Exorbitant tax hurts market, buyers

Opinion

Hey there, time traveller!
This article was published 15/04/2013 (4555 days ago), so information in it may no longer be current.

It is high time changes to the provincial land transfer tax were made. Did you know that if the price of a Honda Civic had risen at the same rate as the land transfer tax went up since it was introduced in 1987, you would have to shell out $117,300 to buy one this year? To fill it up, you would pay $5.51 a litre. The minimum wage would be $55 an hour, so if you did own a car or rented one, you would at least have more money to pay for gas.

It did not start out this way. In fact, the original intent when the provincial government brought in this tax on buying a home was to be revenue neutral. It was to help offset the cost of running the land titles operations. The government of the day was sensitive especially to those Manitobans of more modest means. There was an exemption from $0 to $30,000 and the next tax rate was 0.5 per cent for the next $60,000.

It is an entirely different story in 2013. While Manitoba still has some of the most affordable house prices in the country, prices have gone up. Note: A BMO first-time homebuyer poll released this week shows the average first-time homebuyer purchase price in Manitoba is $259,397, higher only than in New Brunswick and Nova Scotia.

Nevertheless, 76 per cent of single-family home sales this March through Winnipeg Realtors Association’s listing service sold for over $200,000. For every dollar amount above $200,000, the land transfer tax rate is two per cent. So, for each additional $50,000, you pay another $1,000 in land transfer taxes.

As you can appreciate, in short order this tax at higher sale prices takes a real bite out of your home purchase budget. For first-time buyers, in particular, it may mean the high up-front closing cost obligation of paying $2,650 in land transfer taxes, which must be paid at the same time as the down payment, for a $250,000 home is too much for them to afford.

In a survey of our realtors this year on whether they are finding it more difficult to find a home first-time buyers can afford, over 90 per cent agreed to some degree this is now a reality. The significant drop-off in sales activity in March was far more pronounced in the first-time buyer market price ranges than upper ones. The highest price range of $500,000 or more actually performed better than March 2012.

The provincial government is well aware of our long-standing concerns over this runaway tax that has generated a lot of revenue. In the 2011-2012 budget, land transfer tax revenue went up 14 per cent to $67.3 million.

What they fail to realize is this tax discourages home buying activity and can impact it directly as well. Why then are they content to let it remain this way?

This revenue source is not sustainable in the long run if the first-time buyer market softens as it has a ripple effect through the entire market and economy. First-time buyers enable owners of the home they purchase to move on with their plans and the cycle follows all the way up the housing ladder. For every house sale, there is $40,000 in ancillary expenditures.

The federal government recognizes how important first-time buyers are by offering them up to a $750 tax credit. Sadly, in the four short years this tax credit has been in place, Manitoba’s land transfer tax for an average priced home has increased over $1,000.

This is a little bit like robbing Peter to pay Paul, and no one wins. You keep potential home buyers as renters when, with more encouragement through tax relief, you could free up scarce affordable rental units for those Manitobans unable or not interested in buying a home.

In summary, Manitobans are hurt by high land transfer taxes.

The provincial government says it is choosing instead to offer homeowners an education property tax credit, but that is disingenuous because renters receive the education tax credit, too.

Further, the education property tax credit was brought in for the purpose of helping reduce Manitoba’s heavy reliance on requiring property owners to fund our education system, not to reward those able to afford a home so they can get an education property tax credit that they receive already when they rent.

It is time the provincial government stops punishing Manitoba homebuyers.

 

Peter Squire is the Winnipeg Realtors Association’s residential market analyst.