Ontario raises foreign homebuyers tax to 25% — the highest in Canada, but it will barely impact affordability, critics say
Ontario's foreign homebuyers tax is now the highest in the country, but critics say it won't do much to reduce competition from speculators or improve affordability.
The Ontario government announced Monday it is increasing the foreign homebuyers tax by five per cent to 25 per cent effective Oct. 25. The tax was previously raised to 20 per cent from 15 per cent in March 2022.
The purpose of the tax is to give young families, newcomers and Ontarians, who dream of having a home, the ability to do so, said Ontario minister of finance Peter Bethlenfalvy, in a statement.
To help Ontario homebuyers, our government is increasing the non-resident speculation tax rate by another five percentage points to 25 per cent, making it the highest in Canada, to further discourage foreign speculation in Ontario's housing market," he said in the Oct. 24 media release.
The Ontario tax targets foreign nationals, such as homebuyers and corporations, who purchased residential properties but are not Canadian citizens or permanent residents.
The government release said the move is critical as skyrocketing rent, home prices, and limited housing stock heat up Ontario's housing crisis. In the GTA alone, the cost of buying a home went up by 40 per cent from April 2020 to February 2022.
Ricardo Tranjan, senior researcher at the Canadian Centre for Policy Alternatives, called the tax a necessary measure" but low hanging fruit."
It's important to stop foreign buyers from owning too much of the limited housing supply, Tranjan said. This move eases the competition for residents and removes speculators, who drive up prices, from the market.
While Tranjan agrees with the tax, he said the province has exaggerated how much foreign investment is causing the province's housing affordability crisis.
This is low hanging fruit. It's a no-brainer. Let's move on and tackle the many other problems facing the market," he said.
The foreign homebuyer tax was projected to bring $175 million into provincial coffers this fiscal year, said Phil Soper, CEO and president of Royal LePage. It's impact on home prices or supply is very minimal," he said.
While 25 per cent is a substantial tax, the pre-existing 20 per cent tax was already a major deterrent for foreign homebuyers and only an extremely" wealthy person would be able to ignore a tax that high, Soper said.
John Pasalis, president of real estate brokerage Realosophy, called the announcement a political move.
The provincial government's announcement reads like a political manoeuvre to make the province seem proactive in improving Ontario's affordability problems," said Pasalis.
He said the government could do more, pointing to British Columbia, which has a vacancy and speculation tax that targets people who don't declare an income in Canada.
The Ontario government hasn't included this measure in its policy. It could open up the housing supply by making vacant homes available, Pasalis said.
Foreign homeowners make up about 3.5 per cent of homeowners in Canada. In 2020, there were 187,325 non-resident homeowners in Ontario, of which 10 per cent own multiple properties, according to an August 2022 report by the Canadian Housing Statistics Program.
More than 30 per cent of property in Ontario is owned by multi-property owners, according to the Canada Mortgage and Housing Corporation. Tranjan pointed out there are no tax policies in place directed at domestic investors, who he said pose the most serious threat to housing affordability.
The 2022 federal budget has already set up key real estate policies to help improve Canada's affordability problem, Tranjan said. One policy, includes banning blind bidding wars - when bidders do not know how much other hopeful buyers are offering - by next year is an effective measure to stop artificial price increases from investors and realtors.
It needs to start sooner, Tranjan said.
Another policy, includes the house flipping tax (introduced in April 2022) which ensures Canadians who sell a home or residential rental property they've held for less than 12 months will pay tax on any profit made in the sale. Tranjan said the 12-month period should be prolonged, as it can take a few years to flip a home.
And starting on Jan. 1, 2023, the federal government is banning the purchase of residential real estate by non-Canadians for a period of two years, Royal LePage's Soper noted.
It's a phantom foreign buyers tax," Soper said. You're taxing a ghost."
Ontario Premier Doug Ford's 2018 decision to eliminate rent control, has facilitated the drastic rise in rents, as it allowed landlords of new units to increase rent by any amount without justification, critics say.
That impacts renters who might want to save to buy a house and enhances speculation in the market, as landlords can now make skyrocketing profit," Tranjan said.
Marc Desormeaux, principal economist at Desjardins Group said rapidly rising interest rates are a more pressing problem in the housing sector than foreign ownership.
Interest rates are having the most material impact on affordability when trying to purchase a home," he said.
In the larger context of the real estate market, hiking foreign homebuyer tax does very little" to improve affordability compared to the interest rates on mortgages which have tripled in nine months, Desormeaux said.
Added Soper: the quick rise in interest rates is cooling the Canadian housing market to the extent that no one is speculating on the Canadian market.
It's a very niche tax that might play well politically, but no one is diving into the market right now," he said.
With files from The Canadian Press
Clarrie Feinstein is a Toronto-based staff reporter for the Star. Reach Clarrie via email: clarriefeinstein@torstar.ca