Toronto City Councils Executive Committee will consider a recommendation for a new land transfer tax at its June 25, 2007, meeting. An extract from the exec agenda, with more information, is attached. This is an important new source of funding for urgently-needed housing funding that, combined with fully-funded national and provincial housing plans, would allow Toronto to implement a comprehensive strategy to end homelessness. A key challenge is to ensure that the revenues from a land transfer tax are dedicated to housing purposes.
The proposed tax (using the new taxation powers under the City of Toronto Act), meets the three basic tests of any new tax: Fairness, efficiency and simplicity.
FAIRNESS means that a tax is based on an ability to pay (ie wealthier people pay more, and poorer people pay less). The proposed land transfer tax uses an increasing scale based on the value of the property: Half of one percent for modest properties of less than $55,000 and up to 2% for properties with a value over $400,000. That means that the purchaser of an average detached home in Torontos Rosedale neighbourhood (which sold for $1.5 million in May 2007 according to the Toronto Real Estate Board) would have to pay $10,185, while the purchaser of a modest condominium apartment in north Etobicoke (which sold for $154,350 in May 2007 according to the TREB) would pay $1,265. Those taxes are far less than the typical fees charged by realtors and wont have a significant impact on affordability (rising mortgage rates and average market price increases that outpace inflation are the key factors making homes less affordable in Toronto).
EFFICIENCY means that a tax is able to raise revenue. The most important reason for taxes is to raise the dollars that are needed for necessary public investments in everything from hard services (like roads and sewers) to soft services and social infrastructure (like police and community centres). City officials predict that the proposed land transfer tax would raise $300 million annually. That money represents a huge increase over the current municipal spending on housing.
SIMPLICITY means that a tax doesnt have huge costs (either to the taxpayer or to the tax collector) to administer. A municipal land transfer tax would be simple to administer and tied to the existing legal process for the sale and transfer of real property.
One key challenge will be to ensure that a Toronto land transfer tax is devoted to affordable housing. The land transfer tax proposal going to executive committee doesnt mention a dedicated housing fund. The danger is that the revenue raised by the housing tax will be spread over the broad range of municipal concerns, without being targeted to affordable housing.
An annual, $300 million housing fund created by the City of Toronto using land transfer tax revenues would have a powerful impact if it was dedicated to affordable housing. For instance, it could, on an annual basis, fund:
1,000 new affordable homes at a capital subsidy of $100,000 each
3,000 rent supplements for very-low income households at $700 each
6,000 rent supplements for low-income households at $350 each
Renovations for 3,300 homes at $15,000 each
5,000 units of supportive / special needs housing services at $3,000 each
Plus still have $85 annually million to improve Torontos emergency shelters and services for the homeless, implement a comprehensive extreme heat / smog strategy for homeless people and low-income tenants and homeless people, plus other housing-related measures.
The Wellesley Institutes Blueprint to End Homelessness in Toronto is available on-line.
Additional material is posted in the Wellesley Institutes housing and homelessness section.