Toronto — about $7,500 of that being the provincial tax and $6,700 the city tax.
“This research proves that the (municipal tax) is doing more harm than good where our economy is concerned,” said Poulopoulos. “It gets in the way of the economic spinoff that occurs when homes are purchased and sold.”
The real estate umbrella group commissioned the study, hoping to make repealing the tax both a municipal and a provincial election concern, and to get out front of the issue before any other Ontario municipalities, such as Missississauga, move to implement their own version of the tax.
The study is being released along with a new Ipsos Reid survey that found 85 per cent of Toronto residents think the tax makes it harder to become homeowners, and 72 per cent said the upfront costs would come at the expense of spending on other economic generators, such as renovations, furniture or new appliances for their new home.