DON CAYO
Sun
Anyone with half a brain — and it’s not clear this necessarily includes the taxman — needs no in-depth study to finger property transfer taxes as a perverse way for governments to raise money.
For consumers, the “ small” bite of several thousand bucks — one or two per cent of the price of a home or business — morphs into tens and tens and tens of thousands over the life of a typical mortgage. Or even more if purchasers start small and trade their way up to higher-value properties.
For government, it’s a hopelessly inefficient tax. It smothers potential business investments. It discourages home ownership. And, thanks to those long-term mortgages, it extracts at least two bucks out of taxpayers’ pockets for every one dollar gained by the provincial treasury.
So I was interested in a new C. D. Howe study, even though it focuses just on Toronto, because it nails down precise numbers to show how counterproductive such a tax is. Toronto is the ideal place to study because its transfer tax is just one year ole. And the C.C. Howe researchers were able to get rid of all the “ noise” — factors such as market conditions that might skew the figures — by comparing neighbourhoods that are just inside and just outside the city boundaries.
Their findings? The tax dampened prices by an average of $ 6,400 in a city where homes cost almost as much as in Vancouver. And, while this might be a good thing if people could afford to buy, this isn’t the case. The extra money being siphoned off by government means that, in just one year, at least 3,500 families were discouraged from buying. ( These figures translate to a 1.5-per-cent price decrease, and a 16-per-cent reduction in sales, which — tellingly — was more pronounced for low-cost homes than for the pricier ones.)
In some cases, this means families continued to rent. In others, they didn’t move from lower-cost houses that might have been sold to firsttime buyers. Either way, it’s bad news for families, and bad policy for a city trying to meet the housing needs of its citizens.
Such a precise study would be difficult in B.C. because it’s the province, not an individual city council, that imposes the property transfer tax. Thus there’s no way to compare neighbouring jurisdictions.
But Benjamin Dachis, one of the study’s authors, says it’s safe to assume the same perversities apply here. The Toronto tax is lower than the B. C. tax as it applies only to the land, not the buildings, and it starts at 0.5 per cent, not one per cent.
Dachis also notes that — as Victoria is no doubt learning to its chagrin — PTT is an undependable way to raise money. The revenue it generates swings wildly with economic swings.
And as an inducement for outsiders to move to “ the best place on Earth”? This may be where it fails the most profoundly.
Bad enough that B. C.’ s housing prices give pause to virtually all migrants, but the PTT flies in the face of the tax image the province has worked to cultivate. A graph produced by the B. C. real estate association depicts just what new middleclass arrivals can expect in their first year. It’s the lowest income tax bill in Canada, plus a PTT bill roughly two times larger.
Victoria defends this as good policy. And you wonder why the rest of Canada so often wonders what we’re smoking?