Ontario needs to ensure greater housing affordability and encourage more housing supply which will stimulate increased home sales and create significant economic benefit. Actions on the demand-side can have a temporary effect to ease rising house prices. However, demand-side actions must be met with longer-term supply-side measures.
To support Ontario’s recovery from COVID-19 and help young families afford their first home, the Government of Ontario should look to boost housing supply through a provincial Land Transfer Tax (LTT) holiday.
The provincial LTT is a tiered tax that is based on the value of a home and becomes more aggressive as the house purchase price increases. The First-Time Home Buyer LTT Rebate provides a maximum rebate of $4,000. Homes under $368,333 are not subject to the LTT.
From April 2020 to August 2020, Ontario has seen record levels of housing activity in most local markets. The greatest challenge facing most home buyers in Ontario is a shortage of housing supply. There are simply not enough homes on the market to meet pent up demand, particularly among those looking for additional space for their families.
A Land Transfer Tax Holiday for Ontarians
Implementing a temporary six-month LTT Holiday on the first $600,000 of a home purchase price, which is roughly the average home sale price in Ontario in 2019, will quickly increase housing supply by removing a major cost faced by prospective home sellers i.e. the tax payable on their next home purchase. The LTT Holiday would save the average home buyer $8,500 on the average priced home in Ontario ($600,000).
The LTT Holiday will create jobs, generate consumer spending, and help kickstart the provincial economy while increasing supply by making listing a home a more attractive proposition for homeowners.
Every home purchase in Ontario generates at least $73,250 in additional spending and every 1,000 home sales results in a $30 million increase in GDP. Since the holiday would be tied to transactions, every dollar is guaranteed to be spent investing in an activity that generates domestic economic growth whereas an income tax cut or other form of transfer to Ontarians is not guaranteed to be reinvested in Ontario.