Everyone wants to do something about high house prices in the greater Vancouver and Toronto regions, but few can agree on what that "something" should be.
In Toronto, is it a matter of too much demand for housing, or too little supply?
"The population of the GTA has grown significantly in the past decade, but housing supply has dropped," says Bryan Tuckey, president and CEO of the Building Industry and Land Development Association. "Today in the GTA there are fewer than half the number of new homes available to purchase than there were a decade ago. In December 2006 there were 30,400 new homes in builders' inventories, while in December 2016 there were just 13,670. Ten years ago, more than half of the available new homes were low-rise homes. Today less that one in seven is."
On the resale market, the Toronto Real Estate Board (TREB) says the inventory of listings for sale is at a "more than 15-year low". It says TREB's average months of inventory trend for February was at one month, "while in many neighbourhoods across the GTA, inventory can now by measured in weeks rather than months."
TREB president Larry Cerqua says, "The provincial government should work with municipalities and industry stakeholders to look at ways in which the supply of housing could be increased, including potentially revisiting land use development in built-up areas to allow for a broader array of home types to be built, streamlining the development approvals process and examining ways to incentivize land owners to develop."
But not everyone agrees that lack of supply is the problem.
"The supply constraints and the rate of immigration in Toronto's real estate market explains why house prices have been going up five to 10 per cent per year for nearly 15 years. But these factors do not explain why house prices started rising by 25 per cent to 30 per cent year-over-year last year," says John Pasalis, president and broker of Realosophy Realty in Toronto. "The 30 per cent price increase in detached house prices we are seeing is the result of a rapid increase in the number of speculators buying houses in the GTA -- both domestic and foreign.
"By speculators, I mean people buying single family homes as investments, but not for the rental income, for the 20 to 30 per cent appreciation they expect to earn as prices continue to rise."
Pasalis is among a growing group of people who are calling on the provincial government to introduce a foreign buyer tax, similar to the 15 per cent tax implemented last August in the Metro Vancouver area.
A paper released by the Ryerson City Building Institute says, "The primary determinants of Toronto's high prices are on the demand side….the element of foreign investment has been under-appreciated by various public authorities to this point."
TREB's Cerqua begs to differ. He says, "Concerns about the effect of foreign buyers on the GTA market are widely overblown." He cites a survey of TREB members that found foreign buyers were involved in 4.9 just per cent of transactions. Other surveys by Canada Mortgage and Housing Corp. and by research firm Urbanation support TREB's findings.
But Josh Gordon, author of the Ryerson report, says that in both Vancouver and Toronto, expectations that foreign capital will keep pushing up prices prompts "many domestic buyers, both speculative and otherwise…to jump into the market, even at very high prices. This has meant that rising foreign demand has been placed on top of, and fostered domestic speculative demand and first-time buyer panicked demand (so-called FOMO, or "fear of missing out" demand). In combination, this has created scorching demand conditions that disconnect prices from local fundamentals."
In Vancouver, the introduction of the foreign buyer tax pushed down sales volumes for detached homes by 54 per cent compared to last year. Attached unit sales are down by 40 per cent. But prices are still at or near all-time highs.
Gordon says that a foreign buyer tax will not be enough to cool prices in the Toronto market either, so in both cities he is advocating the introduction of a "progressive property surtax that can be offset by income taxes paid." It would be levied annually on properties above a certain threshold in value. In his example, a house worth $2 million might have an annual surtax of $14,000.
"The surtax is designed to hit those who own expensive property based on foreign income or wealth, and/or those who have aggressively evaded taxes," Gordon says. "Recent immigrants who arrived in Toronto with wealth but who participated in the local economy and paid taxes would be effectively exempt from the surtax."
Other taxing ideas are being floated in Vancouver, including the suggestion to implement a capital gains tax on the sale of residential property, like that in the U.S.
Meanwhile, the Canadian Press reports that a proposed class-action lawsuit against the B.C. government says the foreign buyer tax is unconstitutional because it violates equality rights. "The foreign nationals' property tax is disproportionately felt by persons whose national origin is from an Asian country, a class of persons that have historically suffered discrimination in British Columbia," says the lawsuit. The government has yet to file a response to the lawsuit, reports the Canadian Press.