For a few weeks we have heard lots of promises that affordability of homeownership is coming. The government is stepping in and this would bring stability to the Real Estate Market. The headlines read “Government set to step in and cool the Housing Market”.
The premise was that they would:
- Increase Supply
- Make Home Ownership Affordable
- Protect Buyers and Renters
It’s great to see all three levels of government stepping in and trying to make a difference. I commend them on brainstorming and working together. Let’s take a look at a synopsis of what actually happened yesterday, my thoughts on the changes, and a few ideas on what I think would have helped as well:
1. Implementation of a new 15% Non-Resident Speculation Tax for single family residential properties.
Multi-Unit Residential, Agricultural, and Commercial/Industrial Properties are exempt
Does not apply to Nominees under the Ontario Immigration Nominee Program or Refugees, furthermore, anyone that subsequently attains citizenship or permanent residency, those employed in Ontario or International Students would receive a rebate.
Most foreign buyers move here, work here or are going to school here. So who does this actually affect? Also, how does this contribute to affordable housing? The new tax goes straight to the government. It’s not going into a fund to help build affordable housing. It’s just a way for the government to make some extra money if it ever applies to anyone.
2. Selling off of the Province’s “Surplus” Land
The Government will be selling off land that will be used to develop affordable housing. Sounds great, except that only 20% of these homes in the West Don Lands site will be slated to be affordable rentals, and even less (5%) of these homes will be for affordable ownership. Great idea, but another win for the government as surely there will be a bidding war for this land. Well, you can’t blame them, it’s a sellers’ market right? 😉
3. Vacant Home Tax
For those homes left vacant, there will be a tax that should encourage home owners to sell or rent out their property. Left out was a definition of “vacancy”. Is it still vacant if the person lives in it for one week of the year? Is it 26 weeks? We need more clarification on this to see if it actually means anything.
4. Rent Control
Rent increases will be capped at 2.5%. There were already a few rules in place for this in the Landlord Tenant Act. The average increase over the last 10 years has been a modest 2% but in a few instances there have been double digit increases which this will address. Good plan but when costs for the landlord exceed the rent being received, you may see leases not being renewed. It’s not fair for tenants to have to face unjust rent hikes and this will prevent that, however this is still a business and Landlords are not in it to lose money either.
5. Lower multi unit residential tax rates to be similar to single family home tax rates.
This is a great opportunity for investors to purchase rental buildings. Again, with limited supply of these buildings, look for bidding wars to increase in this sector.
6. Increased vigilance over “paper flipping” or assignments of properties before closing to limit tax evasion.
Basically, they want their HST on any assignments. 😉
7. Focus on Real Estate Professionals and reviewing rules for fair representation. practices, specifically “double ending”.
I agree, I think we need to uphold our professional standards and crack down on anyone that goes agains the rules and regulations set out by our governing bodies. Has any of this contributed to price appreciation over the last three years? No. This seems to be more of a smoke screen than anything.
These are the main changes being implemented. Will any of the above contribute to lower prices or a “cooling of the market”? Not in my professional opinion. As someone that is entrenched in the day to day aspects of the housing market, there is a lot left over that hasn’t been addressed but needed to be.
Here’s what should have happened:
Foreign ownership hovers between 5 and 8% depending on which numbers you believe. Either way, it’s still not enough to dictate positive or negative pressure on the market. The 15% tax is just a way for the government to capitalize on the investments of foreigners. A solution would have been for this tax to be channeled into a fund to build affordable housing. Use the tax money to subsidize development charges to builders and get them building affordable rentals.
I would have liked to see the government offer incentives to developers to step up building. The only way to achieve market equilibrium is to increase supply to meet demand. What type of incentives? Maybe they could have decreased development charges for the next few years. They could have streamlined the application and approval process for building permits. Just the increased construction alone would have been a huge boost to the economy and created jobs all around.
I would also have liked to see the government offer greater incentives to home buyers with a land transfer tax amnesty period for Canadians. They talk a big game about making home ownership affordable, the temporary elimination of the Land Transfer Tax would save buyers thousands of dollars.
In the end, as much as we can talk about measures to cool the housing market, and reduce double digit price appreciation, the root cause will always be economics. It’s a simple supply and demand issue. Everything the government announced yesterday is a smoke screen to deflect from the main issue contributing to affordability.
I’ve used the hamburger example before. If you have 100 people wanting a hamburger but you only have 10 patties, the market is out of whack. Someone from the back of the line is going to be desperate for food and offer you over asking for that burger. In turn, this creates a bidding war and in the end you still have 90 people without a burger. Some because they weren’t first, some because they couldn’t afford the high price tag that came about from the bidding wars. People that would normally be able to afford that burger on their income are now having to pay steak prices and are going home hungry or settling for fries because someone from the back of the line jumped in and paid more. The solution is not to tax the people that are taking the burger to go and saying if you come back and eat here we will rebate the tax. The tax isn’t going to help the people that lost out on the burgers.
So the government is striking back, but “Where’s the Beef?”. WE NEED MORE BURGERS! More burgers will help the people that aren’t able to eat. The solution is to help make more patties so everyone can eat, and once there are more patties, bidding wars are eliminated. This would “cool” the market and bring stability to the market. Supply and Demand are the only two variables that can dictate market dynamics in this case. Let’s not let media hype overshadow the issue at hand.
Asif Khan, RE/MAX Prime Properties, Brokerage