Sean's Market insight Volume 6
Sean Zahedi
Executive Sales & Marketing Strategist - New Developments/ Philanthropist / Columnist/ Speaker
Bad ideas keep surfacing, and now there's talk of taxing home equity
Recently, several reports surfaced about a meeting between the prime minister, the finance minister, and a government-funded think tank focused on “generational fairness.” Among the topics discussed was the proposed introduction of a home equity tax. This particular think tank, Generation Squeeze, believes that targeting older Canadians—who have worked hard to save for their homes and have often benefited from decades of capital appreciation—is a viable solution to help younger individuals afford housing. Their stance is clear: “Gen Squeeze believes it’s time to protect real shelters, not tax shelters. It’s unfair to sustain a system where the hard work Canadians put into their jobs is taxed more heavily than the wealth homeowners accumulate from rising property values while they sleep and watch TV,” as stated on their website.
They propose a modest surtax on homes valued over $1 million, affecting only the top 12% of high-value properties. According to them, this would help slow down rising home prices, allowing wages to catch up and reaffirming the idea that a good home should be attainable through hard work.
However, the think tank's messaging reflects a typical left-wing narrative that portrays older Canadians as the problem. So, is a home equity tax a good idea? The short answer is no. Canadians already bear a heavy tax burden on their homes, including municipal property taxes, carbon taxes, and GST/HST on new constructions, renovations, and utilities. Additionally, if a homeowner sells their property and it doesn’t qualify for the principal residence exemption, they could face capital gains taxes on any appreciation.
Given the current government’s desperation for tax revenue to support its extensive spending and political ambitions, it’s no surprise that new tax proposals are being floated.
Sharp decline in sales of new condos in the GTHA
In the Greater Toronto and Hamilton Area (GTHA), the market for newly built and presale condos has seen a dramatic downturn. Despite an unprecedented surge in supply, prices have remained surprisingly stable.
According to recent data, sales of newly completed and presale condos have plummeted by 66% year-over-year and are down 70% compared to the 20-year average for the second quarter (April through June). This represents the lowest number of sales recorded during this period in the past two decades, with the only exception being the second quarter of 2020, when the COVID-19 pandemic began to escalate.
The decline is particularly pronounced in the presale condo segment. Out of 3,265 units offered, only 17% were sold—marking the lowest uptake for second-quarter presales in 25 years. To put this in perspective, the average sales rate for presale condos in the GTHA over the last decade has been around 56% during this period.
This significant slowdown has resulted in an all-time high supply of condos in the region, with 25,893 units currently on the market. When compared to sales over the past year, this unsold inventory represents approximately 34 months of supply—three times higher than the balanced market range of 10-12 months.
Despite the surge in supply, the average asking price for new and presale condos has only decreased by about 2.6% over the last year, now sitting at $1,361 per square foot. This price stability highlights how sticky new condominium prices have become, largely due to high development and financing costs, as well as record land prices reached at the market peak.
Elevated interest rates and rising costs for materials and labor in recent years have compelled developers to maintain higher prices in order to remain profitable. In recent months, the focus for developers has shifted towards completing units already under construction, resulting in near-record levels of completions. However, given the lengthy development timelines, many of these projects have been in the pipeline for years.
Looking ahead, the outlook for new condo starts remains bleak, driven in part by the ongoing low sales figures. Only 727 new condo units began construction in the GTHA during the second quarter of this year—the lowest number in 20 years—marking a staggering 67% decrease from the previous year.
As the GTHA navigates this challenging market landscape, the dynamics of supply and demand continue to evolve, raising questions about the future of condo sales and pricing in the region.
Struggling Sales Volume in the GTA: Developers Face Challenges Securing Construction Loans
The Greater Toronto Area (GTA) is currently experiencing its lowest sales volume in nearly 30 years, leaving many developers grappling with difficulties in securing construction loans for previously launched condominium projects. Traditionally, developers aim to achieve a pre-sales target of 70-80% before approaching major lenders for financing. However, many are currently sitting at only 20-30% of their sales goals.
As a result, developers have limited options and are increasingly forced to heavily discount their inventory in an effort to sell units and reach their pre-sales targets. This trend could have long-lasting implications, particularly for tier 2 and lower-tier developers, who may struggle to maintain their projects amid these challenging conditions.
Looking ahead, I anticipate that this issue will persist and become chronic for many developers, with potential shifts in the market expected in late 2025 or 2026. As the landscape continues to evolve, it will be crucial for developers to adapt their strategies to navigate these unprecedented challenges in the GTA real estate market.
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Alternative Homeownership programs on the rise
While affordability is unlikely to return to pre-pandemic levels and the overall homeownership rate in Canada is declining, alternative solutions are emerging to help keep the dream of homeownership alive. Companies & organizations such as Ourboro Homefield Communities OPTIONS FOR HOMES and Habitat for Humanity GTA are addressing affordability through innovative approaches that benefit both future homeowners and investors alike.
Sources:
Urbanation's Q2 Reprt
CIBC
Desjardins's Report 2024