Ontario Hopes Tax on Non-Canadians Buying Toronto Homes Will Temper Prices

Ontario Hopes Tax on Non-Canadians Buying Toronto Homes Will Temper Prices

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Spadina Avenue and Queen Street West in Toronto. The average price of a single-family house in Toronto rose 33 percent in March compared with March 2016, to $1.2 million.

Credit
Eugen Sakhnenko for The New York Times

OTTAWA — In a bid to slow the soaring growth of housing prices in the Toronto area, Ontario officials announced several measures on Thursday, including a 15 percent tax on residential buyers who are not residents or citizens of Canada.

The average price of a single-family house in Toronto rose 33 percent in March compared with March 2016, to 1.6 million Canadian dollars ($1.2 million), leading many young families to abandon plans to become homeowners. Bidding wars, often highly publicized, have erupted over houses that would not attract a second glance in a less heated market.

While Ontario’s premier, Kathleen Wynne, emphasized the need for the 15 percent tax on outside purchasers, similar to one enacted recently in Vancouver, British Columbia, there are no statistics on the number of Toronto houses that have gone to such buyers. Ontario’s finance minister estimated that they make up 8 percent of the market, but other estimates are well above or well below that figure. Neither Ms. Wynne nor members of her cabinet were able to quantify the effect of what they called “phantom” purchasing.

“This is a complex issue,” Ms. Wynne said. “There wasn’t one single thing we could do that would deal with the issues we’re confronting.”

Political pressure is escalating on Ms. Wynne and the government of Prime Minister Justin Trudeau to cool off the Toronto market.

At the same time, both levels of government have been loath to take steps that effectively punish current homeowners by forcing down the value of their property.

On Thursday, the premier said that the high prices were not entirely a bad thing, calling the market boom “the unwanted consequence of a strong economy.”

British Columbia’s experience does not provide clear evidence of the effectiveness of its 15 percent nonresident buyer’s tax. While price growth in Vancouver has slowed since its introduction — prices fell on average 1.9 percent last month — the market there was softening well before the tax was imposed. And real estate industry experts said they anticipated that prices would rise again soon.

Some economists have encouraged Ontario to impose a nonresident tax in what is generally known as the Greater Toronto Area.

“The province is aiming at those effectively parking wealth in the G.T.A. real estate market, and we have been fully in favor of such a move for some time,” Robert Kavcic, senior economist with BMO Capital Markets in Toronto, wrote in an analysis.

But Mr. Kavcic was also skeptical that the tax and other measures announced by Ms. Wynne would have a substantial effect.

He said the tax would mostly prevent a rise in the prices of the most expensive houses on the market.

Because not all of Ontario has experienced a major escalation in house prices, the new tax and some other measures announced on Thursday will apply only to a portion of the province within commuting distance of Toronto. The tax also includes several exemptions and will be rebated to people who later can prove that they have stayed in Canada to work or study.

Many economists and housing analysts argue that Toronto’s price problem has more to do with sellers than buyers. The number of homes being built or offered for sale in the Toronto area has not matched the increased demand created by its steady population growth.

Ms. Wynne outlined some modest changes intended to remedy that. Cities and towns in Ontario can now impose extra taxes on houses left empty by investor-owners, and undeveloped land that has water and sewer service and that is approved for housing will face increased property taxes. The province will also allow housing to be built on some of its vacant land in the Toronto area.

The province also expanded provincial rent controls to include apartments built after 1991. It will try nevertheless to encourage apartment construction through real estate tax reductions and rebates for things like development charges.

Mindful of Toronto’s large immigrant community with its many house hunters, Ms. Wynne pointedly noted that the new tax would not apply to people who make their home in Ontario.

“The nonresident speculation tax has nothing to do with new Canadians,” she said.

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