Tax restricts home buying options

While WinnipegREALTORS®, with the support of the Manitoba Real Estate Association, has been actively campaigning to bring about a change to the provincial land transfer tax (LTT) it has not done so in isolation. The Toronto Real Estate Board has also been busy  with their own municipal land transfer tax battle, and the Ontario Real Estate Association, during their 2011 provincial election, called for higher relief thresholds for first-time buyers.
And similar to Manitoba, where both provinces have had a provincial LTT in place since 1987, or 25 years, the British Columbia Real Estate Association published a special brief this April calling on their provincial government to increase the one-per-cent property transfer tax (PTT) threshold from $200,000 to $525,000, with two per cent applying to the remainder of the fair market value. Second, they requested that the proposed threshold of $525,000 be indexed to Statistic Canada’s New Housing Price, and make the adjustments annually.
Interestingly, the point was made in the brief that the two-per-cent tax, which applies currently to any property value amount over $200,000 (just like in Manitoba), at the time of its inception in 1987, would have only had a very small percentage exposed to this high rate. In 2011, the two-per-cent portion was levied on 87 per cent of homes sold in that province. 
As for Manitoba, there would have been very few properties selling for over $200,000 in 1987. But now, well over 70 per cent exceed that amount, resulting in a massive growth in tax revenues for the province. If it was considered a wealth tax originally, it needs to be renamed as many people buying homes over $200,000, including first-time buyers, can hardly be described as wealthy. 
Call it what it is — a cash grab that has negative impacts on the real estate market. Proving what can result from the impact of an LTT,   besides making it unaffordable for first-time buyers to gain entry into the local market, is a study released this fall by the C.D. Howe Institute, entitled, Stuck in Place: The Effect of Land Transfer Taxes on Housing Transactions.  
“Municipalities across the country should beware the example of Toronto,” said study author, Benjamin Dachis on the cover page, “where the imposition of a land transfer tax depressed housing sales by 16 per cent, raised relocation costs and reduced household mobility.”
The study compared the house sale activity within the city of Toronto, where a municipal LTT was imposed in addition to the provincial tax, and the outlying municipalities in the Greater Toronto Area (GTA). As evident from reduced sales and, therefore, reduced mobility, the study stated what it believed to be the two main effects on the economy. In being a barrier to moving, the LTT can deter people from accepting jobs far from their place of residence or from switching to more productive ones which require a long commute from their existing home. It can also mean some households will continue to tolerate unacceptable conditions for longer than they would if there was not a significant added closing cost associated with an LTT.
An LTT is an inefficient tax as it annually applies to a narrow base of the population. In its reference to provinces that levy a land transfer tax, such as Manitoba, the C.D. Howe study recommended moving toward a value-added tax.
While Manitoba has resisted a value-added tax — there may be good reasons given what it may cost the treasury — the fact remains that the LTT is a disincentive, not only to homeownership, but to those wanting choice in finding a place that ideally suits them. 
The study showed that a more severe impact was on people owning lesser value properties. So, as you can imagine, you limit choice in the market both ways. People wanting to move will not due to the higher costs associated with an LTT. As a result, their homes, which offer more affordable housing stock for would be renters, remain off the market.  
Restricting mobility is never a good thing. We have a Manitoba government that celebrates mobility by enabling and encouraging people from all over the world to move here and start a new life. But unfortunately, as this study shows, the unintended consequences of the province levying an unreasonably high tax on a home purchase, can lock-in those very people that came here to obtain freedom of choice.