House flipping tax better option to cool market, Scotiabank says

Senior economists with Scotiabank say a house flipping tax, not a foreign buyertax, will do more to cool Toronto's scorching housing market.

That's because the former tax would address speculation in the city, where people are buying into the market as a short-term investment, rather than looking to build a long-term home.

"There is, I think, a fair degree of speculative activity going on in Toronto," said Jean-Franois Perrault, chief economist for Scotiabank.

• Ontario mulls idea of foreign buyers tax to cool housing market
• Foreign home buyers' tax won't be enough: Ryerson report

Unlike Vancouver,Perraultsays there is a relatively small number of foreign buyers in Toronto, making a tax targeting that demographic less relevant. In addition, he believes the foreign buyertax in Vancouver provided an unrealistic snapshot of how to control the housing market in that city.

"Prices started to decline well before the foreign buyers tax," saidPerrault."The data we've seen over the last couple of months in Vancouver suggest that house prices have begun to reaccelerate."

"If you're looking for kind of a permanent solution to the housing market in Toronto ... you need something that has a little more of an impact on a broader market," he said.

Special land transfer tax

That's where the house flipping tax comes in.

Perrault said the levy would boost the cost of speculation by requiring a buyer to pay a special land transfer tax if they were to sell within a particular timeframe.

"Speculators provide a very useful function," Perrault said. "We're just suggesting a solution that would make speculating just a little bit more expensive.

"If you want to engage speculation fine, go ahead. It's great for the market, just it's going to be a little more expensive to do it."