Finally, the provincial government has acted to cool the overheated housing market in the Toronto region from Niagara to Peterborough and as far north as Lake Simcoe. But will it work?
These are the three important elements of Kathleen Wynne’s plan.
- A 15% tax on foreign house buyers,
- Rent control on all rental units capped at a 2.5% increase a year, and
- A five year $125 million plan to encourage construction of new housing.
There are some smaller but important elements of the plan that could have an impact on the market. These include providing additional powers to municipalities to tax vacant properties, tax fairness for rental properties, and reviewing real estate industry practices.
Recently Mayor John Tory pointed out that realtors are “aggravating the market mayhem” by tactics like bidding wars, and agents who represent both buyers and sellers. (Toronto Star, April 20, 2017) It is essential that these problems be addressed, but you can be sure that the vested interests in the real estate industry will fight reforms like these.
There are other changes to the development industry that are in the works. In October 2016, the government announced that they would reform the Ontario Municipal Board. OMB appeals have added to the costs and unpredictability of the planning system. We still do not know what the government plans to do with the OMB, but it will be necessary if they are serious about improving the speed of the approvals process and reducing costs.
Taken as a whole, this package of reforms and new programs will have an impact on the housing sector across the Toronto centered region. I confess it is much broader than I predicted. But is it enough? Will it cool the housing market so that prices become more affordable, and encourage new construction of affordable housing? The signs are mixed and only time will tell the story.
The biggest concern of late is the spike in the price of houses and condos. Clearly this is driven by speculation. This is difficult to control and the government has done about the only politically acceptable thing they can do by putting a 15% tax on foreign house buyers. (As I pointed out before, this is easy for Queen’s Park. Foreigners cannot vote in Ontario.)
Last year the B.C. government put a 15% tax on foreign buyers and the average price dropped by about one-fifth. But it appears that Vancouver house prices this spring have bounced back up to near pre-tax levels. Foreign buyers have not had the same impact on prices in the Toronto area. It is likely that the tax will have some effect, but I predict it will not make much of a difference on skyrocketing prices here.
The real criticism that has emerged of the Ontario initiative is around rent control. There have been news accounts of major rent increases in Toronto of 30%. (Globe and Mail, January 27, 2017) A 2.5% rent increase cap will help renters. In my view that is good. It will help keep some rental units affordable.
Others believe the rent cap will discourage developers from building new rental accommodation and in the long run that will increase the problem because there are fewer affordable units available. There have been a number of recent announcements of new construction of rental buildings in Toronto in recent months. Will this provision lead to a halt of construction? We don’t know.
But the problems are even broader than controlling speculation and rents. We have a planning system in Ontario that is helping to push up prices. I call it, “let’s make a deal planning.” (See my book, The New Urban Agenda) Everything is up to negotiation between the developer and the municipality and deals are struck using Section 37 of the Ontario Planning Act. If the developers don’t get their way they appeal to the OMB. There are armies of lawyers in Ontario that do nothing but help developers steer through the system. All this leads to unpredictability and drives up costs.
In virtually every other jurisdiction in North America planning regimes provide predictability. Official plans are drawn up, and zoning is put in place. The developers are forced to follow those rules. No appeals are allowed. That helps to make an orderly system. But not in Ontario. Reform of the OMB will help but what we need is a new planning act.
But there is even a deeper crisis than this. We are not building the type of housing we need at a price that people can afford. The overheated market has led to more housing being built, and more is in the pipeline, but it is expensive. Many people are spending over 50% of their incomes just to put a roof over their heads. The reasons include the things we have been talking about: speculators drive up prices, the OMB, lawyers, the price of land, and developers and real estate agents taking excessive profits. But it is also because we do not have a rational government housing policy. Let’s look at the basics.
By the time a developer buys the land, gets plans drawn up, goes through the approvals process, buys the materials, builds the building, and pays for things like marketing and real estate agents, the unit costs are unaffordable to any but the affluent. Incidentally this is not an apology for the developers. I have spent my time in the trenches fighting them in the past. It is the reality of the development system in Ontario and across North America.
We can solve this problem by increasing the incomes of middle and working class Canadians. I would be in favour of that, but that will not happen easily. The only alternative is to bring down the costs of the housing so that it is affordable.
Affordable housing programs have been a fact of life in Canada, Europe, and even in the United States since the Second World War. The housing crisis in Canada between 1945 and 1950 was much worse than it is today, and it was solved by massive public subsidies. Billions and billions of dollars were spent on subsidized mortgages through CMHC, sewers, water, roads, expressways, and so on.
At that time there was a recognition by government that the free market system could not provide good housing for people at affordable prices, and the government needed to subsidize the market. Those subsidies went to people of all incomes and in all regions of the country. It had a huge effect on Canada and played an important part in raising the living standards that many of us continue to enjoy today.
Perhaps the most enlightened housing program in the developed world happened in Canada with the co-op and non-profit program developed in the ‘70s and early ‘80s. That program put together mixed income, affordable housing for individuals and families, and developed a system of co-operative management that encouraged community. Hundreds of thousands of people still live in those buildings.
The rise of right wing ideologies and governments led to the cancellation of affordable housing programs in Canada. It was the Chretien Liberal government in Ottawa that cancelled the federal housing program in the early 1990s, and the Mike Harris Conservative government ended the program in Ontario in 1995. Today, Canada is the only developed country in the world that does not have an affordable housing program.
As part of the recent Ontario government plans, Kathleen Wynne announced a five year $125 million program to encourage construction of new housing. That is $25 million a year; not enough to built one small multi-unit housing complex.
It is distressing. In 1945 Canadians had just fought a World War, government debt was much higher per-capita than today, and yet they created a housing program that transformed this country and improved the lives of millions of people. What we lack is not only a comprehensive housing policy; we lack the political will to make it happen.
Let’s stop the politics. Let’s build environmentally sustainable housing for families and individuals, and create strong, stable neighbourhoods. The benefits will be enormous.