Since recently-elected Premier Greg Selinger says he is committed to keeping housing affordable in Manitoba and that he will govern for all Manitobans, WinnipegREALTORS® will continue to press him over the next four years on the unfairness and need to reform Manitoba’s land transfer tax.
Manitoba home buyers deserve to be heard for good reason, as they are paying the highest land transfer tax LTT) rate in the country which has a
direct affect on housing affordability.
In a membership survey of REALTORS® this year, which asked if housing affordability is becoming an issue in buyers finding a home they want, over two out of three respondents agreed. It’s quite a statement in itself, as the nation is in one of the lowest interest rate environments in our market’s history.
Winnipeg house prices have more than doubled in the last 10 years and have risen by a high single-digit percentage this year due to having the tightest housing market in Canada. As a result, land transfer taxes, which must be paid as an upfront closing cost, are becoming increasingly unreasonable and can make the difference on whether a Manitoban, especially a first-time buyer, can afford to purchase the home they desire.
In southeast and southwest Winnipeg, where the average house price now is in excess of $300,000, buyers now have to shell out at least $3,700 in land transfer tax fees to the provincial government. How is that making housing more affordable? It is the
exact reverse, since rising house prices make the land transfer tax more
punitive as a two-per-cent tax rate
is applied to any home sale over $200,000. For every additional $50,000 in value over $200,000, a home buyer must hand over $1,000 to the provincial government.
Ontario also has a land transfer tax and shares the highest tax rate with Manitoba of two per cent, but it does not apply this rate on any property unless it exceeds $400,000 in value. The Ontario government has also recognized since 1996 that first-time buyers can literally be priced out of the market when they are expected to come up with thousands of dollars in closing cost. As a result, the province has a first-time home buyers exemption — first-time buyers do not have to pay the tax for any amount up to $200,000.
Even with that exemption, the Ontario Real Estate Association (OREA) is calling for an increase in the exemption to make it fairer to first-time buyers.
Interestingly, when our land transfer was introduced in 1987, there was a conscious effort to acknowledge the lower end of the market by exempting the first $30,000. Twenty-four years later the earlier acknowledgement seems to have been forgotten. No mention has been made by the Manitoba government about how the exemption has become almost meaningless in today’s much higher priced real estate market.
The OREA has told the candidates in the up-coming Ontario election, that “the first-time home buyer land transfer tax (LTT) rebate is out of date. Due to increasing home prices, the rebate no longer covers the average LTT bill for first time home buyers. Instead, they pay almost $1,500 in LTT after receiving the rebate. REALTORS® believe that the first-time buyers of today should not have to bear a heavier tax burden than previous generations. We believe that affordable home ownership is as important in 2011 as it was in 1996 when the LTT rebate program was first introduced.
“From 1996 to 2010, the average price of a resale home in Ontario went up 120 per cent from $155,725 to $342,245. During the same period, the provincial government increased the LTT rebate by $275 or just 16 per cent. As a result, a first-time home buyer today in Ontario pays $1,500 in LTT more than the previous generation on an average-priced home after receiving the rebate. REALTORS® are therefore urging all candidates running in the 2011 Ontario Election to support increasing the LTT rebate for first time home buyers from $2,000 to $3,500. This would return fairness to the LTT rebate program and allow present day first-time home buyers to enjoy the same tax savings as buyers in previous years.
“The Ontario LTT is paid on top of other closing costs such as legal fees, moving expenses, home inspection fees and mortgage insurance. Together, these closing costs eat away at a purchaser’s down payment, increasing the size of their mortgage principal. The tax punishes young first-time home buyers in particular because they pay the majority of their closing costs out of their own pocket, not from the proceeds of a previous home sale. As a result, closing costs, such as LTT, prevent some first-time home buyers from entering the market altogether. As a working REALTOR®, I know the dream of homeownership among young Ontarians is as strong as it has ever been. Returning fairness to the LTT rebate program will go a long way towards ensuring that dream continues to flourish.”
The same argument can be applied in Manitoba. In 1987, NDP Finance Minister Eugene Kostyra talked about wanting the tax to be “revenue neutral” for the low- to average-priced home.
But the tax is on overdrive in 2011 and will get worse as prices continue to rise in a tight housing market where strong immigration is putting considerable pressure on resale home prices. It is exacerbated further by Manitoba having the lowest rental vacancy rate in the country. Resale housing then becomes the default position, since new immigrants and Manitobans unable to find suitable rental accommodations have no other choice but to purchase a home.
REALTORS® will continue to press the Selinger government on this important issue, urging the implementation of a first-time home buyer exemption, such as found in Ontario’s and B.C. to enhance housing affordability.
Another real benefit of increasing the exemption amount and indexing the current land transfer tax threshold is that more Manitobans will be able to become homeowners, which will free up desperately needed rental units for those Manitobans unable or not interested in buying a home.
Winnipeg REALTORS® and the Manitoba Real Estate Association asked all three main parties during the 2011 provincial election the following question: “As 2012 is the 25th anniversary of this home buyer tax, at minimum will you commit to an open public review of its original intent, purpose and impact as part of your 2012 budget process?”
This question is as relevant now as it was before the October 4 election. We certainly expect a better answer from the Selinger government than simply saying the province is in the middle of the pack when it comes to land transfer taxes across Canada. For the record, Manitoba is the most unwelcome jurisdiction in Canada when it comes to taxing first-time home buyers, and is second only to B.C. by $350 when you purchase the same priced home.
After 25 years of the tax, it’s high time to consult with Manitobans for the 2012 budget process, asking them if they believe the land transfer tax should be reviewed to determine its impact on housing affordability.
The premier does need to listen to all Manitobans, including home buyers.