Why the Out-of-Province Tax Didn’t Fix Nova Scotia Real Estate

The Nova Scotia real estate market has been on fire for the last two years. This has been a change of pace for an economy that has been reeling since the 1990s, crippled by a population exodus and stagnating economic growth.

However, in the aftermath of the COVID-19 public health crisis, when Nova Scotia and the rest of Atlantic Canada enjoyed an influx of new residents, the housing boom and economic gains when hand-in-hand. Public policymakers hope to sustain the momentum by developing key regions of the province and ensuring they can retain these new residents.

Until that happens, Nova Scotia must address the short-term challenges in the housing market. The primary factor at play is that the supply shortage has created an environment of enormous price growth, preventing longtime residents from buying homes, and being forced to the sidelines.

Officials have been considering a broad array of tools and proposals to help alleviate the exceptional valuation gains over the last two years, be it higher property taxes or investments in affordable housing programs.

One tax was introduced, and then it was withdrawn. What was it, and what happened?

Nova Scotia’s Out-of-Province Tax Didn’t Work

In March, Premier Tim Houston and his Nova Scotia Progressive Conservative government announced two measures that were expected to generate $81 million in new revenue for the province.

The provincial government proposed a five-per-cent transfer tax on non-residents’ property values as part of its spring budget. This would have applied to out-of-province homebuyers who do not relocate to the province within six months of closing on their purchase. The accompanying measure was a property tax of two per cent of the assessed value of homes owned by non-residents.

In addition to facing a budget deficit of more than $500 million, the funds were to have been allocated to affordable housing programs and new rent supplements.

Two months later, Premier Houston confirmed that his government would be scrapping the levy. The announcement occurred two days after he promised to trim the non-resident property tax to shield small cottage owners.

Houston faced opposition from the very beginning, particularly from communities with a substantial number of seasonal residents. Critics argued that the policy prescription was put forward without significant input from those impacted by this fiscal penalty.

It is estimated that approximately 27,000 residential properties in the Nova Scotia real estate market are owned by non-residents, with many belonging to individuals who spend most of the year in Ontario.

But Houston told reporters at a news conference that the objective was to always “improve home affordability” rather than “be at odds with our core value of being a welcoming province.”

“So today, I will put my personal pride to the side,” the premier stated. “This policy was an effort to find a solution. It was always meant to be a tool to support housing. But when you realize that the tool you have in your hand might not get the job done, you look for another tool. I commit to finding a tool to make home affordability, particularly for first-time homebuyers, a reality in this province.”

He added that he and his team understood that “the risk of reputational damage to Nova Scotia is becoming more and more real.”

“Sometimes, it’s difficult to anticipate where something might go in the minds of the public. But we did not foresee that this would change the view of Nova Scotia in the eyes of people,” Houston said.

How’s the Nova Scotia Real Estate Market Doing Anyway?

So, how is the Nova Scotia housing market performing as of late? It has been the same: record-setting totals for the month of May and considerable price growth.

According to the Nova Scotia Association of REALTORS®, residential property sales tumbled 7.3 per cent in May from the same time a year ago, totalling 1,476 units. However, this is still the second-highest total for the month of May on record. Moreover, home sales were 11.3 per cent above the five-year average and more than 22 per cent above the decade average for this time of the year.

Prices enjoyed exceptional gains, association data show. The MLS® Home Price Index (HPI) advanced at an annualized rate of 31.7 per cent to $417,500 in May. The average price of homes sold in May climbed nearly 16 per cent year-over-year to $452,748.

Single-family homes surged 31.3 per cent to $410,300, townhomes swelled 33.1 per cent to $506,000, and apartment prices soared close to 37 per cent to $482,500.

Listings were a critical factor as new and active residential listings increased by 30.6 per cent and 2.3 per cent, respectively. There were 2,238 new listings and 2,747 active residential listings. The months of inventory, which is the number of months it would take to sell current inventories at the present rate of sales activity, edged up to 1.9 at the end of May.

New housing construction has remained robust, despite being down from the previous year. According to Canada Mortgage and Housing Corporation (CMHC), housing starts totalled 177 in April, down from 219 in April 2021. Year-to-date, housing starts have surpassed 1,000 units, compared to the 1,336 units from the same time a year ago.