The Land Transfer Tax: the Toronto We Want?

Urmi in HomeBuying, In the News, Toronto Real Estate News

Thanks to council's decision not to decide, heated discussions about David Miller, Millerites (the crew not the brew) and taxes are on tap for Torontonians throughout the summer and into fall.  Much of the noise is about who pays for what (your grandma for my trendy neighbourhood, his condo for her subway, Miller's bravado for McGuinty's lunch). 

In a National Post op-ed published over the weekend, Miller outlines his vision for Toronto, which is wait for it all about the cash.  The city estimates a $575 million budget shortfall in the coming year (one day soon, we'll have to investigate who at city hall has been playing the role of Homer Simpson at the switch).  If this money is not raised, we are warned, the Sheppard transit line may be closed and other services curtailed.  Largely touted as budgetary saviours, two new taxes have been proposed by Millerites the land transfer tax and the vehicle registration tax.  Miller asks us to support his vision with a sense of urgency, but merely avoiding bankruptcy is not exactly visionary. 

Is the proposed mix of revenue-raising measures actually going to build us the Toronto we want?

From the 1950s onwards, Toronto planners have been trying, with varying degrees of success, to encourage high-density development near existing transit routes and local services.  The idea is for us to walk, bike or take transit to work, school and play, cut congestion and pollution, and perhaps most importantly, live an interconnected, inclusive urban lifestyle that benefits all citizens, regardless of means or background. 

This is a more promising vision, but I am doubtful that the proposed tax plan will help the city realize it.  While the proposed vehicle registration tax is largely in keeping with the city's goals, the proposed land transfer tax is a rather awkward fit.

The transfer tax will roughly double the amount a HomeBuyer pays upon purchasing a home (currently, buyers pay 1-2% to the province in transfer tax; add the city's proposal and the total may rise to 4%, subject to a sliding scale which varies according to the value of the purchased home).  It is not a stretch to imagine a first-time HomeBuyer coming up with a lower down payment and potentially incurring a higher mortgage default insurance premium as a result of this tax. 

Some relief is proposed for first-time HomeBuyers, but it is not entirely promising.  First, while the sliding scale approach will partially shield first-time buyers (this mirrors the province's approach), it may fail to keep pace with rising housing prices in Toronto, especially in the urban core.  (Home prices in Toronto, including the inner suburbs, averaged $380,000 in 2006).  It should be replaced with a full amount exemption for first-timers.  Then there is the matter of a proposed restriction: only buyers of new construction would qualify for the rebate (again, this mirrors the province's approach).  While this may protect and promote high-density development, it should be expanded to include existing housing stock.  Currently, many first-timers are getting into the core by buying older, more affordable condos or homes, often with friends and family, and renovating them to accommodate their non-traditional arrangements.

The tax plan, as currently proposed, would be a stumbling block for those who earn modest incomes in creative or caring industries, immigrants, young families and singles the very groups that are likely to use public transit and add to urban life.  Is this our vision of Toronto?

Real estate professionals have spoken out on behalf of their clients and been heard.  Miller confesses that "underestimating" the lobbying power of agents and brokers was a miscalculation.  However, the industry has been accused of being rather myopic in failing to consider Toronto's needs from a wider vantage point.

Home and condo values in Toronto do depend on the quality of surrounding services such as public transit, roads, policing and education.  Don Drummond of TD Bank noted last week that the prosperity of the GTA, which benefits all of us, relies on the degree to which our city remains inclusive of lower income citizens and new immigrants.  Harmony, vibrancy and safety are intangibles that all of us depend on.

We need an improved mix of measures to meet our goals as Torontonians.  Are new construction levies (for example, on condos) high enough to support an increased use of public transit?  Does the province provide enough money to a city that helps settle approximately 43% of Canada's immigrants by providing library and other services?  And is the land transfer tax, as currently proposed, indeed the right solution for Toronto?

Two key dates loom the provincial elections to be held October 10 and city council's vote on the tax plan to be held October 22.  Let's think about the Toronto we want before our leaders fumble away a proud urban legacy.

Urmi Desai is an economic analyst and a freelance writer specializing in urban issues.

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