Adding taxes won’t solve hous­ing cri­sis

The Chatham Daily News - - OPINION -

Politi­cians think the answer to ev­ery­thing is a tax. That’s why they’re talk­ing about im­pos­ing ev­ery­thing from a for­eign buy­ers’ tax, to a spec­u­la­tors’ tax, to a tax on va­cant real es­tate to “solve” Toronto’s hous­ing cri­sis.

Heaven for­bid they should think of lowering taxes in­stead.

For ex­am­ple, lowering or elim­i­nat­ing the usu­ri­ous, dou­ble whammy land trans­fer tax charged by both the provincial and city gov­ern­ments that adds tens of thou­sands of dol­lars to the pur­chase price of a home.

This dis­cour­ages first-time home buy­ers from en­ter­ing the mar­ket, even with the tiny dis­counts gov­ern­ments grudg­ingly give them on the land trans­fer tax.

It also dis­cour­ages peo­ple who al­ready own homes from sell­ing them to buy new ones, as they of­ten de­cide to ren­o­vate in­stead.

The main rea­son house prices are sky­rock­et­ing in Toronto (the price of an av­er­age de­tached home is now over $1 mil­lion and has risen 33 per cent in the past year) isn’t that there aren’t enough gov­ern­ment taxes on real es­tate. It’s that de­mand has out­stripped sup­ply. This is the nat­u­ral out­come of gov­ern­ment poli­cies that en­cour­age im­mi­gra­tion to Toronto, where there is a fi­nite amount of land available for res­i­den­tial hous­ing development, hemmed in by the Green­belt to the north and Lake On­tario to the south.

Then there’s the huge amount of gov­ern­ment red tape that slows res­i­den­tial hous­ing development.

Add in con­tra­dic­tory mu­nic­i­pal poli­cies that en­cour­age higher res­i­den­tial den­si­ties, while si­mul­ta­ne­ously dis­cour­ag­ing the development of multi-unit res­i­dences (apart­ments and town­houses) wher­ever there are sin­gle-fam­ily homes.

Years of his­tor­i­cally low in­ter­est rates have also flooded the mar­ket with po­ten­tial home buy­ers, bid­ding on a dwin­dling sup­ply of homes.

The dan­ger of gov­ern­ments im­pos­ing even more taxes on real es­tate (with­out in­creas­ing sup­ply) is that they will be play­ing Rus­sian roulette with the ma­jor as­set of most home­own­ers — the mar­ket value of their home and the amount of eq­uity they have in it. That’s unacceptable.

Sim­ply in­creas­ing taxes on home own­er­ship could lower the value of Toronto real es­tate, while doing noth­ing to in­crease the sup­ply of homes, bring­ing with it the worst of both worlds.

There is no magic bul­let to solve this is­sue.

The prob­lem is, our gov­ern­ments ap­pear to be con­sid­er­ing the wrong bul­lets.

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