4 industry experts nervous about Ontario’s foreign buyers tax

One of the cooling measures proposed by the Ontario government was a 15% foreign buyers tax, and we’re not sure how feel about it. Upon passing, the tax is retroactively effective as of April 21, 2017.   

In Vancouver, sales dropped significantly as soon as the tax was put in place, and pundits are still debating whether the results are a success. Ontario Finance Minister Charles Sousa says he expects that any dip in provincial land-tax revenue would be offset by revenue generated by the foreign buyers tax.   

We recently interviewed four industry experts and we asked each one of them what they thought of the introduction of a foreign buyers tax.

The industry experts include Barbara Lawlor, President and CEO, Baker Real Estate Incorporated; Jason Mercer, Director Market Analysis for the Toronto Real Estate Board (TREB); Bob Finnigan, President, Canadian Home Builders Association (CHBA) and COO, Acquisitions & Housing, Herity; Ben Myers, Senior VP, Market Research & Analytics, Fortress Real Developments.

Here’s what they had to say about a foreign buyers tax:

Barbara Lawlor:

With the situation in Vancouver, we learned what can happen when a foreign buyers tax is implemented without careful forethought. Their tax cooled the market dramatically, but also lessened consumer confidence, and existing property owners now have to deal with the consequences.

At Baker Real Estate Incorporated, the number of condos we see sold to foreign buyers is in the 5% range, and I suspect that number is even lower across Canada. Remember, most foreign buyers are end-users – and we also have speculators who are not foreign. Why place so much emphasis on this segment?

Last year, RBC Capital Markets placed the impact of foreign buyers far down the list of major issues driving up house prices in Toronto. Ahead of it were low interest rates, higher incomes, a greater percentage of household income being spent on mortgages, and an increase in baby boomers helping their children with down payments. In February, the City of Markham voted against asking Ontario to impose a tax on foreign buyers, citing the need for improved infrastructure and a more streamlined process for approvals.

Jason Mercer:

A recent Ipsos survey of TREB Members suggested that the level of foreign buying was quite low in the GTA – 4.9% for the GTA as a whole. Given the strong level of demand versus the constrained level of listings, a sales dip of 4.9% would not likely result in a substantial change in the rate of price growth. Our most recent Year in Review and Outlook Report covers our foreign buyer survey as well as other consumer-related surveys that touch upon both the demand for and supply of listings in the GTA.

Bob Finnigan:

Quite Simply – no. There is no supporting statistical evidence to support the idea that foreign buyers (true offshore investors) make up enough of a significant percentage of the overall housing market to affect the numbers in a large way. While the number of foreign buyers is higher for high-rise condominiums – than ground-oriented housing – enacting legislation without sound factual evidence simply does not make sense. It simply becomes a tax grab – at whatever percentage of sales foreign buyers are.

Ben Myers:

I don’t think it is a good idea on new housing, I wouldn’t oppose a small tax on resale ground-oriented units. I’ve used the analogy that a foreign buyers tax is like putting a Band-Aid on a stab wound. It would help, but it wouldn’t fundamentally address the problem, which in this case is a lack of supply. When you have inelastic supply (unresponsive), a sharply upward sloping supply curve, any increase in demand is going to result in much higher prices, and we’re seeing that with the 50% annual decrease in resale listings via TREB and the 50% decrease in unsold supply in the new housing market per Altus data.

Four out of four industry experts think a foreign buyers tax is a bad idea because there is not enough data and even the little bit of data available shows that the tax only targets approximately 5% of transactions, which likely isn’t enough to impact the market too much. So why is the province focusing on a foreign buyers tax? What is the goal?