Toronto Housing Market: Cost of Living, High Values, Taxes Prompt Out-Migration

After a flurry of activity at luxury price points in the Toronto housing market in the final quarter of 2023 due to upcoming changes to the city’s 2024 land transfer taxes, the market has slowed in the Greater Toronto Area, according to RE/MAX Canada’s 2024 Tax Report. Sales are currently trending on par or slightly ahead of year-ago levels, with economic concerns and high interest rates leaving many buyers sitting on the sidelines. While the Bank of Canada (BOC) held firm on rates in January for the fourth consecutive time since its July 2023 rate hike, inflation remains high, placing the BOC in a challenging position. That said, there are signs that quantitative tightening is drawing to a close and some economists predict rates will start coming down by mid-year. With the promise of lower rates on the horizon, the spring market is expected to be active, with trade-up buyers leading the charge, cashing in on equity gains realized over the past decade. Unlike years prior, this spring market will be characterized by a greater selection of homes available for sale and less competition in the marketplace.

Sales in the spring will ideally position seasoned buyers with a three-month closing to potentially dovetail with interest rate cuts. First-time buyers, however, will continue to struggle to achieve ownership in the Toronto housing market, given a continuation of tight inventory levels at entry-level price points from $500,000 to $1,000,000.  That, combined with the government stress test that adds an additional two percentage points to existing rates is hurting those who’ve been able to accumulate a down payment and transfer taxes but are unable to qualify at today’s rates plus two per cent. The unfortunate fact is that many potential homebuyers are already paying rates similar to a mortgage on their rental units while inflation continues to eat away at their savings.

The Toronto housing market, specifically the 416 area code, remains popular with younger buyers who want to be close to shops, restaurants and transportation. The additional municipal land transfer tax fails to deter this segment of the market. However, for those starting a family, the 905 area-code generally offers greater affordability and one less transfer tax. Hybrid workplaces have also made moving north, east, and west of the city an easier transition, requiring only one or two days a week travelling on the GTA’s busy highways.

For existing homeowners located in the city core, the expense of a move with its associated municipal and provincial land transfer taxes and closing costs have prompted some to consider renovation. By upgrading their home, making cosmetic changes to kitchen, bathrooms and flooring, homeowners are adding value to their properties down the road. While renovation can have its own challenges, it is an option that many are taking given the high cost of moving.

Ongoing conversations regarding a hike in property taxes are another issue that stems from a city that is burdened by rising costs and a stagnating downtown core. Fundamentally regressive taxing punishes the most vulnerable homeowners in the Toronto housing market – its seniors – many who are on fixed incomes. Taxes are based on the value of the property but have nothing to do with income.

While the only certainties in life are death and taxes, there needs to be better solution to the current structure. Taxation is not actually deterring most buyers from getting into the market, but it is somewhat hampering, especially at entry-level price points. The current structure allows for a full rebate of municipal and provincial land transfer taxes of up to $400,000 for first-time buyers. There are currently close to 250 “properties” listed for sale under the $400,000 price point, the vast majority of which are parking spaces, lockers and vacant land.

Although buyers are still active in the Toronto housing market, there are those that are moving to areas outside of the GTA where housing values are lower.  And, in the first three quarters of 2023, there were more people leaving the province than arriving, with net interprovincial migration numbers down by just over 32,500, according to Statistics Canada Quarterly Demographic Estimates: Provinces and Territories Interactive Dashboard. While interprovincial migration has been offset by close to half a million immigrants, net emigration and net non-permanent residents, it’s clear the cost of living in Ontario – with its high housing values and tax base – is resulting in migration to other areas of the country.

Toronto Real Estate Tax Methodology

Municipal Land Transfer Tax on Residential Properties

Up to $55,000: 0.5 per cent
Up to $250,000: 1 per cent
Up to $400,000: 1.5 per cent
Up to $2 million: 2 per cent
$2 million Up to $2.999 million: 2.5 per cent
$3 million to $3.999 million: 3.5 per cent
$4 million to $4.999 million: 4.5 per cent
$5 million to $9.999 million: 5.5 per cent
$10 million to $19.999 million: 6.5 per cent
$20 million plus: 7.5 per cent

Provincial Land Transfer Tax on Residential Properties

Up to $55,000: 0.5 per cent
Up to $250,000: 1 per cent
Up to $400,000: 1.5 per cent
Up to $2 million: 2 per cent
More than $2 million: 2.5 per cent

*Leger online survey of 1,517 Canadians aged 18+ was completed between July 21 and 23, 2023, using Leger’s online panel. Leger’s online panel has approximately 400,000 members nationally and has a retention rate of 90 per cent. A probability sample of the same size would yield a margin of error of +/- 2.5 per cent, 19 times out of 20. 

**This report includes data and insights about Canadian housing markets supplied by RE/MAX brokerages and sourced from the Canadian Real Estate Association and local real estate boards. RE/MAX brokers and agents are surveyed on market activity and local developments. Each RE/MAX office is independently owned and operated.

Source: Blog.Remax.ca