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Don't Blame Foreign Buyers For Soaring GTA Home Prices

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The middle-class dream is slipping through the fingers of families in the Greater Toronto Area (GTA), and the fault lies with our politicians.

Forget about a car in every garage and a chicken in every pot -- with parking spots in downtown condos selling for between $45,000 and $60,000 per space, who can afford a garage, let alone a house attached to it? In February, detached homes in the GTA sold for an average price of $1.21 million, and Toronto home prices are expected to grow by 20 to 25 per cent this year. Compare that to average Ontario weekly earnings of $963, or $50,000 per year, and you can see the problem.

toronto condo building
Condominium buildings behind a lot of vacant land that is boarded up in Toronto. (Photo: Mark Blinch/Reuters)

Ontario politicians depend on middle-class GTA voters for their electoral success and should be committed to seriously addressing the issue of housing affordability. Cue renewed pontification by the Finance Minister Bill Morneau about bringing in a foreign home buyers tax.

The trouble is that many experts point out that the price issue has been overwhelmingly driven by a shortage of supply rather than a sudden increase in demand (let alone foreign demand). And supply restrictions are largely the fault of our political leaders.

A report by CIBC took aim at the 2006 Places to Grow Act as instrumental in restricting housing supply. The act introduced policies to increase intensification and density in new housing development. The act required rezoning along transit corridors, and mandated that by 2015, 40 per cent of all new developments be within existing urban boundaries. This requires the building of townhouses, stacked homes and apartments over in-demand detached homes. The act also requires new developments have a density of 50 residents or jobs per hectare.


While CIBC found that neither of these targets have been met, the government mused about increasing them. This would lead to an even further restriction of land supply as municipalities would struggle to make up the difference.

On top of actual physical restrictions on land, government bureaucracy restricts the available supply of land. It takes much longer to bring land to market, and compliance costs are riding. The Fraser Institute estimates that typical approval timelines in the GTA range from 14.4 months in Burlington to 24.3 months in Georgina, with Toronto at 17.7 months.

A tax is never more popular than when it's on someone else - especially someone who can't vote.

And the Ontario Home Builders' Association found that when total government costs are all factored into the price of a new home, they add up to over $100,000 in Toronto, $82,000 in Simcoe County, and $92,000 in Durham Region. It's like paying a second down payment directly to the government. And of course this doesn't factor in the land transfer tax, which is $48,400 on an average detached home in Toronto.

These were all political choices.

So when politicians like Minister Charles Sousa opine about housing affordability, they need to look in the mirror.

But instead of recognizing problems that were brought about through their own ideological vision of a province where every city looks like the core of downtown Toronto, they take aim at foreigners. A tax is never more popular than when it's on someone else -- especially someone who can't vote.

toronto townhouse
Townhouses near the Danforth GO Station in Toronto. (Photo: Marta Iwanek/Toronto Star via Getty Images)

The problem is that a foreign buyers tax will do nothing to solve the housing affordability problem in the GTA. Foreign buyers make up too small a portion of sales to make a difference -- less than five per cent, according to the Toronto private real estate board. Even proponents who advocate for a foreign buyers tax concede that a foreign tax won't solve be enough to stop rising prices.

This seems to be the governing philosophy of Ontario Premier Kathleen Wynne and her cabinet. Create a crisis through failed policy, face public unrest, then bring in a Band-Aid solution that won't address the underlying (and government caused) issues. It's what happened with electricity, and now it's happening with housing.

Instead of blaming foreign demand for prices that are rising because of government-imposed supply restrictions, the government should address how their own ideologically driven policies are contributing to the affordability crisis. But blaming others means the government doesn't need to change.

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