Ontario will refund first-time home buyers up to $4,000 from the land-transfer tax, a small step to ease the pain of the exploding Toronto housing market.
The pocketbook measure may buy the governing Liberals some goodwill among younger middle-class voters, but observers dismissed it as a marginal move that will not really make it easier to break into the market. The refund takes effect Jan. 1, 2017.
“Purchasing your very first home is one of the most exciting decisions in a young person’s life,” Finance Minister Charles Sousa told the legislature in Monday’s fall economic statement. “But many are worried about how they will be able to afford their first condo or house.”
The up-to-$4,000 refund will effectively remove the land-transfer tax from the first $368,000 of a home price for anyone buying their first home. First-time home buyers are currently eligible for an up-to-$2,000 refund.
The average price of a home in Toronto and area in October was $762,975, according to the Toronto Real Estate Board. Prices ranged from an average of $429,407 for a condominium to more than $1-million for a detached house.
Mr. Sousa opted for a much milder measure than British Columbia, which imposed a 15-per-cent tax on foreign buyers this summer to cool home prices in Metro Vancouver. Ontario will restrict the refund to Canadian citizens and permanent residents, but Mr. Sousa suggested he did not want to go any further on curbing foreign ownership for fear of discouraging overseas investment.
“We’re trying to tell the rest of the world that Ontario’s open, that we want to attract more investment,” he told reporters after the speech.
The government will pay for the measure by jacking up the land-transfer tax on other buyers. Any portion of a home price over $2-million will be subject to a tax rate of 2.5 per cent, up from 2 per cent; the rate on a portion of the purchase price of non-home properties – such as commercial buildings – over $400,000 will rise from 1.5 per cent to 2 per cent.
Market experts said $4,000 is too little to have much effect on a home buyer’s purchasing decisions.
“It’s not a game-changer – it’s just pocket money,” Benjamin Tal, deputy chief economist at CIBC World Markets, said in an interview. “It’s not going to change the decision to buy or not to buy or what to buy.”
Added Benjamin Reitzes, senior economist at BMO Capital Markets, in a note to investors: “Given the runaway home price gains in Toronto and the surrounding regions, this hardly makes a dent in worsening affordability and, if anything, just adds more fuel to the housing fire.”
The economic update also reiterated the Liberals’ promise to balance the budget next year, despite a warning last week from the province’s financial accountability office that the government cannot reach balance without either restraining spending or finding more revenue.
Mr. Sousa on Monday steered clear of any talk of cuts. Instead, he highlighted spending in several areas – including $140-million for hospitals to bring down wait times and $65.5-million to create more child-care spaces – as the Liberals look to curry favour with voters and turn around cratering poll numbers in the run-up to the 2018 election.
He did, however, concede that he will have to pull $800-million over two years out of the province’s financial reserves to make sure the books are balanced.
Progressive Conservative finance critic Vic Fedeli said the land-transfer tax break was merely a “distraction” from this bigger fiscal picture.
“This is like jingling keys in front of a baby,” he said. “Instead of talking about the waste, mismanagement and scandal, we talk about this smaller item.”
NDP finance critic Catherine Fife said the government missed an opportunity to tackle other aspects of the province’s housing problem, such as a lack of affordable housing that has led to precarious living for lower-income Ontarians and years-long waiting lists for social housing.
“Affordable housing is an economic stabilizer. This government has had 13 years to put something into place,” she said, describing the $4,000 refund as a “Band-Aid … to make it look like they’re responding to the needs of Ontarians.”
The province’s real estate lobby, however, heaved a sigh of relief. Realtors had urged the government to cut the land-transfer tax instead of taking steps to cool the market, which could have eaten into their business.
Tim Hudak, incoming CEO of the Ontario Real Estate Association, said cutting the tax would help ease the upfront cost of buying a house.
“For millennials, which they call Generation Screwed, it’s increasingly difficult to get that Canadian dream of home ownership,” he said. “I’m very pleased that Premier [Kathleen] Wynne and Finance Minister Sousa are listening.”Report Typo/Error