Toronto is a fantastic city that is now receiving increasing international recognition, and many feel that prices are increasing too rapidly. On the other side of the coin, it is important to realize that Toronto is ranked outside of the top 10 most expensive cities to buy property in, yet we consistently rank in the top 3 for overall living. And still, despite the fact that our skyline is filled with cranes building new residences, housing prices continue to soar. As rapid as Economists and political pundits alike have cited a number of reasons for the pricing surge, we feel it is time to start talking solutions.
In this article, we look at three possible ways in which housing might be made more affordable for Torontonians.
Solution #1 – Change the Way Homes Are Taxed
We get it. Government has to get their share. But what if there was a way for them to still get their share AND make housing more affordable?
To help Torontonians get into homes more easily, we suggest waiving the land transfer tax. The government can easily recoup these funds on the back end through capital gains tax. Currently, capital gains do not apply to the sale of a primary residence (only investment properties). The problem with this, however, is that many home flippers are claiming what are, in fact, investment properties as their residences and not paying capital gains. Home flipping is not only driving up our housing prices, but these “investors” are not paying their fair share in taxes.
We’d love to see a system in which everyone pays capital gains on the sale of a home but would be able to get those taxes back in the form of a rebate once they’ve proven that they legitimately lived in that home – say for at least one year. This would reduce the amount of home flipping since it would become less profitable, thereby adding more supply to the market and slowing the increase in prices.
Solution #2 – Make Way for More Properties
Supply and demand will always be an important part of housing costs in the Toronto market – or any housing market for that matter. Greater supply equals lower prices. The supply can be increased by dividing duplexes into condos – so we would be essentially getting two homes for the price of one!
Another idea would be to increase the opportunity in the city for laneway housing. Laneway houses have become a popular solution in Vancouver, however, they have not been built in Toronto since 2006 following concerns about municipal services.[i] We think that perhaps it is time for City Council to find creative solutions to these concerns so that new homes can be built on pre-existing lots.
Solution #3 – Consider a Foreign Buyers’ Tax
Toronto may be able to learn a lesson from Vancouver which in 2016, introduced a foreign buyers’ tax as a means to deter foreign investors from buying up properties not to live in, but simply as a means to store their wealth.
After introducing the tax, the Vancouver housing market began to cool significantly which suggests that the strategy has more than a little effect.[ii] A similar tax in Toronto might just make home ownership a little more attainable for Canadians living in the city.
We believe that housing prices are increasing too rapidly. While no one particular strategy is likely to solve the issue completely, we believe that it is time for all levels of government to start thinking creatively to help slow down the increases in price so home ownership stays within reach of the average Torontonian.