RE/MAX: High housing values, interest rates, taxes contribute to post-pandemic exodus from Canada’s most expensive provinces

TORONTO, Feb. 6, 2024 /PRNewswire/ — While land transfer taxes and new property assessments in key markets appear to have little effect on the surface, eroding affordability levels are slowly shifting migration patterns and changing the landscape in major Canadian centres, according to a new report released today by RE/MAX Canada.

RE/MAX Canada’s 2024 Tax Report examined key markets in six Canadian provinces, including Vancouver, Calgary, Winnipeg, Toronto, Montreal and Halifax, and found governments at all levels are collecting billions from Canadian homebuyers through levies and development fees on new construction, as well as land transfer and property taxes on residential properties.

Tax rate increases, in tandem with record-high housing values and mortgage rates, have sparked a post-pandemic exodus from the country’s most expensive markets, contributing to a significant uptick in interprovincial migration numbers in Alberta and Atlantic Canada in 2023. While some homebuyers were content to move outside of core markets within their province, close to 60,000 Canadians found their answer to the current housing crisis in Alberta and, to a lesser extent, Nova Scotia, New Brunswick and Prince Edward Island.

According to Statistics Canada’s Quarterly Demographic Estimates, Provinces and Territories Interactive Map, interprovincial migration doubled over already-strong year-ago levels in the first three quarters of 2023 in Alberta, with the province welcoming 45,194 people, compared to 22,278 during the same period in 2022. Alberta gained the most interprovincial migrants in the third quarter of 2023, with the highest influx coming from Ontario (6,262), followed by BC (5,269), Saskatchewan (1,579) and Manitoba (1,316). Nova Scotia also saw more than 5,000 new residents in the first three quarters of 2023, following an influx of close to 10,000 interprovincial migrants during the same period in 2022. New Brunswick’s net interprovincial total was almost 4,500 in the first three quarters of 2023, while Prince Edward Island posted a net interprovincial increase of just over 1,000. All other provinces noted negative net interprovincial numbers, with more people leaving than arriving.

 

“Given today’s housing market realities, it comes as no surprise that buyers are willing to travel across the country to achieve home ownership,” says RE/MAX Canada President Christopher Alexander. “In addition to affordable housing values and extensive job opportunities, Alberta is well known for its position on taxation, with no provincial sales tax and zero land transfer tax on residential real estate.

Cash-rich buyers from provinces such as Ontario and British Columbia are aware that the sale of their property in Toronto or Vancouver will stretch that much further in Alberta or Atlantic Canada’s major centres. And for first-time buyers, it’s an opportunity to get into the market at an affordable price point and gain equity, as opposed to paying down someone else’s mortgage by renting.”

According to the Fraser Institute’s 24 Facts for 2024 Report, the average Canadian family pays 45.3 per cent of its income to taxes – more than the 35.6 per cent spent on necessities of life. Regressive tax policies are also to blame for the changing migration patterns. Land transfer taxes were introduced across Canada in the 1970s as a method of generating revenue for municipalities, regardless of income. The highest land transfer taxes are found in Toronto, where buyers pay a municipal land transfer tax as well as a provincial tax. On January 1, 2024, Toronto upped the ante, introducing a luxury tax on home sales over $3 million. While the existing municipal land transfer tax (MLTT) essentially remains the same under $3 million, homebuyers that cross the threshold will find a sliding scale of taxes that range from 3.5 per cent on sales over $3 million to 7.5 per cent on sales over $20 million. On an average-priced home in the city, buyers can expect to pay close to $40,000 in taxes.

“When you think about what a $40,000 tax bill payable upon closing could do if it was applied to a down payment, it’s clearly time to incentivize the first domino,” says Alexander. “The first order of business should be revisiting the first-time buyer rebate/exemption in Toronto and Vancouver, because at $400,000 and $500,000–$525,000 respectively, they’re woefully inadequate given the average or benchmark price of properties in those cities.”

A survey conducted by Leger on behalf of RE/MAX in mid-2023 found that more than one in four Canadians (28 per cent) agreed the land transfer tax has impacted their decision to participate in the housing market. The home-buying decisions of young Canadians were particularly impacted, with 40 per cent of Gen Z and 35 per cent of Millennials agreeing that the land transfer tax has played a role in their pursuit of home ownership, compared to 26 per cent of Gen X and 21 per cent of Baby Boomers.* As a result, there is a growing wave of younger people who are choosing to leave major centres and provinces to attain home ownership. Not surprisingly, some of the fastest-growing municipalities are inside or close to urban areas, according to Statistics Canada 2021 Census. For example, East Gwillimbury in the Greater Toronto Area experienced the greatest increase in population between 2016 and 2021 with a 44.4-per-cent uptick; Langford, outside of Victoria, BC, and Southern Gulf Islands just outside Vancouver, were up 31.8 and 28.9 per cent respectively; Niverville, on the outskirts of Winnipeg was up 29 per cent; Carignan just outside Montreal was up 24.1 per cent; while Wolfville, Nova Scotia was up 20.5 per cent.

New and proposed property tax reassessments are also creating confusion in markets across the country, including Toronto, Montreal and Halifax, with some properties assessed above recent sale prices. The Province of Ontario has yet again postponed its reassessment. With the Municipal Property Assessment Corporation (MPAC) still operating at levels assessed in 2016, new assessments in the province for the years 2023 and 2024 will likely be significantly higher when distributed.

The burden is even higher on new home construction within Canada’s most expensive markets. In Toronto, for example, taxes, levies and development fees on new condominiums – the first step to home ownership for many Canadians – is estimated to account for approximately 25 to 30 per cent of the overall purchase price. On a unit priced at $717,000, the average price for a condominium in Toronto at year-end, that accounts for roughly $180,000 to $215,000 paid by the purchaser. New low-rise housing is no exception. Based on a study by Altus Group, the Building Industry and Land Development Association (BILD) found that government fees, taxes and charges added $222,000 to the cost of an average, new single-family home in the Greater Toronto Area (GTA) in 2019 – three times higher than in major U.S. markets such as San Francisco, Miami, Boston, New York City, Chicago, and Houston.

“The goal should be to make home ownership more accessible, not less,” says Alexander. “Taxation is contributing to the demise of the Canadian dream, with home ownership across the country falling from peak levels reported in 2011, and it will continue to decline unless there is some intervention. A greater supply of affordable housing in major centres will have a sizeable impact on keeping the dream alive. However, if we don’t heed the call, we risk continued out-migration of our youth.”

Rising tax levels and quality of life have become a growing concern in cities throughout North America as well. Driven by domestic out-migration, more than 600,000 people left New York State for Florida, Texas, and other low-tax states in 2020 and 2023, according to US Census Data. Internal Revenue Services (IRS) data show the state lost an estimated $45 billion in taxable income between 2020 and 2023. Florida, on the other hand, welcomed more than 700,000 people during the same period, as the state’s favourable tax structure proved irresistible to buyers.

“Clearly, public policy is contributing to a myriad of issues – with affordability front and centre – and there’s no relief in sight,” says Alexander. “Shelter is a basic human need, yet accessibility is becoming increasingly problematic as government reliance on the housing sector as a means of funding creates a greater divide. Affordability and opportunity are key to healthy and sustainable real estate market activity and a vibrant economy. As such, the potential economic impact of ongoing out-migration on the future of individual provinces should raise alarm bells.”

Market by Market Overview**

Greater Vancouver

The tax burden weighs most heavily on buyers in markets such as the Greater Vancouver Area where housing values are amongst the highest in the country. Yet first time, move up, and downsizing buyers remain determined to move forward, regardless of tax implications. In fact, home-buying activity in the Greater Vancouver Area is off to a strong start in 2024, as buyers who’ve sat on the sidelines throughout 2023 re-enter the market en masse. The imbalance between supply and demand has prompted a flurry of multiple offers on properties at affordable price points.

While land transfer taxes are the cost of doing business in Vancouver and purchasers have come to begrudgingly accept that reality, property taxes are amongst the lowest in the country. High interest rates were the greatest impediment to home-buying activity in Vancouver throughout 2023, with the threat of ever-rising mortgage rates creating havoc in the market. With the expectation of an end to quantitative tightening, homebuyers are hoping to get into the market before values climb once again. Evidence of the trending has been apparent over the past two months, as fixed rates have now come down about one half of a per cent. Inflation appears to be heading in the right direction, although slower than originally anticipated.

The first-time buyer’s rebate has proven inadequate in a market that had an average benchmark price of $1,168,700. Few first-time buyers qualify at the current $525,000 threshold. Properties up to $499,999 are eligible for a full tax exemption while properties priced from $500,000 to $524,999 are eligible for partial repayment. There are currently 43 properties listed for sale under $525,000 in the City of Vancouver. The full land transfer tax is obligatory on property priced at more than $525,000. Surprisingly, the first-time buyer’s exemption on new construction is considerably higher, with exemption available on homes priced up to $750,000. While buyers are faced with the additional cost of a government sales tax (GST) on their new home, there’s really no reason the threshold of $750,000 shouldn’t be applied equitably.

Unfortunately, the higher cost of living in the province is driving movement out of the province, with many young families and retirees heading for neighbouring Alberta where BC dollars go a lot further.  Data compiled for the first nine months of 2023 by the Statistics Canada Quarterly Demographic Estimates: Provinces and Territories Interactive Map showed a decline in net interprovincial migration numbers, with British Columbia registering close to 6,000 people leaving BC. Years ago, the trend had been to move to the Okanagan to take advantage of lower prices, but in recent years, strong migration levels have accelerated housing values in cities such as Kelowna, Kamloops and Penticton. Net international migration numbers for the same period show more than 150,000 immigrants, net emigration and net non-permanent residents entering the province in the first three-quarters of 2023.

Methodology for Residential Property Transfer Tax

First $200,000 – taxed at 1 per cent
$200,000 – $2,000,000 – taxed at 2 per cent
$2 million to $3 million – taxed at 3 per cent
Over $3 million – taxed at 5 per cent

Calgary

Home-buying activity continues at a frenzied pace in the Calgary area as affordable housing values and lower tax rates incentivize an increasing number of out-of-province buyers to move to Alberta. In the first three quarters of 2023, the province welcomed just over 45,000 interprovincial residents, according to the Statistics Canada Quarterly Demographic Estimates: Provinces and Territories Interactive Dashboard. During the same period, net international migration rose by almost 100,000 people, including new immigrants, net emigration, and net non-permanent residents.

Buyers from Ontario and BC remain most active in the province, with the vast majority settling in the City of Calgary where the average price at year end 2023 hovered at $539,313, according to the Calgary Real Estate Board. Home ownership in the city can be attained for as low as $350,000, with the condominium apartment category seeing the highest year-over-year increase in sales in 2023. Younger buyers as well as retirees and investors are behind the push for housing. Tight market conditions persist throughout the city, however, with local buyers vying for prime properties with cash-rich purchasers from Ontario and British Columbia.

As a result, many seasoned local buyers have moved to the sidelines in the latter half of 2023, choosing not to participate in the frothy market. Entry-level buyers, representing approximately 20 to 30 per cent of the market, are driving activity between $350,000 to $650,000. Those first-time buyers that have scrimped and saved for a down payment are largely targeting two-bedroom, one bath condominium apartment properties priced between $350,000 to $400,000. First-time buyers are fortunate enough to have some help from the bank of mom and dad are typically seeking single detached starter homes in the $500,000 to $650,000 price range.

Land transfer taxes are non-existent in Alberta, although most buyers pay a registration fee around $300. There are no provincial sales taxes. The combination of lower taxes, affordable housing, and greater job opportunities are expected to continue to draw purchasers from out-of-province, many of whom have been priced out by rapidly rising housing values and taxes in their own provinces.

Zero Residential Property Transfer Tax – All properties, all price points

Winnipeg

A significant uptick in housing sales and values in the last six weeks of 2023 has set the stage for home-buying activity in Winnipeg in 2024. Listings that had lingered on the market were quickly snapped up, some in multiple-offer situations, between mid-November and mid-December. The same momentum has been noted in the first two weeks of January as the potential for an end to the Bank of Canada’s stance on quantitative tightening grows increasingly likely after four rate pauses in a row.

There has been a considerable increase in the number of renters getting into the market, in large part due to rental rates that look more like mortgage payments at present. First time buyers, many of whom are new to the country, would rather own their homes than paying off someone else’s mortgage. As such, the land transfer and property taxes are just part of the process, despite property rate taxes that are amongst the highest in the country. The vast majority of first-time purchasers are coming to the table with at least two percent of the property’s value set aside for land transfer taxes and closing costs.

For move up buyers, they’ve generally factored the land transfer tax into the equation. However, at higher price points, from $750,000 to $1 million, buyers may put their decision to move on pause, opting to renovate instead. Seniors, particularly those who have lost partners and live alone, may choose to age in place rather than undertaking the additional costs, not to mention the stress of a move.

The greatest activity remains at lower price points, where inventory levels are particularly low. Winnipeg is one of the most affordable housing markets in the country with an average price in 2023 hovering at just over $400,000 (approximately $5,700 in land transfer tax). Most first-time buyers are looking at properties priced between $350,000 and $450,000. Trade-up buyers are typically active between $500,000 and $750,000.

Like other parts of the country, overall housing stock in the city remains low. Yet, net international migration, comprised of immigrants, net emigration, and net non-permanent residents, added an estimated 36,000 to Manitoba’s population in the first three quarters of 2023, according to Statistics Canada Quarterly Demographic Estimates: Provinces and Territories Interactive Dashboard. Population growth is expected to contribute to housing market activity in Winnipeg in the year ahead, bolstered by an anticipated fall in interest rates in the second or third quarters.

Methodology for Residential Land Transfer Tax

0 – $30,000 – No Tax
$30,001 to $90,000 – 0.5 per cent
$90,001 to $150,000 – 1 per cent
$150,001 to $200,000 – 1.5 per cent
$200,000 and above – 2 per cent

Greater Toronto Area

After a flurry of home-buying activity at luxury price points in the final quarter of 2023 in Toronto Proper due to upcoming changes to the city’s 2024 land transfer taxes, the housing market has slowed in the Greater Toronto Area. Sales are currently trending on par or slightly ahead of year-ago levels, with economic concerns and high interest rates leaving many buyers sitting on the sidelines. While the Bank of Canada (BOC) held firm on rates in January for the fourth consecutive time since its July 2023 rate hike, inflation remains high, placing the BOC in a challenging position. That said, there are signs that quantitative tightening is drawing to a close and some economists predict rates will start coming down by mid-year. With the promise of lower rates on the horizon, the spring market is expected to be active, with trade-up buyers leading the charge, cashing in on equity gains realized over the past decade. Unlike years prior, this spring market will be characterized by a greater selection of homes available for sale and less competition in the marketplace.

Sales in the spring will ideally position seasoned buyers with a three-month closing to potentially dovetail with interest rate cuts. First-time buyers, however, will continue to struggle to achieve home ownership, given a continuation of tight inventory levels at entry-level price points from $500,000 to $1,000,000.  That, combined with the government stress test that adds an additional two percentage points to existing rates is hurting those who’ve been able to accumulate a down payment and transfer taxes but are unable to qualify at today’s rates plus two per cent. The unfortunate fact is that many potential homebuyers are already paying rates similar to a mortgage on their rental units while inflation continues to eat away at their savings.

The 416 area-code remains popular with younger buyers who want to be close to shops, restaurants and transportation. The additional municipal land transfer tax fails to deter this segment of the market. However, for those starting a family, the 905 area-code generally offers greater affordability and one less transfer tax. Hybrid workplaces have also made moving north, east, and west of the city an easier transition, requiring only one or two days a week travelling on the GTA’s busy highways.

For existing homeowners located in the city core, the expense of a move with its associated municipal and provincial land transfer taxes and closing costs have prompted some to consider renovation. By upgrading their home, making cosmetic changes to kitchen, bathrooms and flooring, homeowners are adding value to their properties down the road. While renovation can have its own challenges, it is an option that many are taking given the high cost of moving.

Ongoing conversations regarding a 10 to 16 per cent increase in property taxes are another issue that stems from a city that is burdened by rising costs and a stagnating downtown core. Fundamentally regressive taxing punishes the city’s most vulnerable homeowners – its seniors – many who are on fixed incomes. Taxes are based on the value of the property but have nothing to do with income.

While the only certainties in life are death and taxes, there needs to be better solution to the current structure. Taxation is not actually deterring most buyers from getting into the market, but it is somewhat hampering, especially at entry-level price points. The current structure allows for a full rebate of municipal and provincial land transfer taxes of up to $400,000 for first-time buyers. There are currently close to 250 “properties” listed for sale under the $400,000 price point, the vast majority of which are parking spaces, lockers and vacant land.

Although buyers are still active in the Toronto market, there are those that are moving to areas outside of the GTA where housing values are lower.  And, in the first three quarter of 2023, there were more people leaving the province than arriving, with net interprovincial migration numbers down by just over 32,500, according to Statistics Canada Quarterly Demographic Estimates: Provinces and Territories Interactive Dashboard. While interprovincial migration has been offset by close to half a million immigrants, net emigration, and net non-permanent residents, it’s clear the cost of living in Ontario – with its high housing values and tax base – is resulting in migration to other areas of the country.

Methodology for Municipal Land Transfer Tax on Residential Properties

Up to $55,000: 0.5 per cent
Up to $250,000: 1 per cent
Up to $400,000: 1.5 per cent
Up to $2 million: 2 per cent
$2 million Up to $2.999 million: 2.5 per cent
$3 million to $3.999 million: 3.5 per cent
$4 million to $4.999 million: 4.5 per cent
$5 million to $9.999 million: 5.5 per cent
$10 million to $19.999 million: 6.5 per cent
$20 million plus: 7.5 per cent

Methodology for Provincial Land Transfer Tax on Residential Properties

Up to $55,000: 0.5 per cent
Up to $250,000: 1 per cent
Up to $400,000: 1.5 per cent
Up to $2 million: 2 per cent
More than $2 million: 2.5 per cent

Montreal

While higher interest rates and the threat of a possible recession seriously hampered home-buying activity in Montreal over the past year, housing taxes –in the form of a welcome tax and property tax—proved to be a negligible part of the equation in 2023.

The sentiment is largely due to Montreal’s affordable housing market, where average price at year-end 2023 ($574,845) remains well below other large Canadian markets such as Toronto and Vancouver. Buyers can expect to pay a welcome tax of close to $8,000, payable upon closing, based on the 2023 year-end average. First-time buyers, defined as those who have never owned a home, are not eligible for a rebate but can receive the Quebec Home Buyers Tax Credit on their tax return.

Set by the city, property tax rates currently run at approximately 0.63000 per cent in Montreal, adding another $3,183 to the annual cost of home ownership, based the average price. A recent update to property assessments have made headlines in Quebec as the province moves to bring assessments in line with today’s housing values. The new assessments have, however, caused confusion in the market, particularly given that some homes have been assessed above recent sale prices.

After a dismal 2023, renewed momentum is expected to characterize home-buying activity in Montreal in 2024. Properties appear to be moving at a faster pace than year-ago levels while showings and open houses are growing busier. First-time buyers are cautiously optimistic, entering the market at price points ranging between $450,000 and $750,000. While condominiums are the first step to home ownership at lower price points in the city, first-time buyers willing to move farther afield may find small, detached homes priced around $750,000. The trade-up market has been impacted by an abundance of offers conditional on the sale of the buyers’ home within 30 days in recent months. Many of these offers are falling through as buyers fail to sell their homes and new buyers lie waiting in the wings. As a result, existing homeowners are choosing to sit tight, hesitant to sell first for fear that they won’t find another suitable home. Yet, they are also hesitant to buy first and go through the motions, only for the deal to die after 30-days. As a result, some buyers will choose to renovate their property, instead of embarking on a move.

The promise of lower interest rates down the road is bringing some comfort to buyers and sellers. Once rates start to decline, which could potentially happen as early as April, home buying activity is expected to gain traction. The market at present, however, remains tenuous, with any unexpected development having the potential to disrupt the whole market.

Methodology for residential land transfer tax in Montreal

0.5 per cent on the first $58,000
1.0 percent between $58,900 and $294,600
1.5 per cent between $294,600 to $552,300
2.0 per cent between $552,300 to $1,104,700
2.5 per cent between $1,104,700 to $2,136,500
3.5 per cent between $2,136,500 to $3,113,000
4.0 per cent on homes priced over $4,113,000

Halifax Regional Municipality (HRM)

With housing market uncertainty seeping into January 2024, homebuyers in Halifax are banking of the prospect of lower interest rates down the road to revitalize home-buying activity. Demand remains relatively healthy in hot pocket areas, where well-priced properties are selling in short order, but in areas where greater selection exists, turnover is slow. Given the current high interest rate environment, many buyers are choosing to stay in place until the first interest rate cut is announced. Once that occurs, it’s expected that buyers will enter the market in full force, hoping to get in before prices increase.

Immigration and in-migration have factored into the housing equation, with both ramping up significantly since 2020. According to Statistics Canada, Nova Scotia’s population rose five per cent between 2016 to 2021, settling in at just under 970,000, with the provincial government committed to doubling the population to two million by 2060. In 2023, more than 5,300 interprovincial migrants and over 20,000 immigrants moved to Nova Scotia in the first three quarters of the year – the vast majority settling in Halifax – according to Statistics Canada Quarterly Demographic Estimates, Provinces and Territories Interactive Dashboard. The increase came as a surprise, driving upward momentum in housing values, as buyers from other provinces and countries arrive flush with cash, outspending the average Halifax buyer in large part due to stronger buying power.

Inventory levels have improved significantly over one year ago, but less than 1,000 homes are currently listed for sale. First-time buyers in the Halifax housing market are finding it particularly stressful as of late to compete for homes in the sweet spot – priced from $350,000 to $500,000. Some are moving between one and two hours outside of Halifax to take advantage lower house prices. With remote work increasingly accepted, the necessity to be located in Halifax has waned. Halifax urbanization and development in recent years is also a factor, with traffic, construction, and increased congestion prompting buyers to look at areas outside the Halifax Regional Municipality.

Taxation has played a greater role in the market this year, as new reassessments mailed out in January reflected strong growth in housing values over the Covid years. Residential assessments are up about 20 per cent over last year, one of the largest increases in the history of the province. Numbers vary by community or municipality, with Halifax up 21.1 per cent. In addition, the new reassessments will not be capped after the sale of a home, which could see property taxes increase further for the next buyer.

Deed transfer tax at 1.5 per cent on the purchase of a home in Halifax is an on-going hardship for first—time buyers, although there has been a first-time buyer plan in place that allows first-time buyers to repay the debt over a longer period. This is woefully inadequate at a time when it’s important to incentivize the first domino. However, unlike other major areas of the country, housing values are still relatively affordable here. First-time buyers are laser focused on home ownership as rental rates rise. Many spend years saving 10 to 20 per cent down payments, only to be told they owe another 1.5 per cent upon closing, in addition to all other closing costs. The combination of reassessment and the deed transfer tax have also prompted some buyers to stay in place, especially at higher price points. Many are choosing to renovate rather than move. For non-residents, Nova Scotia charges a five per cent Provincial Deed Transfer Tax.

Prices were up over 2022 at year-end 2023, sitting at $552,700 (up from $536,700 one year prior). Supply issues, like other parts of the country, exist and while development fees and approvals are slow and far between, there are more condominiums and freehold properties being added the city’s housing stock. However, its estimated that the Halifax market is still 30,000 to 35,000 units short of what the city needs, given the governments vision for growth. Under the present conditions, there’s no question that prices will continue to rise in the year ahead, with sales rising in tandem with falling interest rates.

Methodology for Deed Transfer Tax in Nova Scotia

Deed Transfer Tax in the Halifax Regional Municipality for residents is 1.5 per cent on purchase price.
Deed Transfer Tax in Nova Scotia for out of province/country buyers is 5 per cent on purchase price.

*Source: Leger online survey of 1,517 Canadians aged 18+ was completed between July 21 and 23, 2023, using Leger’s online panel. Leger’s online panel has approximately 400,000 members nationally and has a retention rate of 90 per cent. A probability sample of the same size would yield a margin of error of +/- 2.5 per cent, 19 times out of 20.

**This report includes data and insights from RE/MAX brokerages and sourced from the Canadian Real Estate Association and local real estate boards. RE/MAX brokers and agents are surveyed on market activity and local developments.

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