The Financial Impact of Fewer Sales

Annual total housing sales in the Greater Toronto Area have fallen from their 2016 peak of 113,040.  Last year, there were just over 92,000 in the GTA, a drop of essentially 20%.  This year, TREB estimated the region would see between 85,000 to 95,000 sales (Source: TREB RELEASES MARKET YEAR IN REVIEW & OUTLOOK REPORT AT ECONOMIC SUMMIT, Jan 30, 2018); however, the results from the first eight months of the year make that forecast look slightly optimistic.  Through August, there have been nearly 54,000 sales according to the monthly statistics, and even with a better than last year fall finish to the year, the annual number is unlikely to achieve 85,000 (80,000 – 83,000 appears to be more likely).  To understand how this drop may impact the local economy, let’s look at a few different scenarios to show how the reduction in sales could impact the region from the financial perspective.

Spin-off Benefits

TREB estimates that the economic spin-off from each home sold in the GTA is valued at $68,275.  This figure includes spending on items like renovations, new furniture, moving expenses, legal fees and taxes.  This means that 10,000 (this number is being used because our projected total of just over 80,000 is 10,000 fewer than the average of TREB’s range of 85-95k in sales) fewer sales this year will cost the region $682,750,000 in anticipated economic benefits.  With the Greater Toronto Area’s GDP estimated at $325 billion, this represents a small but note worth reduction.

Realtor Fees

To the slight pain of many buyers, the cost of using a realtor is generally 5% of the sale price, with 2.5% going to each realtor.  Thus far this year the average sale price of a home in the GTA has been roughly $786,000.  Meaning the 10,000 unit drop in sales could cost TREB real estate agents a total of $393 million.

Toronto’s Land Transfer Tax

The city of Toronto implemented its municipal land transfer tax when the average cost of a house was under $400,000.  Over the decade it has been in place, the city has enjoyed incredible amounts of revenue from the tax.  For this fiscal year, City Hall estimated the tax would bring in roughly $800 million (the fiscal year being from April 2018 to March 2019), two thirds of which was forecasted to come from the residential side.  Our calculations, based off of total sales thus far, put the residential revenue raised at $189 million.  Amortized over the full fiscal year, this will put the city roughly $80 million under its residential forecast, causing a revenue short fall in the budget.

The website Better Dwelling estimates the nation’s real estate industry currently makes up just over one fifth of the Canadian GDP (Great read: https://betterdwelling.com/real-estate-drove-fifth-canadian-economy-2017/).  The few examples above show how even with housing prices continuing to increase, the impact of fewer sales quickly has a significant compounding effect on the economy.  At some point the drop in secondary revenue from those lost sales will begin to hurt the region and it will be interesting to see what happens to house prices when that impact is felt.

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