TORONTO (Reuters) - Ontario’s provincial government on Thursday introduced a 15 percent tax on property purchases by foreign buyers as part of 16 measures designed to cool Toronto’s red-hot housing market.
A rapid acceleration in home prices in Toronto had prompted some economists to voice fears that the real estate market in Canada’s most populous city is in a bubble and raised concerns about the ability of first-time buyers to afford a home.
Ontario’s Liberal government, trailing the Progressive Conservatives in opinion polls ahead of an election in June 2018, had also come under pressure to respond to growing public frustration about the role foreign buyers are playing in the Toronto market.
“I have three millennials at home, adults in their 20s. They wonder how they are ever going to get their starter home,” said Ontario Finance Minister Charles Sousa.
“I think the public is concerned about speculation and speculators crowding out families that want to own a home,” he added in an interview.
Sousa said the tax would take effect on Friday.
Toronto prices rose 33 percent in March from a year earlier and the average price of a detached home topped C$1.2 million ($903,000) last month. Bank of Canada Governor Stephen Poloz has warned the level of price increases is unsustainable.
Sousa acknowledged the government faced a difficult balancing act finding policies that would stabilize prices without damaging the market.
“Nobody wants to crash the market. I’m very mindful of any unintended consequences from the measures that we take,” he said.
A similar tax introduced by British Columbia last July led to a sharp decline in sales activity and a fall in prices. Prices in Vancouver were down 9 percent in March from a year ago, according to the Canadian Real Estate Association.
Sydney, Singapore and Hong Kong have also introduced foreign buyers taxes.
Ontario’s government also said it would expand rent controls to all private rental units, including those built after 1991, which are exempted under existing rules.
Rent hikes on new buildings will be limited to 1.5 percent above the inflation rate, which was 2 percent in February.
The province will implement a tax on vacant homes in Toronto as part of measures to address a lack of supply of affordable homes. It will also introduce a C$125 million ($93 million) five-year program to encourage apartment construction.
“This is a complex issue,” Ontario Premier Kathleen Wynne told reporters. “There wasn’t one single thing that we could do that would resolve the issues that we’re confronting.”
CIBC Deputy Chief Economist Benjamin Tal said the measures were “reasonable and potentially helpful.”
“We expect the measures to slow down activity in Toronto’s housing market in the near term, not only due to their direct impact but also due to the impact of the uncertainty regarding their ultimate impact on potential buyers,” he said.
Souza met with his federal counterpart, Bill Morneau, and Toronto Mayor John Tory on Tuesday to discuss potential measures
($1 = 1.3486 Canadian dollars)
Additional reporting by Denny Thomas; Editing by Meredith Mazzilli and Peter Cooney