Institute argues against foreign buyer tax

by Justin da Rosa17 Apr 2017
Vancouver’s tax influenced a 40% drop in transactions – but it wasn’t just foreigners who accounted for that cooling, according to one research institute

The C.D. Howe Institute is imploring Ontario to avoid implementing its own foreign buyer tax, arguing Vancouver’s was detrimental to that market. 

“We observed a clear and significant decrease in volume of transactions for Greater Vancouver vis-à-vis surrounding regions following the implementation of the tax,” C.D. Howe authors Benjamin Dachis, Hamza Mhadi, and Jairo Pinto said in a study. “After controlling for a variety of factors that affect housing prices and demand, our preliminary results suggest that the foreign-buyer tax has led to nearly 40% less transactions than would have occurred without it, accompanied by average prices that are 4.5% lower than otherwise.”



Source: C.D. Howe

The institute shared its findings in a letter Ontario Finance Minister Charles Sousa.

It argued the tax had a greater impact on lower buyers than the intended target: Foreign speculators.

“As foreign buyers were estimated to comprise a mere 7% of total transactions in Metro Vancouver, it is clear the tax interfered more with local buyers,” the authors said. “Many locals in need of moving homes were left in a harder position to sell – from families moving to neighbourhoods with better schools to retirees downsizing. And who bore the economic cost of lower home prices? People who own homes now – not foreign buyers – are seeing the value of their investment fall.”

As Ontario continues to deliberate what housing policies to implement – with action expected to appear in the province’s budget later this month – the institute is imploring the province to avoid targeting foreign buyers.

“The BC government’s intent was to lower prices and stabilize the market, but the drop in prices and number of sales shows that locals looking to move feel the harm of the tax,” the authors said. “The attention now turns to Toronto’s housing market where, as of February 2017, prices increased by nearly 24% compared to the year prior. The government of Ontario should take a close look at the harm of Vancouver’s foreign buyer tax and not follow suit.”


Related stories:
To intervene or not in Toronto’s market
Poll results: Industry on foreign tax

COMMENTS

  • by Ian Hocking 4/17/2017 11:34:34 AM

    Well seriously, wasn't that the whole point. The idea was to exactly lower prices and stabilise the market, which it did. Also, a 4.5% drop in prices following several years of rampant speculation is a mere blip and could hardly be called a disaster. Local owners who want to sell are 20-30% ahead over the past few years, to somehow suggest that a 4-5% drop is wreaking havoc is nonsense. The opposite is to leave as it was and watch people buy a home, leave it vacant and try to flip it 6 months later, which is exactly what is happening in the GTA and north GTA market right now. Yes I know if a local person paid for a home and hit the top it's not going to be wonderful in the short term, but let me suggest this; this slow down has only been happening for the last 6-9 months so it may be reasonable to think that those who bought a home 6 months ago didn't do so to live it and would exactly fit the criteria of those the tax was designed to target. I would also fully support some form of capital gains tax adjustment that's more restrictive the quicker you flip. Investing is fine, speculation is not so fine. As an aside I would also suggest that the Bank of Canada needs to revisit it's 2015 Fall study on the Empirical study of CPI and House price inflation. Currently, the CPI which most govt. entities base a number of factors on, such as wage increases, does not include house prices, yet when a home goes up 30-40% in price in 12 months that has a major impact on the true cost of living. It needs to be revisited in a hurry. If you build in house price inflation or even the inflation on a downpayment you will have a very different picture of Canadian economics. I applaud the Vancouver govt. for doing something. It may have been a big stick approach and that isn't always the best, but they did something. Govt. has a knack of too little to late and Ontario is displaying a very fine attribute to proving this theory correct.

  • by JOGINDER SEKHON 4/17/2017 3:23:49 PM

    Exactly! Toronto needs it badly for the sake of average buyer. Everyone feels it but almost no one stands for it! Steep velocity and tempo of rising prices is frightening. Needs to be bridled!

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