This article was previously published in the Financial Post.

Families at every income level are finding it hard to pay for a home in Toronto and instead of helping, Toronto city councillors are making it harder by looking for ways to squeeze out new taxes.

City councillors Ana Bailao, Brad Bradford, and Joe Cressey announced they’re considering a new land transfer tax bracket for house sales over $3 million. The municipal tax currently tops out at 2.5 percent on homes over $2 million. This municipal tax is, of course, in addition to the provincial 2.5 per cent land transfer tax.

It adds up to a lot of money. On a $3 million home, the current land transfer tax is already $122,950. And unlike a mortgage, the land transfer tax is an up-front cost that needs to be paid right away. This tax-happy trio of city councillors is betting that people buying expensive homes won’t miss the money, but that’s not how it works and the impact ripples throughout the market.

The best way to help families find homes is to build more homes. Raising taxes on any part of the market makes it harder to build more homes. And ironically, land transfer taxes are also bad for government because they’re unreliable.

By adding such a huge immediate cost to moving, families are less likely to move. They are more likely to stay in smaller homes even as their families grow. They are more likely to suffer through longer commutes or lengthy and expensive renovations to avoid the cost of moving.

A C.D. Howe Institute publication of the Toronto market found that the city’s land transfer tax resulted in a 16 per cent decrease in sales volume. Based on the number of sales of houses in Toronto as a whole, C.D. Howe estimates that the result is that 3,500 fewer houses are sold in the city each year because of the tax.

All of this has a negative impact on the broader economy. A study in the United Kingdom found that the economic costs of the land transfer tax gets worse as the tax rate increases. This is bad news for Toronto, which has the highest top marginal land transfer tax in North America at five per cent.

Land transfer taxes actually discourage developers who build homes. Land is often sold multiple times before it ends up with the final homebuyer and that compounds the cost and makes it’s hard to develop vacant or underused land. This results in fewer and more expensive homes.

Land transfer taxes are also are surprisingly bad for government because they are such an unreliable way for the city to raise money.

Real estate is cyclical, which means land transfer tax revenues vary dramatically. Governments become dependent on these taxes when the market is high, and then scramble when the revenues inevitably fall. That usually means taxpayers get hit with yet another tax hike. History is proof. The last municipal increase happened just two years ago when the top marginal rate went from 2 per cent to 2.5 per cent.

Toronto’s former city manager, Peter Wallace, warned against the city’s over reliance on the municipal land transfer tax in his 2018 financial plan report. Toronto’s 2018 financial plan assumed the municipal land transfer tax would continue to generate as much revenue as in prior years, even as the real estate market flattened. Councillors should be looking for ways to find efficiencies and decrease reliance on this volatile revenue stream rather than raising the tax.

Toronto should be encouraging more and better housing in the city and reducing land transfer taxes. This will let builders build, help families move and move city hall away from an unreliable revenue source. Ultimately, if city council really wants to help families find homes, the best thing to do is to get out of the way.