Ontario is following British Columbia’s lead, promising to introduce a tax on foreign homebuyers that the province hopes will help cool the frantic housing market, easing concerns about a potential bubble in Canada’s fastest growing urban region.
The 15-per-cent “non-resident speculation tax” was among 16 housing measures the provincial government announced Thursday, which also included a promise to expand rent control, allow Toronto to impose a tax on vacant homes and use surplus provincial lands for affordable housing.
Premier Kathleen Wynne said the new tax would not target immigrants, and a rebate would be available to foreigners who work in Ontario, those who subsequently get citizenship or permanent resident status and international students.
“With this tax, we are targeting people who aren’t looking for a place to raise a family — they’re looking only for a quick profit or a safe place to park their money,” Wynne said.
Fears of a potential real estate market collapse as well as diminishing housing affordability have put increasing pressure on Wynne’s Liberal government to take action, at a time when the average price of detached houses in the Greater Toronto Area has increased more than 30 per cent since last year.
Wynne said the measures were designed to help people afford to rent or buy a home, brushing off a suggestion that the move was more about boosting her approval rating, which has recently plunged to just over 10 per cent, according to polls.
Some economists were skeptical Thursday about the impact the new tax on foreign speculators would have on soaring house prices, noting that all three levels of governments have admitted they lack housing market data.
CIBC economist Benjamin Tal said he doesn’t believe there are enough foreign buyers in the Toronto-area market for the tax to have a lasting effect. However, he predicts a short-term slowdown in the market once the measures are implemented.
Wynne said the Liberals were not interested in controlling the market.
“But we do believe there is a need for interventions right now in order to calm what’s going on,” she said.
The non-resident speculation tax will be imposed on buyers in Ontario’s Greater Golden Horseshoe — an area stretching from the Niagara Region to Peterborough — who are not citizens, permanent residents or Canadian corporations.
Once legislation passes, it will be effective retroactively to April 21.
Another housing measure would expand rent control, which currently only applies only to units built before November 1991. The measure would be effective retroactively to April 20 once passed.
Rent control has been one of Toronto Mayor John Tory’s main concerns, especially after recent published reports about some tenants in the city receiving notices that their rent would double.
Giorgio Cecatto, one of those tenants, said he is happy that his plight might have helped spur on the change in policy.
“I’m glad that, hopefully, in the future people are not going to be in our situation,” he said. “It was something that needed to be discussed in the region.”
The forthcoming rent control legislation won’t apply to tenants like Cecatto, who received rent hike notices before Thursday’s announcement.
The building industry has warned that rent control will discourage the construction of new rental properties. To offset that, the government has also introduced a five-year, $125-million program to rebate a portion of development charges on new purpose-built rental properties in areas with low vacancy rates.
Ontario is also giving Toronto and other interested municipalities the power to impose a vacant homes tax to encourage owners to sell or rent such spaces.
Rules for real estate agents will also be reviewed, in particular practices such as double ending, where the agent represents both the buyer and the seller.
Tim Hudak, CEO of the Ontario Real Estate Association, welcomed the review.
“Those who abuse the rules, you’ve got to throw the book at them,” he said. “Anybody who is breaking the rules is taking advantage of somebody making the biggest investment of their lives. You don’t want that person in the profession.”
Ontario will also establish a program to identify provincially owned surplus lands for affordable and rental housing, with an eye to using a few specific sites such as the West Don Lands in Toronto for pilot projects.
The measures announced Thursday appeared similar to those the British Columbia government implemented in Metro Vancouver last August, when foreign homebuyers were slapped with a 15-per-cent tax. The City of Vancouver also imposed a tax on vacant homes.
B.C. Premier Christy Clark announced in January that the tax would be lifted for those who have a work permit in order to encourage more people to move to the province to work.
The number of sales in Metro Vancouver plunged in the months after the new tax, though there are signs that the market may be bouncing back.