Hon. Victor Fedeli
Minister of Economic Development, Job Creation and Trade
18th Floor, 777 Bay St.
Toronto, ON M7A 1S5
Dear Minister:
Thank you for taking the time to join our members from the North Bay Real Estate Board last month to discuss the Ontario Real Estate Association’s plan to make housing the engine that drives the Provincial economic recovery from COVID-19.
Our Members were pleased to discuss three recommendations to help stimulate Ontario’s economy, create jobs and help communities that need it most coming out of the COVID-19 pandemic. As the Minister responsible for Economic Development, Job Creation and Trade I wanted to follow up that meeting to expand more on the innovative policy proposal local REALTORS® discussed with you – Opportunity Zones.
Growth & Opportunity – A Tale of Two Ontarios
Ontario is a province that epitomizes the Canadian dream. People from all over the world immigrate to our great Province to start a business, find a home and raise a family.
But while opportunity is readily available, it is not equally shared and many communities across our Province are struggling. In fact, growth and job creation in Ontario is overwhelmingly focused in two cities. Between 2009 and 2019, two regions (Ottawa & the GTA) accounted for 87 per cent of job creation. As more companies shift to a permanent work-from-home structure, a trend is beginning to emerge where Ontarians are taking advantage of more affordable housing prices by moving to rural and northern communities. As such, the government has an opportunity to shift their focus to how we can stimulate economic growth in Ontario’s smaller communities while at the same time helping underprivileged residents and businesses in these communities thrive.
Opportunity Zones – A U.S. Success Story
Opportunity Zones are designated geographic areas that provide incentives to investors to put private capital into measures that will stimulate and grow the economy. Opportunity Zones were first created in the United States as part of the 2017 Tax Cuts & Jobs Act to leverage private investment into economically distressed communities. These zones are designated by States using census income data and are mostly targeted at those areas with lower-income residents.
When a community becomes designated as an Opportunity Zone, the U.S. federal government allows investors to defer capital gains taxes on their investments, if the money is being re-invested into those communities. Investors can sell stocks or other investments and are able to delay capital gains for up to seven years, with some scenarios allowing profits from the projects to avoid federal taxes completely.
The deferral policy is valuable, as it allows for investors to invest more money into their projects up front, which provides the opportunity for the government to collect a greater profit over time. In the U.S., the government has set up “Opportunity Funds,” which allow developers to invest directly in real estate or businesses within a community.
Since the program was implemented in the U.S., over 8000 Opportunity Zones have been recognized, leveraging approximately $75 billion in private capital and $11 billion in new wealth for residents living in those communities. More importantly, according to the Council of Economic Advisors, roughly 70 per cent or $52 billion was new investment that would have not otherwise occurred were it not for the Opportunity Zones being in place.
To date, many areas that have been designated as opportunity zones have shown increased growth. An article from Zillow shows that although year-over-year change in sales prices of residential properties in all eligible zones were increasing before the policy was implemented, home prices in Opportunity Zones still increased, signalling demand in those areas.
Hazelwood Green, located in Pittsburgh, Pennsylvania, is one of the many success stories that have come out of Opportunity Zone designations. The site is located on 178 acres along the Monongahela River, and is divided into three districts that will be used for both residential and non-residential development. The Mill 19 project is using the site of a historic steel mill to house a workspace for manufacturing, research and development with a focus on A.I. Mill 19 is already housing tenants such as the Carnegie Mellon University’s Manufacturing Futures Initiative, and is set to open its doors to Aptiv, an autonomous technology company later this year.
An Opportunity for Ontario
Opportunity Zones are an innovative policy solution that can help more Ontario families, businesses and communities prosper in a post-COVID-19 economic recovery.
The Province has already shown a desire to encourage growth in non-traditional municipalities through its creation of the Regional Opportunities Investment Tax Credit. To take the proposal one step further, Munk School of Public Policy Professor Sean Speer has suggested the Province could work in partnership with the federal government to provide a more fulsome tax break for qualifying investments or provide breaks on its own provincial taxes and regulations. Either way, Ontario can use policy tools at its disposal to implement Opportunity Zones and encourage more investment in areas across our Province that need it most.
We would welcome the opportunity to further discuss OREA’s policy proposals with you and your staff at a time that is convenient for you. For any additional information, please feel free to contact Jason Lagerquist, OREA’s Head of Government Relations at jasonl@orea.com.
Sincerely,
Tim Hudak,
CEO, Ontario Real Estate Association
Cc: Honourable Doug Ford
Premier of Ontario
Honourable Rod Phillips
Minister of Finance
Honourable Steve Clark
Minister of Municipal Affairs & Housing