First-time home buyers hindered by tax


WinnipegREALTORS® has been continually reminding consumers about the impact of the provincial land transfer tax on first-time buyers. A 2010 Professionally Speaking column  documented the wide difference in first-time home buyer market activity in 2009 when comparing Winnipeg to Calgary, Edmonton and Regina. All the markets were recovering from a tough real estate year in 2008, due to a severe economic downturn in Canada. Although our province was more cushioned from the effects of the recession than most of the nation, Manitoba’s first-time buyers market did not respond as vigourously as the other prairie province cities. 
One explanation is the burden of the land transfer tax on Manitoba home buyers. And neither Alberta nor Saskatchewan have a similar tax to discourage home buyers.
An example of the disparaity created by the tax comes from Calgary where residential-detached sales under $300,000, which represents their first-time buyers’ market, were up an astounding 95 per cent in 2009 over 2008. In Winnipeg, sales were down 13 per cent for the price range under $200,000 and eight per cent for sales from $200,000 to $250,000. In Regina, where the average price range for first-time buyers was closer to Winnipeg’s, sales from $175,000 to $250,000 were up 48 per cent. 
Unlike Ontario and British Columbia, which also levy land transfer taxes, but include generous first-time home buyer exemptions, the full weight of Manitoba’s land transfer tax regime comes down on all buyers, including first-time buyers. Such buyers are the least able to afford a home purchase, since they do not have the benefit of having built up equity in another home that can be used toward a down payment or other costs associated with home buying.
WinnipegREALTORS® September MLS® market results once again provided ample evidence that in the lower end of the market, where first-time buyers prevail and dominate, the sales decrease was far more accentuated than other areas of MLS® residential-detached activity. Total residential-detached sales dropped off 23 per cent in comparison to the same month a year ago, but for the two active first-time home buyer price ranges of $150,000 to $199,999 and $200,000 to $249,999, respectively, the decline was 36 per cent. At the $200,000 to $249,999 price range, when the highest land transfer tax rate of two per cent kicks in, the decrease was even higher at 44 per cent. 
Of course, you cannot put all the blame on a provincial land transfer tax, although is has become an increasingly onerous burden on all home buyers since its introduction in 1987. The rates have never been adjusted other than upward — it went from 1.5 per cent in 2004 to two per cent for any house value amount over $200,000. For first-time buyers, in particular, a significantly higher land transfer tax in 2012 can be a deal breaker. It certainly is a disincentive and can be a real barrier to new entrants seeking a foothold on the ladder to homeownership.
More evidence of the true impact of land transfer taxes comes from a recent study released by the C.D. Howe Institute. In a four-year comparison of the city of Toronto to outlying municipalities, which do not have their own municipal land transfer tax, the study revealed that lower valued home sales were the most impacted. Despite Toronto and Ontario both offering first-time home buyer exemptions, the impact of the land transfer tax still was severely felt by first-time home buyers. In Manitoba, no first-time home buyer relief is offered, so that segment of the market is even more severely impacted.
The government may not give up the revenues collected off the backs of home buyers, but it should realize that the tax’s direct result is that fewer Manitobans have an opportunity to own a home. And for every home sale, Altus Group estimates there is $42,000 in additional spin-off spending. Nationally, this translated into $20 billion in spin-off spending and over 165,000 jobs in 2012.