Is it fear or good management that makes us take action against items of concern. Sometimes I ponder this and come up with a tie. Good intentions, 1: Fear, 1.
This is something I ponder right now as I review the actions of all levels of government towards the real estate sector over the past five years. Let's look at those major factors one by one.
1. Land Transfer Taxes. In most of Ontario there is one Land Transfer Tax. In Toronto there are two.
We can argue why, or why not there should be two taxes, but one thing is certain, the second tax is costing Toronto buyers and sellers greatly.
When you review things as a percentage, it looks very small and unimportant. For simplicity, lets use 1% at the land transfer tax for Toronto and 1% for Ontario fully acknowledging the taxes are independently calculated by equations created by political hacks.
One percent is a very small thing as compared the an entire purchase price, the one hundred percent. When we look at it in actual dollars it is much more impactive. One percent (1%) is $5,000 of $500,000 purchases. For a $1,000,000 it is $10,000, sizeable indeed for most in Toronto.
But this is not the entire story. Let's add up the two Land Tramsfer Taxes and use a simple two percentage rate (2%). We now pay $10,000 on a $500,000 purchase and $20,000 on a $1,000,000 purchase! sizeable indeed. This is enough to buy a new compact car!
The question is, would this amount impact a buyer or sellers decision to enter the market place? Would a knowledgeable buyer or seller abort a potential transaction, or even not consider selling or buying simply because of this added cost. Invariably, the answer is yes, and the evidence is great that rational people have decided to not sell their current homes because of this unfair, duplicate taxation.
Really, states the doubting Thomas. Well, for many sellers, who would need to purchase a new, smaller property as they downsize, this added cost on the purchase will change their thoughts to hold on the their property rather than to pay the two taxes on their purchase. For some this may be a half year or more of wages, a sizeable sum definitely enough to make a decision on.
Remember, in the case of most who move, there are two transactions, the sale and the subsequent buy of a property. So although each transaction affords one tax times two (Ontario and Toronto taxes). in the overall scheme of things, moving from one home to the next in Toronto is impacted by something that resembles 4% of the overall transaction of one of the properties! Wow!
The Toronto Real Estate Board in the largest real estate MLS in North America. Evidence is clear that the Toronto real estate market place is impacted greatly as rational people refuse to enter the marketplace when they otherwise might simply sell or buy because the cost of entry has become too large. Sales volumes are down substantially compared to other neighbouring jurisdictions. Listing inventory is scarce at best and multiple offer bidding on properties is commonplace. What is frightfully noticeable however is the reduced inventory of homes for sale has caused a continuing and frightening price increase as rational buyers decide if they are to enter the market, they must pay more. Simple supply and demand theory at work, restrict the supply and the price will go up.
So the market is inflated by a tax that is duplicate even with all the best intentions.
I would argue that it is this Toronto specific tax that could be the straw that breaks the back of the Canadian real estate market. As Toronto goes, so goes Canada. So if this restrictive, duplicate tax continues, it could take down not only the Toronto real estate market, it could cripple the Ontario and Canadian market as the price of Toronto properties goes up even more.
One more thing, has anyone looked at what has happened to the absolute tax dollar paid per transaction over the last few years? Today the tax in real dollars is 70% higher than when started a short five years ago. So it contributes more to the Toronto tax base, and just like an injection of a hallucination, politicians refuse to even consider its removal or withdrawal. That happens with drugs, don't it! So maybe there are even more politicians on some sort of crack, land transfer crack!
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