June 2, 2016 6:26 pm
Updated: June 3, 2016 9:01 am

Feds considering luxury tax to cool housing market

WATCH: The federal government is now considering a temporary luxury tax to cool down the red-hot housing market. Jacques Bourbeau explains.

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OTTAWA — A parliamentary secretary has indicated the Liberal government is mulling a luxury tax* on multi-million dollar homes.

Global News asked François-Philippe Champagne, the parliamentary secretary to Finance Minister Bill Morneau, if the government is considering such a tax as a temporary means of cooling off the red hot housing markets in cities like Vancouver and Toronto.

“I’d say that’s something we’re reviewing… and I’m sure the minister is looking at as well,” Champagne said.

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Morneau already increased the minimum payment for homes worth more than $500,000 to 10 per cent, but imposing a luxury tax would follow the lead of the B.C. government, which recently imposed a luxury tax on homes and properties that cost more than $2 million.

READ MORE: Skyrocketing prices mean entry-level homeowners in Toronto, Vancouver can’t afford to upgrade

Vancouver housing prices keep going up and breaking records month after month — including in May when new numbers from the Real Estate Board of Greater Vancouver indicated the benchmark price for a single detached home in Vancouver hit $1,513,800 — up 36.9 per cent from the same month last year.

WATCH: Scotiabank is fearing Vancouver’s hot housing market will crash and burn. Aaron McArthur looks at that angle, and Keith Baldrey looks at whether this will motivate the B.C. government to take action.

For a young, prospective home buyer like Tiffany Postler, the task of shopping for a new home is not for the faint of heart.

“It’s just basically getting your mind around the wish list, as opposed to what you can actually afford and find,” she told Global News.

READ MORE: Should you rent or buy? This real estate calculator will help you decide

It’s not just stand-alone houses; the benchmark price for attached units is up nearly 25 per cent since last year, now at $632,400, and the benchmark for condos and apartments is at $485,000, up 22.3 percent.

But as those housing prices rise, the warnings about a housing bubble get louder.

The Organization for Economic Cooperation and Development (OECD) cautioned the markets in Vancouver and Toronto are getting too hot to handle.

“In relation to household incomes, both house prices and household debt are high,” the OECD said in its Global Economic Outlook released Wednesday.

“Very low borrowing rates have encouraged household credit growth and underpinned rapidly rising housing prices — particularly in Vancouver and Toronto — which together are a third of the Canadian housing market.”

READ MORE: How is PM Trudeau going to deal with Canadians’ economic concerns?

At least one major Canadian bank said it has taken its “foot off the gas” when it comes to issuing mortgages in the two cities.

“When one of six major banks says it’s worried about a housing bubble, we should all be paying extra attention to this problem,” said Ian Lee, a professor at Carleton University’s Sprott School of Business.

The downside to a hot housing market is that many buyers saddle themselves with large amounts of debt — something else that is growing concern.

A survey from Manulife Bank of Canada last month found 37 per cent of Canadians were “caught short” paying their living costs.

READ MORE: Taming of hot housing market Metro Vancouver a divisive issue

“There are large numbers of middle and upper-income homeowners who don’t have any wiggle room financially,” said Tsur Somerville of UBC’s Sauder School of Business.

The Manulife Bank of Canada survey found the average Canadian homeowner with a mortgage has an outstanding balance of $181,000, up from $175,000 reported last fall. Vancouver tops all provinces when it comes to average mortgage debt outstanding at $259,000; followed by Calgary and Edmonton at $217,000; Toronto at $194,000; and Montreal at $156,000.

CLARIFICATION: An earlier version of this post indicated a possible luxury tax would be imposed on foreign buyers of multi-million dollar homes. François-Philippe Champagne, the parliamentary secretary to Minister of Finance Bill Morneau, was not asked about a tax specifically targeting foreign buyers, only about the possibility of a luxury tax.

With files from Andrew Russell and The Canadian Press

© 2016 Global News, a division of Corus Entertainment Inc.

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