Everyone hates tax. And even more so, everyone hates substantial increases in tax. It’s no secret that real estate professionals are not supporters of excessive land transfer tax. It costs our clients more money, and it redirects the natural course of the market. Currently, Toronto is the only municipality in Ontario that has a municipal land transfer tax, but according to information released by the Ontario Real Estate Association, that’s going to change.
What I want to do is figure out what kind of impact this change will have on the real estate market, especially in York Region, and more specifically, Georgina. In my traditional fashion, I’m going to avoid arguing the politics of this situation and get straight to the meat of it. Kathleen Wynne’s Provincial Liberals plan on creating a blanket policy that would allow other municipalities to follow in Toronto’s footsteps, and implement an identical Municipal Land Transfer Tax. Municipalities don’t have to implement the tax, but with this policy, they will be allowed to. It’s unclear if this power will belong to regions or lower-tier municipalities, but I’m running with the assumption that it’s the latter. Let’s look at a couple examples:
The Municipal Land Transfer Tax is present (and tolerated) in Toronto for a number of reasons. There is an incredibly high demand for units in The City of Toronto, and people are already willing to pay well over list price for properties in the city. For Toronto, it was a no-brainer: people would continue to purchase homes in the city, and they could leverage that demand to generate a substantial increase in tax dollars to be used towards their operations during the massive residential influx and development.
But for other municipalities, this may not be the case. The ‘Big 3’ municipalities in York Region (Vaughan, Richmond Hill, and Markham) are starting to see increased demand in high-valued real estate transactions, with many buyers attracted to the idea of paying half the tax that they would in Toronto. As these municipalities gradually get swallowed up by the sprawl of Toronto and become part of the urban agglomeration, I would expect that they will be the first to implement the tax.
When looking at the Northern 6 municipalities of York Region, this effect is less apparent. Buyers come to these areas for a number of different reasons, the major one being price – that’s what makes Georgina so attractive to buyers of all types. The Northern 6 municipalities are still under immense pressure from the Places to Grow Act to meet population growth quotas, with the consequences being disqualification from certain funding opportunities. Essentially, they need all the residential influx they can get. This makes me think that these municipalities will not implement the tax immediately, and that the tax implementation will be correlated with the area’s demand for real estate.
I think that in Georgina, we have an opportunity here to stand out in York Region as a competitive place for home ownership, and tactical non-implementation of this new tax would bring us a handful of benefits. Economically, delaying this tax as long as possible is going to attract more new residents, create stronger demand for all types of real estate, and continue our steady, healthy increase in property values in Georgina. While this will bring our municipality tremendous long-term benefits, it is not an immediate municipal revenue strategy.
A C.D. Howe policy analysis demonstrates that with new tax implementation, properties end up transacting at a lower value equivalent to the tax hike. Are we ready to risk dropping property values in Georgina overnight? The same analysis demonstrates that substantial property tax can be the difference between a yes/no decision in purchasing a home. Are we in a position to be pushing buyers away at our most opportune economic positioning in municipal history?
The real estate market in Northern York Region is not ‘booming’ like Toronto. I like to think that our municipalities up here are sharp enough to not cannibalize their ability to grow. I like to think we will use this as an opportunity to play a more attractive and competitive role in the regional economy. I like to think that municipalities will be competing to charge the least land transfer tax because they value community growth above the almighty dollar. Only time will tell whether or not I’m right. I’m curious, and a little fearful for what the future holds.