By Wayne Karl
Is Ontario's new Fair Housing Plan, comprising 16 measures designed to stabilize the real estate market while protecting homeowners' investments, actually fair? Or foul? Or is it a fail, even?
Well, that depends on what part of the housing market you're in.
(Photo: Hinterhaus Productions via Getty Images)
Homebuyers will like the plan if it has the desired cooling effect on the market. After two consecutive years of double-digit gains, average house prices in the Toronto region reached $916,567 in March 2017, up 33.2 per cent from a year earlier.
Even if, as some sources suspect, the pause lasts only a few months, would-be buyers may catch a break from the norm of the past couple years -- prohibitive price growth, multiple offers and bidding wars.
HomeownersHomeowners will probably be OK with the measures if they don't lead to any precipitous drop in prices. Even if price growth slows to between five and 10 per cent, as some suggest, those are still handsome gains.
"More sustainable and moderate price growth is in the interests of buyers, sellers, the financial system and the economy."
-- Craig Alexander, Conference Board of Canada
Sellers, on the other hand, may not love the plan, as it may reduce buying activity and price growth, even if only in the short term.
"Given the frothy real estate price growth across the Greater Golden Horseshoe, policy action was needed to reduce the growing risks to the Ontario and National economy," says Craig Alexander, senior vice-president and chief economist at the Conference Board of Canada. "More sustainable and moderate price growth is in the interests of buyers, sellers, the financial system and the economy. In recent years, the federal government has delivered several rounds of housing policy tightening that impacted real estate markets from coast-to-coast. The next logical step was regional policy actions where the imbalances are greatest. It was time for Ontario to act."
Many realtors believe the plan is mostly positive news. While the foreign investor tax garnered most of the headlines, those buyers' actual activity is estimated to be only about five per cent of purchases in the GTA. Therefore, the market will largely continue to work itself out for primary homebuyers, while speculators (investors who count solely on value appreciation) could back away.
"It is fair to assume that a foreign speculators tax will impact the middle-class, and not just buyers in the upper-end of the market," says Christopher Alexander, regional director at ReMax Ontario-Atlantic Canada, Toronto.
Alexander expects the foreign buyers' tax to have a similar impact in the GTA as it did in Vancouver last year -- negatively impacting consumer confidence as buyers wait to see how it would take effect, causing less activity in the market overall.
(Photo: MBBirdy via Getty Images)
Before the release of the plan, home builders feared a knee-jerk reaction from the province, especially new taxes and their unintended consequences.
Their primary concern, however, remains supply.
"As the industry that builds 95 per cent of new housing in Ontario, we are pleased that the government has accepted our recommendations to create a housing advisory group and Housing Supply Team to resolve land-use approvals issues and red tape, which prevent housing from coming onto the market for new home buyers," says Joe Vaccaro, CEO of the Ontario Home Builders' Association. "We look forward to working with our provincial and municipal partners and continue to promote solutions, such as pre-zoning, fast-tracking approvals, and fixing the EA process, in order to bring more housing supply and housing choice to consumers."
The absence of cranes in the sky or shovels in the ground is never a good thing.
Builder associations have been lobbying for years that Ontario must find ways to quicken the approvals process. In Greater Golden Horseshoe area, it can take five to 10 years for the regulatory process to play out -- even in areas already slated for growth -- when it should take two to three years, they argue.
Builders' concerns aren't just about their own profits, either. Housing starts are an important indicator of economic health. If builders are building, that means they are employing; in the GTA in 2015, almost 200,000 people, earning more than $11 billion in wages, according to the Building Industry and Land Development Association.
The absence of cranes in the sky or shovels in the ground is never a good thing.
Private investors appear to be the ones taking it on the chin the most, or at least first.
"By making this statement, the government is effectively acknowledging that investors will have to take a massive hit to their yield, with only being able to increase gross cash flow by 1.5 per cent (less than the rate of inflation)," Calum Ross, broker and wealth planner at The Mortgage Management Group, Toronto, told YPNextHome. "What the government has failed to recognize is that real estate investors need to make return, and if they don't, they will simply deploy their capital elsewhere. With cap rates already so low for GTA real estate assets, the increased rent control could very well cause the single largest rental crisis in this city's history.
"Buying real estate based on theoretical appreciation of values is speculation, not investing. Smart money and those with capital don't play the speculation game. I am advising most of my Toronto clients to sell and seek yield in dividend-paying equities or invest in real estate elsewhere. This announcement will only strengthen my belief that Toronto real estate investors who understand math should simply sell."
(Photo: Andrey Popov via Getty Images)
If there's an early winner in the Fair Housing Plan, it's renters. Rent control will be expanded to buildings constructed after 1991, which were previously not covered by rules.
Ontario's average vacancy rate dropped to 2.1 per cent in the fall of 2016, from 2.4 per cent in 2015, the lowest vacancy rate since October 2003; in Toronto, the vacancy rate was 1.3 per cent, the lowest in 12 years.
With such miniscule vacancies, some landlords were demanding any rent they wanted once a lease was up, in some cases doubling rents.
Anything that alleviates this pressure for renters, then, is a win.
Originally published on YPNextHome.ca
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