The 2017 federal budget has come and gone, and from Ontario’s perspective it’s a bit of a nothingburger. While there are lots of promised changes to federal spending, they overwhelmingly come in fiscal years that aren’t this one. The much-touted $11 billion in new housing money only really starts to kick in in 2018 (there’s $10 million this year for a national housing fund) and the same is true of transit funding, despite nods to major transit plans in both Ottawa and Toronto.
(What you see depends on where you stand, always: Ontario-the-province got relatively little new from this budget, but it’s fair to say women who happen to live in Ontario might have a different perspective.)
Provincial Finance Minister Charles Sousa didn't quite concede that the budget was a disappointment at Queen’s Park Wednesday, diplomatically saying the fact that so much of the federal budget simply restates or moves around last year’s funding allows Ontario to proceed with its own budget planning. But while other provinces haven’t waited for Ottawa (Saskatchewan’s government presented its own budget Wednesday as well; British Columbia did weeks ago), Sousa had said for weeks he was waiting to see what his federal counterpart had on offer before finalizing his own budget.
Sousa had a specific request from the feds, which he made public a couple of days before the budget: increase the capital gains tax on second homes. This would have left people who own only one home untouched, but could have potentially irritated Ontario’s substantial population of cottage owners. The intended target, however, was primarily speculators (or “home scalpers,” as Sousa has started calling them recently) in the wallet, thereby helping to release some pressure on the Greater Toronto Area's increasingly bubbly housing market.
In any event, federal Finance Minister Bill Morneau opted to ignore Sousa’s request, leaving Ontario to figure out what should come next. But there’s no clear sense of what that might be: Ontario only announced an effort to gather data on the housing market in last year’s fall economic statement, and Sousa acknowledged yesterday he’s hearing totally contradictory advice from all sides of the housing debate.
But the pressure to be seen to do something to curb the market is strong, and there’s almost certain to be something in the provincial budget to address the issue. At the same time, the government is cognizant that they’ve got to make policy for all of Ontario and they can’t make province-wide changes for what is essentially a Toronto-centred problem. (Even if Toronto’s housing prices are, increasingly, a problem that’s spilling over municipal and regional borders.)
Oh, and then there’s the small matter that the province’s own budget balance depends to an uncomfortable degree on that same inflated housing market, according to the Financial Accountability Officer. Earlier this year, the FAO reported that even a moderate correction in the housing market could hit the province’s budget to the tune of $1 billion, and if things get really hairy the government could have a $2.5 billion hole by next year.
Put it all together and Sousa has more than enough reason to proceed in small increments. In the absence of clear data, all the government really knows is that it wants to move carefully, and signal as much to the market. The province already increased its land transfer tax last fall. Toronto, which alone among Ontario cities gets to levy a separate municipal land transfer tax, followed suit in this year’s budget. Those both are on top of changes to federal mortgage rules last year.
Earlier this month, Sousa acknowledged that a tax on foreign buyers was back on the table at Queen’s Park, despite having previously said the government wasn’t going to pursue one. There’s not actually a lot to recommend a foreign buyer’s tax as policy: in British Columbia where the government has tried it, it’s done relatively little to deflate the market. If you couldn’t afford a detached home in Vancouver this time last year, you still can’t afford one, based on the latest data. Prices dipped marginally through the latter half of last year but seem to have already stabilized at levels that nobody would really call “affordable.”
On the other hand, if you’re a government looking for a policy that probably won’t blow up the housing market, will be visible as an attempt to do something, and signals to the market that it’s time for everyone to take a timeout before more serious measures come into play, then a foreign buyer’s tax has a lot going for it. All the available data suggests foreign buyers play a small role in the GTA’s market, so logic, plus Vancouver's experience, suggests the effect would be minimal. Perversely, the fact that it is likely to be largely ineffective is a point in its favour, in this telling.
But it would buy the government time to collect more data, and work out what a more substantial response to the housing market might look like. Sousa said yesterday the eventual answer is going to need to address both supply and demand, meaning that it won’t just include taxes to try and cool the market, but also measures to get new homes built and sold more quickly. The government is also looking into cases where developers are allegedly sitting on land with shovel-ready building approvals but aren’t bringing units to market. What, if anything, it chooses to do to prod them along is still a mystery.
The bad news is that both Ottawa and Ontario have taken only small steps so far. The good news is that Ottawa is taking a more active role in housing policy than at any time since the 1980s, even if the promised funding is largely still a year or two away. Measures like better national data-gathering, mirroring Ontario’s moves from last fall, are also welcome. This might just be what taking housing policy seriously looks like. But for two governments that haven’t done this for decades, it’s going to take some time before they’ve got a better idea of what to do.
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