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Land transfer tax had an adverse effect on the first-time home buyers’ segment of the market
Jan 15, 2010

A missed opportunity in 2009 was the failure to include a significant segment of the population in the local real estate market. It was a perfect opportunity for first-time buyers to get a head start on building equity in a home while locked into very favourable mortgage terms. 

The missed opportunity is unfortunate as house prices continue to rise, albeit at a lesser rate than in previous years. More first-time buyers entering the market would have also freed up badly-needed rental accommodations in Winnipeg and other urban centres such as Brandon and Steinbach.

Winnipeg’s first-time buyers’ market can safely be categorized as residential sales of under $200,000. In comparison to 2008, WinnipegREALTORS® 2009 residential-detached sales were down 13 per cent in the under-$200,000 category and eight per cent in the under-$250,000 category. Although, overall, such sales were less than four per cent off the pace set in 2008. Single-attached properties with an average sale price of $160,000 fared worse, as such sales were down 23 per cent from 2008.

In comparing residential sales in other markets across the country, it was a far different picture. In some instances, first-time buyers were more active in taking advantage of the lowest mortgage rates in years. In Calgary, for example, residential sales were up 7.5 per cent for the year, but sales under $300,000 rose an astounding 95 per cent. Edmonton had a year-end increase in 2009 of 10 per cent, however, its under-$300,000 market was nearly triple the overall increase. In both Calgary and Edmonton, the average price of a home is significantly higher than in Winnipeg, which is why the under-$300,000 category is used when considering potential first-time buyers.

Price segment breakdowns are unavailable at this time for Toronto and Victoria, although they finished the year up 17 per cent and 24 per cent, respectively. 

In Regina — where the average sale price is closer to Winnipeg’s and the economy has been more steady and robust, not unlike our city — Gord Archibald, the executive officer of the Association of Regina REALTORS®, said he is convinced there was a return of the first-time buyer to the Regina resale market in 2009. 

Moreover, he cited sales between $175,000 and $250,000 as a prime first-time buyer market segment and this segment of the market was up 48 per cent over 2008. Comparing the same market segment for Winnipeg, sales in 2009 were down less than one per cent or static at best.

An impediment in Manitoba to first-time buyers when purchasing a home is the absence of a land transfer tax exemption. 

Manitoba stands out in this regard. With a few exceptions, other jurisdictions that levy a land transfer tax on a property purchase offer a first-time home buyer exemption. B.C. and Ontario have a generous first-time home buyer exemption, while Alberta and Saskatchewan do not even levy a land transfer tax. 

WinnipegREALTORS® understands the significance of the first-time home buyer to a real estate market. More importantly it is aware first-time buyers face a challenge to come up with the necessary down payment and closing cost dollars to purchase a property. Such buyers in Manitoba are essentially being double-taxed by using their net income to pay another provincial tax on their home.

The land transfer tax means an additional $1,650 when buying a $200,000 home, and another $1,000 if buying a $250,000 home.  

It is a severe penalty to the local economy as first-time buyers pump whatever left-over money they have from a house purchase into additional requirements — new home buyers always spend more  to accessorize their home than move-up buyers.

The provincial government says it cannot afford to give up revenue from this home buying tax (provincial land transfer tax revenue has grown significantly owing to higher house prices over the past few years and having the highest land transfer tax rate in the country at two per cent for any house value above $200,000), but it fails to appreciate the economic impact from the housing sector. 

In an April 2009 report by the Altus Group, which studied the economic impact of all MLS® home sales in Canada from 2006 to 2008, the average annual economic spin-off totaled $22.3 billion. Some 202,750 direct and indirect jobs also result from MLS® sales activity. 

In Winnipeg, Altus has determined each sale generates $40,000 in economic spin-offs. Using this amount, the 2009 residential sales activity equates to roughly $500 million in economic impact and 5,000 jobs. 

Going beyond resale housing to new home construction and renovation, there is considerably more economic impact. Mike Moore, president of the Manitoba Home Builders’ Association (MHBA), said the estimate for 2009 was an over $2.4-billion economic impact for the new home construction and renovation sectors.

As the average price of a new home is $350,000, home builders depend on a healthy resale market to allow homeowners to build enough equity when considering the purchase of a new home.  

The first-time buyer allows the first-time seller to enter the move-up market which can lead to the purchase of a new home. Hence, a poor first-time buyer market can hurt sales activity across the entire market price spectrum, including new home construction. 

The Manitoba Home Builders’ Association reported there were 976 fewer single-family starts in 2009 compared to 2008.

While a first-time home buyer exemption in 2009 would not generate similar activity as in Calgary and Edmonton, there is no question that such a change by the Manitoba government would allow more first-time buyers to become homeowners.

WinnipegREALTORS® and the Manitoba Home Builders’ Association continue to express their view that the land transfer tax is unfair, as well as illustrate the need to exempt  first-time buyers from the tax. In the long run, such a change will reward the government with more revenue arising from increased economic activity.