One year after the Ontario government announced a slew of rules to cool the province’s housing market, affordability continues to remain a challenge in the Greater Toronto Area.
That calls into question the efficacy of those new rules — and whether they were too reactionary. Ontario is constantly playing catch up with Canada’s westernmost province, B.C., when it comes to housing rules. The B.C. government introduced its 15% foreign home buyer tax at a time when its housing market was running away, similar to Ontario. Not long after, Ontario followed suit, introducing a 15% non-resident speculation tax on homes bought in the Greater Golden Horseshoe (which is comprised of Toronto and the surrounding areas).
Taxing foreign buyers is an easy political win (since most of them can’t vote) and it had the intended consequence of cooling the housing market (many domestic homebuyers chose to sit on the sidelines in the months that followed). But, was it the right thing to do in Ontario? While foreign homebuyers are clearly having some impact on the B.C. housing market (business professor Andrey Pavlov of Simon Fraser University found empirical evidence that foreign investment affects Vancouver real estate), it’s not clear if they’re having a similar impact on the Ontario housing market.
Ontario needs to lead on policy, not follow
At the time that the Ontario Liberals introduced the non-residents tax, they had little data to back up their policy decision. Home prices were rising fast, so foreign buyers looking for a safe place to park their capital were blamed. If you were reading newspaper headlines before the introduction of the non-residents tax in Ontario, you were probably under the impression that foreign homebuyers were the main driver of rising home prices.
However, we now know that foreign buyers make up a very small portion of Toronto homebuyers. According to the CMHC and Statistics Canada, non-residents only own 3.4% of all residential properties in Toronto. The number is slightly higher for new homes, but still not massive: For homes built after 2016, non-residents bought 6.45% of homes. Perhaps if we knew this before the non-residents tax was introduced, other sound measures could have been brought in instead (a foreign-buyers tax on new builds, for instance).
Last month, the newly-elected B.C. NDP government didn’t waste any time introducing a slew of measures designed to slow down B.C.’s once-again rising real estate market. In all, B.C. introduced 30 measures, including a proposed speculation tax on domestic and foreign buyers.
Although it remains to be seen how effective B.C.’s housing measures will be, at least the B.C. government is making an effort to curb speculation. I’d like to see the Ontario government study the issue and gather the necessary data in case this is an issue here — and so hopefully something isn’t done at the last minute without proper time to study it. If the data warrants it, then perhaps Ontario should look at bringing in a similar speculation tax.
It’d also be nice to see Ontario take the lead on some housing policy and make changes based on cold, hard facts instead of news headlines and anecdotes. For example, rent control was supposed to protect the most vulnerable. Instead, because of the tight rules on raising the rent (and the subsequent cancellation of purpose-built rental projects), Toronto now has the highest rents in the country (even higher than Vancouver). And higher rents make it tougher for first-time homebuyers to save up a down payment.
A tough balancing act
The Ontario government is in a tough position when it comes to housing affordability. It wants to protect the home equity of baby boomers, while making housing affordable for millennials, many of whom are first-time homebuyers.
If I had one suggestion for the Premier, it would be to help reduce the transactional cost of real estate. You could accomplish this by waiving the provincial land transfer tax entirely for first-time homebuyers. This would help make buying a home more affordable for the right group, since the land transfer tax is typically the most expensive closing cost.
The Ontario government has focused a lot on the demand side of the equation, but it has yet to address the supply side in a substantial way. Cooling Ontario’s housing market is a complex issue. There isn’t a single factor that’s solely to blame for rising home prices. There are multiple factors leading to higher home prices, including immigration, the Places to Grow Act (the high demand for very little land has forced developers to build up instead of out) and low interest rates. Some of them are out of the control of the government (low interest rates), while others fall under its control (the Places to Grow Act).
Although governments tend to think in election cycles, if the government wants to get serious about fixing housing supply, they need to think long-term. Although it can take years to fix housing supply, the government could introduce a number of measures now to help encourage development and streamline home construction.
It could look at loosening the Places to Grow Act, which effectively makes Toronto an island. City hall and the provincial government would be wise to sit together and come up with ways to cut red tape for developers. It takes way too long to get shovels into the ground on new developments right now due to a myriad of issues, including poor planning and coordination.
Although it’s hard to pin down the exact factors behind Ontario’s rising home prices, with proper data and a willingness by all levels of government to put partisan politics aside, we’d have a much better chance of coming up with well-thought out government policies that actually help with escalating home prices, not just make a good news headline to help win votes.