Nonresident Tax Remains Hot Topic As Toronto Housing Market Cools

Five months after it was introduced, the impact of a foreign-buyers tax on Toronto’s heated housing market remains a hot topic.

Brought in as part of a 16-point Ontario Fair Housing Plan, the 15% Non-Resident Speculation Tax was aimed at curtailing absentee foreign investment in real estate and cooling Toronto’s rising housing prices.

The market has shifted since the foreign-buyers tax was announced in April. According to March statistics from the Toronto Real Estate Board, the average price of a detached house in the GTA was $1.21M, up 33% from a year earlier. Average home prices tumbled 13.8% in June, while the number of homes sold fell 37.3% from a year earlier.

“We brought in the Fair Housing Plan because we recognized that housing affordability was a real and growing concern for many people,” Ontario Housing Minister Peter Milczyn said.

“Although it is too early to gauge the full effect of the plan, we’re glad to see that there has been a more moderate pace of annual price growth. We continue to evaluate the progress the Fair Housing Plan is delivering for Ontarians.”

According to Graywood Developments CEO Stephen Price, foreign speculation likely did not have much of an effect on the market in the first place. The Ontario government’s own statistics put monthly housing sales to foreign owners in Toronto at just 7.2%.

“Nonresident buyers didn’t have a material impact on the industry,” Price said. “But I think the government needed to give the perception that it was grappling with an out-of-control market.”

And perception is everything in the housing market. Price, who is spearheading Graywood’s new 47-storey condo project at 350 Adelaide St. West, said the nonresident buyers tax sent a message. 

“I think the psychology of buyers may have been affected initially by the government’s moves, but I think it was short-lived.”

Fivewalls Realty Brokerage founder Paul Hayman said the psychology of the Fair Housing Plan and the foreign-buyers tax was definitely a factor in the cooling of the market. So was timing.

“[Housing] prices had just hit a level of non-affordability that had rarely been seen in Toronto before. So when the government stepped in, the buyer mindset was already getting hit hard," he said. 

“Just talking about new legislation had an impact psychologically. And going after foreign buyers was an easy call because they don’t get to vote.”

Hayman said other factors, such as the strengthening Canadian dollar and domestic speculators, also played a role in the housing market downturn.

“The last stage of any bubble is always when investors speculate on home value with the idea it will continue to go up. We found that a lot of people out there (6.2% according to TREB) had a second and third property,” he said. 

“[The Fair Housing Act] had a significant impact. It sent a message. [The] private sector tends not to like it when the public sector meddles in an industry.”

Price continues to embrace foreign buyers. He said the Adelaide condo project, which will incorporate three historic properties in its design, reflects the true nature of the GTA.

“Toronto is an interesting city," he said. “Fifty percent of the people come from somewhere else. They’ve made a life in Toronto and are bringing money to the market.”

He said while a detached family dwelling may still be beyond what people can afford in Toronto, homebuyers have found alternatives. 

“Condos have been less affected by any industry downturn. I think condos remain the only alternative for living in downtown Toronto.”