Adding taxes won’t solve housing crisis

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.