Toronto’s runaway housing market needs some serious intervention, says a new report from CIBC.
A foreign buyer tax — one of the proposals being floated right now — isn’t going to be enough to cool the market, according to Benjamin Tal, deputy chief economist at CIBC. His new report suggests that the GTA needs more purpose-built rental units to ease supply pressures and cool the market while giving people in the GTA more affordable places to live.
In the report, he acknowledges that the GTA is definitely heading towards an affordability crisis, with some one bedroom apartments costing nearly $2,000 and homes regularly selling for well over a million dollars. But the crisis can be averted, he says, by implementing GTA-specific policies to help address the unique issues of the abnormally hot housing market.
The main factor is the city’s lack of space. Land constraints put limits on how many high-rise buildings are built and if the majority of those buildings are condos, it creates several problems. Not only do those units get more and more expensive, but they are also often turned into pricey rentals. It encourages more people to buy condos as investment properties instead of primary residences, further diminishing supply for people who just want places to live.
Purpose-built rental buildings can make a difference in affordability because of inclusionary municipal policies and incentives to developers that cut their costs, such as waiving their tax or development charge. Purpose-built rentals can also more easily be kept affordable with municipal rent-control policies.
This isn’t the first time this solution has been looked at in the city and there has recently been an increase in approved purpose-built rental developments. Building these units takes time, however, so we won’t immediately see how effectively an increase in rental supply affects the housing market overall.
Many young families and professionals are settling into the idea of long-term renting. The report found that while rent increased 12% last year, the number of leases signed fell 9%, suggesting people are finding rentals and staying put for a longer time than before.