Taking a small swing at a huge problem

In a September 14 mandate letter sent to provincial Finance Minister Allan MacMaster, Nova Scotia Premier Tim Houston asked MacMaster to implement a pair of new taxes on out-of-province homeowners.

The province is now preparing a deed transfer tax, as well as a levy equal to $2 per $100 of assessed property value, for homeowners who don’t pay other taxes in Nova Scotia.

The Finance Minister’s office told MoneyWise that the size of the deed transfer tax is yet to be determined. The other tax is easy enough to ballpark. A buyer purchasing a home for $365,000, about the provincial average in October, would be looking at an additional charge of $7,300.

The tax will make for a more expensive closing process, but for a homeowner to make that money back, her home would only need to appreciate by 2%. That’s a bet most informed buyers would be willing to make.

There is an argument to be made for taxing non-resident homeowners, whose property values benefit from provincial infrastructure spending on items like new roads, new schools and expanded public transit. If homeowners aren’t contributing to the building of new infrastructure through taxes, should they profit when those projects are completed? Taxing non-residents in a new way puts them somewhat on the same footing as local homeowners.

But that’s not necessarily how the tax is being interpreted locally.

Thomas Bagogloo of Re/Max Nova in Halifax argues it's just a way of raising revenue for the provincial government.

"It’s more a way to strategically increase the tax base without ruffling the feathers of the local provincial voters,” he says. “The government needs money. How are you going to get money? If you’re going to ask the voters for money, they’re going to get a bit cranky.”

Bagagloo believes that whether it’s Nova Scotia, Ontario or Prince Edward Island, supply — not demand — is the real problem.

“How can you possibly raise a significant amount of supply by taxing the out-of-province residents that are going to buy here?” he says.

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Taxing buyers hasn’t worked yet

A quick look at Canada’s most expensive housing markets tells you all you need to know about using taxes to stifle housing demand.

In 2016, at the height of the province’s previous housing boom, British Columbia began charging foreign buyers a 15% land transfer tax.

At the end of that year, the cumulative average price of all property types in B.C. was $691,144, according to the Canadian Real Estate Association. By October 2021, with active residential listings down 40% from a year before, it was $964,777.

“We’ve seen price appreciation in the double digits since the tax was enacted,” says Randy Ryalls, general manager at Royal LePage Sterling Realty in Port Moody. “This added taxation has had zero effect on cooling the B.C. market. While it’s been politically popular, It’s been shown to be ineffective and fails to address the real problem — the chronic shortage of supply.”

Ontario’s 15% non-resident speculation tax went into effect in April 2017, but only for buyers in the Greater Golden Horseshoe area near Toronto. The market did cool significantly, but also temporarily.

The average price of a detached home in Toronto in 2017 was $822,681, according to the Toronto Regional Real Estate Board. In October of 2021, detached properties in the 416 and 905 area codes sold for an average of $1.5 million.

Tim Hudak, CEO of the Ontario Real Estate Association, says the situation won’t improve for homebuyers until the province hammers out a solution to its worsening supply situation.

The number of available properties in Ontario in October was 63% lower than the 10-year average for the month, according to OREA's data.

“The fastest, most direct and most productive route to affordability is for governments to focus their energies on creating more homes and more choice in the marketplace,” Hudak says.

“You cannot tax your way to affordability.”

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About the Author

Clayton Jarvis

Clayton Jarvis

Reporter

Clayton Jarvis is a mortgage reporter at MoneyWise. Prior to joining the MoneyWise team, Clay wrote for and edited a variety of real estate publications, including Canadian Real Estate Wealth, Real Estate Professional, Mortgage Broker News, Canadian Mortgage Professional, and Mortgage Professional America.

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