Ukrainian Credit Union.
Last week, the Ontario government introduced a 15% tax on foreign buyers of real estate in the Southern Ontario, from Hamilton and Kitchener to Peterborough, and from Toronto to Orillia. Among other measures intended to try and cool the hot real estate market, the province also plans to allow the city of Toronto to charge a vacant property levy.
Will these measures alone be able to make home prices more affordable? The answer is, probably, by not much. In the Greater Vancouver region, where similar measures were introduced last year, the MLS® Home Price Index in March was up 13% from March 2016. The benchmark price for detached properties was down by 5.0% over the past six months but it grew 1% compared to the previous month. Sales activity has been picking up in Vancouver recently and the prices have started rising again.
RBC’s affordability measure (via theglobeandmail.com), based on the ownership costs (mortgage payments, property taxes and utilities), in Vancouver remain above 120% of median household income.
Because home prices are already unaffordable for most first time buyers in the GTA, these kinds of measures are unlikely to make the prices much more affordable. As the Vancouver case suggests, these measures slow the market down initially creating some delayed demand which gets unleashed quite soon if the other significant market factors remain unchanged.
In the Vancouver area, home prices were softening even before the 15% tax was imposed. The market experts are saying that in that area a bulk of the softening was due to the lower demand from Canadian buyers, probably suggesting low affordability. If the prices in Vancouver do not go down significantly, it will mean that without interest rates going higher and without a significant reduction in foreign investment inflow, housing affordability in Toronto may not rise materially any time soon.