What’s $170,000,000 between friends?

The old adage, “You can make numbers say anything you want” sort of rings true with this new study released by the Toronto Real Estate Board.

However, after reading their latest press release, I have to agree with their findings.

Here is the press release, verbatim:

NEWS RELEASE

Toronto Land Transfer Tax Costs City’s Economy $170 Million

TORONTO, December 10, 2008 – Supported by a study on the impact of the Toronto Land Transfer Tax, recently authored by the C.D. Howe Institute and two University of Toronto Economics Professors, Greater Toronto Realtors are renewing calls for this tax to be rolled back.

“The housing sector is one of the most significant parts of Toronto’s economy,” said Maureen O’Neill, President of the Toronto Real Estate Board (TREB).  “Unfortunately, the study prepared jointly by the C.D. Howe Institute and Economics Professors from the University of Toronto shows that the Toronto Land Transfer Tax had a negative economic impact, which TREB estimates to be $170 Million in 2008.

The study found that the Toronto Land Transfer Tax, which costs average Toronto homebuyers approximately $,000 in addition to a similar amount for the provincial Land Transfer Tax, has reduced sales of re-sale single-family homes (condominiums not included in study) by 16 per cent, which means approximately 3,500 lost re-sale transactions in the first year of the tax.  If condominiums are included, Realtors estimate that the impact could be in excess of 5,000 lost re-sale transactions in the first year of the tax.

A separate recent study, conducted by Altus Clayton for the Canadian Real Estate Association, determined that every re-sale housing transaction in Ontario generates approximately $33,425 in economic spin-off activity on things like renovations, furniture, and appliances.  This means that losing 5,000 re-sale housing transaction because of the Toronto Land Transfer Tax costs the City’s economy approximately $170 Million in consumer spending.

“When people buy a home, they usually spend thousands of dollars on renovations, furniture, and appliances.  Thousands of Toronto jobs depend on this spending,” said O’Neill.  “Any City policy that impacts housing sales has a direct impact on the City’s economy and jobs.”

With the City currently preparing a recommended operating budget for 2009, TREB is calling on City Council to roll back the Toronto Land Transfer Tax.

“Realtors have been clear that we believe that the Toronto Land Transfer Tax is unfair and now a study by respected economists is validating that view.  Not only is this tax unfair to home buyers and sellers, but also to the thousands of people whose jobs depend on the housing sector,” said O’Neill.  “City Council can, and should, show leadership by rolling back the Toronto Land Transfer Tax.”

Realtors are looking forward to opportunities to provide input to the City’s 2009 Operating Budget.

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And now for my thoughts.

While I agree with the idea that the Toronto Land Transfer tax is both unnecessary and has a negative economic spin-off, I’d like to first play devil’s advocate and point out a major flaw in this press release.

They say that each re-sale housing transaction generates approximately $33,425 in activity such as renovations, furniture, etc.  They then conclude that since there are 5,000 lost transactions due to the new tax (their own estimate), that the economy has lost $170 Million in consumer spending.

I disagree.

Those lost sales can’t simply be multiplied by the $33,425 in estimated “spin off economic activity.”  Think about a young couple who has their second child and needs to buy a larger home.  They are turned off by the new Land Transfer Tax, and thus they decide to put an addition their existing house instead!  Voila – there is your $33,425 and perhaps more!

Similar arguments could be made as well.  Perhaps a young man decides to forego buying his first condo, and uses his nest-egg to purchase a $25,000 car instead.

Maybe all the bean-counting buyers out there who don’t buy because of the Land Transfer Tax figure they can now afford to spend more on other consumer products.

Don’t get me wrong, I whole-heartedly agree that the Toronto Land Transfer tax has had, and will continue to have, a negative effect on the real estate industry and many industries which rely on the sale of houses, but throwing around the number “$170 Million” is very irresponsible.

So what is the bottom line here?

David Miller needed money, and he lashed out at real estate.  Now, with the market cooling off, we examine the new tax to see if we can come up with a cause-and-effect equation.

Miller could have come up with any of a thousand new taxes (how about a tax for people with two left feet?), and he chose to tax real estate which is already taxed by the province in the exact same manner; not to mention our high property taxes.

So now as we approach the one-year anniversary of the new tax, Realtors make our argument against the tax and try and come up with numbers to justify their anger.

I’m all for it.

The double-taxation is ludicrous, and it creates a barrier to entry for many buyers.  Our real estate industry is far too important to kill off with yet another tax, and clearly there is notable negative economic spin-off for other industries.

If the the press release quotes some debatable figures and scares people with the number $170 Million, then so be it.

I’m sure we’re not the first industry to use scare tactics to get attention…