The Affordability Crunch


Affordability is commonly an underlying theme in the Toronto housing market, with numerous players in the mix, including swiftly rising property prices, bidding wars and a potential oversupply of stock.  Most of the attention, when it comes to threats of affordability rests on ballooning property prices, but as a series of recent reports suggest, prices are only a small portion of what makes the property ladder rickety.

A recently released REPORT from the Building Industry and Land Association (BILD) brings this element of affordability in the housing market to the forefront, and highlights a situation that faces Toronto homeowners, no matter what rung of the property ladder they are on.

According to the report, in the GTA, approximately one-fifth of the cost of purchasing a new home in the GTA goes to government taxes, fees and levies. They estimate that in 2012 alone, approximately $1 billion has funneled from homebuyers’ pockets to construction of growth-related infrastructure like sewers, roads and transit.

It’s not just purchasers of new properties that are faced with hefty fees and taxes. Homeowners of all descriptions are levied.  Toronto is the only centre in the country to charge a municipal Land Transfer Tax, which considering the average price in the area, can be a hefty sum – in some cases, enough to deter movement up and down the property ladder. While there is no question that this LTT provides a lot of cash flow (reports state that this levy alone generated $344-million in 2012, contributing to a $248-million surplus, according to this story in the National Post), there is a duplicity to this argument. Does it make sense to centre this source of revenue so heavily on the average homeowner? Or is it fair to say that the building of publicly funded infrastructure goes to support long-term growth of a property asset?

For years, residents of the city of Toronto have thrown their weight behind the repeal of this tax, with frequent polls indicating widespread support (Rob Ford is now suggesting that it be scaled back rather than removed entirely). What the most recent poll put on by the Toronto Real Estate Board found is that, in addition more and more people are considering looking outside of Toronto for property purchases, to escape the double dip LTT. Not only do these taxes impact affordability and home ownership (which some argue, as a baseline, creates a supportive socio-economic environment), but threatens to shape demographic patterns.

A healthy urban environment means housing should be affordable for everyone, and not just those who can pay the privilege of a whopping tax on top of a mortgage and property taxes. With prices already formidable, are we destined to be like other major urban centres where only the rich can own downtown? I find it so un-Canadian, and yet this seems to be an inevitable reality. Sigh.

~ Steven and the urbaneer team

Real Estate

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