Ryerson City Building Institute (RCBI) published a report titled “In High Demand” analyzing the overheated housing market in Toronto. In the report, they call for two ways to cool the market. The first way is a foreign buyers tax and the second way is a “progressive surtax” on expensive homes owned by people who aren’t paying income tax, including people with foreign capital.
Click here to read Toronto star article talking about this Ryerson University Report. The article is written by Nicole Thompson of The Canadian Press.
These are two very good ideas to cool down the Toronto housing market. Foreign buyers tax was implemented in British Columbia and it worked. The Vancouver housing market has cooled down considerably since the tax on foreign buyers was enacted. The Toronto Star article seems to suggest that the Vancouver market was softening prior to passage of the foreign buyers tax. The reason for that was the expectation among speculators that the tax was coming and therefore the market started to show come signs of softening.
In fact, representatives of the big five banks have expressed support for introducing a foreign-buyer tax in Toronto: BMO, CIBC and RBC. A foreign-buyer tax is also supported by around 77 per cent of Torontonians, as indicated in a recent Angus Reid poll.1 The private debt to disposable income ratio is very high in Canada when compared to other countries. This usually foreshadows a very bad economic outcome. You can see the graph for this ratio on page 30 of the Ryerson University report.
“Economic disasters are almost always preceded by a large increase in household debt. In fact, the correlation is so robust that it is as close to an empirical law as it gets in macroeconomics.”2