A study by C.D. Howe Institute says that the City of Toronto Land Transfer Tax (LTT) “has had punishing effects on the Toronto housing market, reducing transactions and lowering average prices.”
In Sand in the Gears: Evaluating the Effects of Toronto’s Land Transfer Tax authors Benjamin Dachis, Gilles Duranton and Matthew A. Turner say the LTT caused a 16% decline in the number of single family homes sold after January 2008 and a 1.5% reduction in the average price.
“We calculate that in its first year, the LTT will cause a reduction in household mobility—at least 3,500 families in the municipality of Toronto will stay in houses that are too big or too small, or are too far from their workplace or school, “ says the study. “The dollar value of this lost mobility is about $1 for every $13 of revenue that the LTT generated for Toronto’s coffers, or about $12 million per year. W also find that the LTT has led to significant new administrative expenses.”
The study argues that raising property taxes would have not had the same impact and would have raised the same amount of money. “It follow that the welfare of Toronto residents could be improved if the city reduced its reliance on the LTT in favour of the pre-existing property tax,” says the study.
The Toronto Real Estate Board expressed concern that the tax has had a negative economic impact, to the tune of about $170 million in 2008, in addition to the housing slow down.
“When people buy a home, they usually spend thousands of dollars on related things like renovations, furniture and appliances,” says TREB president Maureen O’Neill. “Thousand of Toronto jobs depend on this spending. Any city policy that impacts housing sales has a direct impact on the city’s economy and jobs.”
The city of Toronto was hoping to raise $240 million per year with the LTT. The combination of the impact of the taxes, a stagnant economy and stalling housing market could mean that Mayor David Miller was optimistic.