The latest statistics from TREB should worry councillors voting on the budget next week.
Today, the Executive Committee met to approve the final version of the preliminary budget, which will make its way to council next week. Conveniently, the Toronto Real Estate Board (TREB) also released its monthly roundup of GTA real estate stats. Included with the usual information — year-over-year changes in prices and sales —was a warning for Toronto city council.
“With the City of Toronto’s Executive Committee meeting today to make recommendations on the City’s 2018 Budget, City Councillors would be wise to note the vast difference between last January’s real estate market and this January’s, given the City’s inadvisable reliance on the Municipal Land Transfer Tax,” writes TREB president Tim Syrianos, in a statement.
So why does this real estate board care where city council gets its money? And why should it matter how the market is doing this January? If these are questions you’re asking yourself in light of this recent (and somewhat confusing) complaint, read onwards — we’ve got you covered.
What is the Municipal Land Transfer Tax?
First implemented in 2008 (and expertly explained in depth by Neville Park here), the Municipal Land Transfer Tax (MLTT) is a tax on all land sales within the city.
Simple enough, right? The rate is based on the sale price of the property, and whether or not it’s residential. Basically, that works out to this: the hotter Toronto’s real estate market is, the more money in council’s coffers.
As TREB notes, when the tax was first introduced it made up under 2 per cent of the city’s operating budget. Today, it accounts for 7 per cent.
How does the MLTT factor into this year’s budget?
The MLTT was introduced to fill a hole left in the budget by comparatively low property taxes. (Toronto has the lowest property taxes in GTA by far.) The current recommended 2018 budget has factored in an additional $10 million in revenue from the MLTT this year, bringing the total projected number to a cool $95 million.
That projection is based on 2017 data, and it’s worth noting that it was a record-breaking year for Toronto real estate, with the average price of a home coming in at a whopping $918,170 in April.
And yet, by all accounts, the first half of 2018 will be a slow one for the Toronto real estate market. Sales were down 22 per cent year-over-year in January, as the market adjusts to new mortgage rules and an interest rate hike.
Which brings us to TREB’s concerns.
Why does the Toronto Real Estate Board care about this, exactly?
So, is TREB weighing in out of a deep concern for the City of Toronto’s financial health? Not exactly.
“The amount of revenue that the City generates from this tax goes up and down with the real estate market,” writes Syrianos. “The last year should be a wake-up call for City Council. They should heed the City Manager’s ongoing warnings of over-reliance on this tax. The Land Transfer Tax is not a good way to fund municipal services.”
Sure, that’s all well and good, but TREB also as a stake in the game as an organization operating within the real estate industry. And real estate agents — unsurprisingly — don’t like the MLTT, because they believe it discourages people from entering the market. So while the criticism about the tax is valid, the motivations behind it should be taken with a grain of salt.
What do other critics have to say?
Speaking of ongoing warnings from the City Manager, Peter Wallace reiterated at today’s meeting that if Toronto’s housing market begins to cool, and the MLTT declines, there’ll be a problem.
Other councillors — most recently Ward 33 Don Valley East councillor Shelley Carroll — have called the city’s reliance on the tax “kicking the can down the road.” The longer the city relies on the tax, the worse it will be when property sales inevitably decline and everyone is left with a serious funding gap.
However, it’s also worth noting that most economists are predicting that the Toronto real estate market will continue to perform well in 2018 and into 2019, as strong demand and low levels of supply keep prices high and sales activity healthy.
So, will the dire predictions about the MLTT come to pass? It seems that naysayers and supporters alike will have to wait and see.