Rising house prices are a significant concern throughout Alberta, especially among first home buyers, many of whom are aspiring young families. There was, however, some good news out of the provincial budget that was announced at the end of October, as the Notley government kept its promise to cancel a proposed increase in land title and registration fees.
In its last budget announcement, the previous government had announced its intention to substantially increase the land title and mortgage registration fees that must be paid on residential sales transactions. Under the proposal, the combined fees would have risen from $290 to $1,230 for a $500,000 house, which is near the average Calgary detached house price of $485,000.
In the election campaign that followed, the NDP announced that it would cancel plans for these fee increases, indicating that this would “make life more affordable for families and focus on protecting what matters most to Albertans.”
It could not come too soon. Over the last decade or so, Canada has experienced the most significant rise in house costs relative to household incomes in living memory. There are even concerns that Canada may be experiencing a housing bubble of the type that devastated the U.S. economy when prices collapsed. Then, the financial reverses spread around the world, though largely missed Canada.
Yet, house prices have continued to rise faster than household incomes. This takes some doing, since, according to The New York Times, incomes have risen so quickly that Canada now has the world’s largest middle-class, having passed the United States.
The continuing escalation of house prices has raised concerns with the Bank of Canada, as well as international organizations, including the Organization for Economic Cooperation and Development and the International Monetary Fund. Some analysts have expressed concern that Canada may be headed toward a house price crash, with consequences for people and the economy.
For example, in Calgary, the average price of an existing single-family (detached) home has doubled since 2003. Despite strong increases, average household incomes have just not kept up with the rapid pace of house price increases. Things are even worse in the Vancouver metropolitan area, where the average single-family house price is now nearing $1.6 million. Condominium prices have risen so steeply that they now exceed single-family house prices from little more than a decade ago.
Single-family houses now cost an average of nearly $825,000 in the Toronto metropolitan area. This may seem like a bargain compared to Vancouver, but the more than tripling of single-family house prices since 2000 has written many households out of the market for this family-friendly house type. Like Vancouver, the average Toronto condominium price is more than that of a single-family house in 2004.
Albertans seeking to buy their first houses, and those aspiring to move into better houses, have another reason to be thankful. Alberta is one of only two provinces that does not add a land transfer tax to purchase prices (the other is Saskatchewan). Land transfer taxes levied by provincial and municipal governments make prices in the other provinces even more prohibitive. For example, in Vancouver, more than $29,000 in provincial land taxes are added to the price of the average priced single-family house. In the city of Toronto, the average priced single-family house, now more than $1,000,000, incurs an additional $35,000 in provincial and municipal land transfer taxes.
Worse, Ontario’s Wynne government could make Ontario’s land transfer tax an even greater burden. A tentative proposal could extend the city of Toronto’s exclusive authority to levy a land transfer tax to all of the other municipalities in Ontario, which could drive house prices up another $5,000. This would break an election promise, according to Patricia Verge, president of the Ontario Real Estate Association. It would be a far better idea to repeal the Toronto tax rather than extend it elsewhere.
The land transfer tax increase would be especially bad news for the households fleeing the Greater Toronto Area’s skyrocketing house prices for far less costly single-family housing in places like Barrie, Brantford and Kitchener-Waterloo. Others might join those leaving Ontario altogether.
In Alberta, Notley’s rejection of the fee increases was an important first step to aid beleaguered home buyers. More land transfer taxes should be similarly rejected in the years to come.
Wendell Cox is chair of housing affordability and municipal policy at the Frontier Centre for Public Policy.