Ontario’s government has just introduced the “More Homes for Everyone Act”, which it hopes will deter speculators from driving up the cost of housing, protect homebuyers from unfair treatment by developers and accelerate development timelines to get more homes built faster.
The Act’s centerpiece is a jump in the province’s “non-resident speculation tax” to 20 per cent, expanding it beyond the Greater Golden Horseshoe to apply provincewide and closing loopholes in the previous tax.
This tax has potential to slow the market if prior experience be a guide.
Two jurisdictions have already implemented similar taxes.
Ontario’s 2017 foreign buyers tax of 15 per cent on home sales in the Greater Golden Horseshoe cut the region’s average price by 16 per cent between March and July 2017. The price didn’t fully recover until 2020. Regional sales fell by about a third and generally remained below pre-tax levels until the late-2020 COVID-fueled run-up. The sales-listings ratio, a measure of market tightness, fell from over 80 per cent in March 2017 to 46 per cent in July and remained below 60 per cent for about two years afterwards.
B.C.’s August 2016 foreign buyers tax was also 15 per cent and initially covered Vancouver, the Fraser Valley and Victoria. These areas’ combined average price fell 14 per cent in August 2016 alone, but bounced back quickly and regained pre-tax levels by April 2017. Monthly sales fell by roughly 40 per cent between early 2016 and the following autumn. Volumes didn’t achieve pre-tax levels until last year. The sales-listings ratio fell from above 80 per cent in some months early in 2016 to around 60 per cent by that autumn and has not hit 80 per cent since.
Back in Ontario, the prospective price reduction will likely be relatively muted in the Greater Golden Horseshoe, given that it is already taxed, but the market should notice it. Other previously untaxed areas like Ottawa, London, Kingston and Windsor could see a more significant effect.
Tightening up homebuyer residency requirements required to qualify for rebates, as specified in the Act, could add slightly to downward pressure on price.
Of course, widely expected interest rate hikes and an emerging increase in the supply of resale listings will also reduce price growth, complicating evaluation of the tax’s effect.
The Act’s announcement also detailed plans to consult with municipalities to ensure that developers build municipally approved units. This could increase supply and perhaps dent price growth, but the specifics will be important.
The announcement also suggested the government would double fines and suspend building licenses to address unethical developer conduct. This presumably responds to media coverage of homebuilders who demanded that purchasers pay more than a contracted pre-sale price, sometimes set a year or two earlier, and in some cases, threatening to cancel projects without buyer agreement. The effect of this seems ambiguous. It might restrain prices if builders are forced to honor previous agreements, but cost over-runs caused by rising material prices could force some builders out of business.
The Act’s planning and related items could eventually result in a few more units being built but probably not enough to significantly cut prices.
All told, this Act’s tax provision will almost certainly cool price growth and will likely produce some modest price reduction.