Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Toronto and Vancouver's frenetic housing markets show few signs of slowing down, prompting calls for Ottawa to take further action to constrain runaway prices.

Vancouver Mayor Gregor Robertson recently urged the federal and provincial governments to "implement clear measures to rein in the excesses" of the city's real estate market.

Bank of Nova Scotia's chief executive officer has also called for federal intervention.

Story continues below advertisement

"The government has lots of levers to deal with this," Brian Porter told The Globe and Mail last week. "So the question is not about the banks, it's about the government doing something about it."

The federal Liberal government has tightened rules on down payments, but those appear to have done little to slow Canada's two hottest markets, which have seen frenzied activity spread to the suburbs.

What further action can Ottawa take? Here are four ideas being proposed:

Taxing foreign home buyers or speculators

The government should consider a temporary "luxury tax" on foreign investors as a way to curb the "frothiness" of Vancouver's market, Mr. Porter also told The Globe.

His comments follow those of Benjamin Tal, an economist at CIBC World Markets, who suggested last month that governments could explore a "flipping tax" on international investors that speculate on residential real estate.

Such targeted taxes are likely to have an effect on Vancouver's market in the short term, Josh Gordon, an assistant professor at Simon Fraser University's School of Public Policy, wrote in a recent report.

Story continues below advertisement

However, he warned that foreign investors may be able to find ways around the rules – such as going through locals to mask the true identity of the buyer – or may be willing to absorb the extra tax as the cost of doing business.

A spokesman for Finance Minister Bill Morneau rejected the idea of slapping an extra tax on high-end home purchases, whether by foreigners or Canadian residents.

"A blanket tax is not part of our plan," Daniel Lauzon wrote in an e-mail.

Higher minimum down payments

One of Mr. Morneau's first actions as Finance Minister was to raise minimum down payments, a move aimed at the more expensive markets of Toronto and Vancouver.

The recent changes, which took effect in February, allow borrowers to put down 5 per cent toward the first $500,000 of a home's purchase price and 10 per cent on the next $500,000 up to $1-million. (Homes priced above $1-million require a 20-per-cent down payment.)

Story continues below advertisement

But bank CEOs have called on Ottawa to raise them even further.

National Bank of Canada's Louis Vachon told Bloomberg that Ottawa should eventually reintroduce minimum down payments of 10 per cent.

The government last required minimum 10-per-cent down payments in the early 1990s. Those rules were relaxed down to 5 per cent in 1992 as part of Ottawa's plan to spark a recovery in the country's moribund housing market, which was suffering amid a prolonged economic recession. But they have stuck around even as home prices have soared.

To gauge how much such a change would cool the market, Canada can look to Ireland.

Last year, the Irish central bank unveiled new requirements for borrowers to pay a minimum of 10 per cent toward homes worth less than €220,000 ($320,000 Canadian) and 20 per cent for the excess amount on more expensive homes.

The changes have helped to dramatically slow an overheated market that had seen prices soar as much as 50 per cent in some regions in less than two years.

Story continues below advertisement

Tougher qualifying rates for borrowers

Scotiabank's Mr. Porter is one of the few to publicly call on the federal government to make it tougher for borrowers to qualify for mortgages in the first place.

Current rules for insured mortgages with down payments of less than 20 per cent have created a two-tier system.

Homeowners who take out short-term or variable-rate mortgages have to prove they can afford payments at a much higher rate than they will actually pay. Canada Mortgage and Housing Corp. requires such borrowers to qualify at the Bank of Canada's posted rate, which is now at 4.64 per cent, even though lenders are offering mortgages at rates well below 3 per cent.

By contrast, borrowers who opt for a five-year, fixed-rate mortgage are allowed to qualify at the rate they'll actually be paying, which is as low as 2.49 per cent among the major banks. The end result is that buyers who lock into a five-year rate end up qualifying for much larger mortgages than if they had chosen a shorter-term mortgage, or one with a floating interest rate.

The rules are one way the government encourages borrowers and banks to lock into mortgage rates for longer, which it sees as a way to protect the housing market from a sudden change in interest rates.

Story continues below advertisement

But Mr. Porter has argued that the government should level the playing field by requiring homeowners who have five-year, fixed-rate mortgages – which represent the vast majority of mortgages in Canada – to also qualify at a higher rate.

Property surtaxes

More than 40 academics and policy experts in British Columbia are urging Ottawa to help implement what they call a "B.C. Housing Affordability Fund." It proposes that any residential owner who doesn't pay federal income taxes be subject to a 1.5-per-cent surcharge on their property tax bill.

While municipalities would collect the tax, Ottawa could facilitate it by confirming which homeowners paid federal taxes and would therefore be exempt, suggests Tom Davidoff of the University of British Columbia's Sauder School of Business, one of those behind the proposal. Claimants would have to provide proof they paid taxes, which could be verified if necessary.

"You somehow have to get people who don't pay taxes here to pay more property taxes than people who do pay taxes," said Mr. Davidoff, who said alternatively it could be administered as a federal tax deduction.

The group believes 1.5 per cent is moderate enough to not scare investors away in droves, Mr. Davidoff said. The surtax would affect people who don't pay income tax, regardless of immigration status or citizenship.

Story continues below advertisement

Mr. Davidoff and the other proponents suggest seniors and the disabled would also be exempt, as well as absentee property owners, provided they rented out their homes, instead of leaving them vacant.

Anjum Mutakabbir, a graduate student at SFU's School of Public Policy, also advocates a targeted property tax, which he considers more effective than a speculation or luxury tax. His recent paper promotes SFU professor Rhys Kesselman's idea of a surtax that increases with the value of the property.

For example, properties worth $1-million to $1.5-million would pay an extra 0.5 per cent in "progressive" property tax. The levy would increase incrementally to a maximum of 2 per cent on homes worth more than $3-million. A house worth $2.9-million would pay $22,000 in taxes a year, double the taxes owed on that same property now.

"The tax is designed to target vacant properties, absentee owners, and homes purchased purely for investment purposes. It is able to insulate Vancouver residents that occupy their homes by allowing them to credit their B.C income tax against the surtax," Mr. Mutakabbir said in his paper.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the authors of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies