Tenants may see some relief — which is no small matter — but if you can't afford a house in the GTA today, you still won't be able to afford one next year. Don't take my word for it — Finance Minister Charles Sousa admitted as much on Thursday, as the government unveiled its long-awaited plan to cool the Greater Toronto Area's real estate frenzy: “We’re trying to stabilize the market, we recognize these homes are one of the biggest assets for many families’ retirement as well,” Sousa said, “So we’re not trying to change the market pricing necessarily, we’re just trying to ensure stability.”
It’s the fundamental contradiction in housing policy: one buyer’s exorbitant home price is another seller’s retirement plan. Both in Ontario and in B.C. before it, governments are leery of trying to force outright price cuts on homes for fear of impoverishing the large bloc of voters who have the majority of their wealth tied up in housing. Aside from the obvious economic consequences, suddenly losing home equity tends to make voters cranky, and the Liberals have enough of those in Ontario lately.
Which isn't to say there are no good ideas in today’s housing plan, only that the government (and probably a government of any political stripe) was always going to be cautious.
The policies basically fall into into two groups: ones aimed at cooling the demand for (and in turn prices of) home purchases, and ones hoping to stabilize the precarious conditions Ontario's renters face.
On the home-buying front, the headline measures announced today include a foreign buyer’s tax of the kind that has already mostly failed in Vancouver, as well as giving Toronto (“and, potentially other municipalities,” according to the plan) the right to charge a vacant units tax, thereby providing owners with incentives to either put those units up for sale or rent. (This will be fiendish to enforce, but Toronto will at least get the capacity to spend the requisite time and money if it chooses.)
The government did its best to appear “open for business” to the world at the same time it was (contrary to its own statements less than a year ago) introducing the foreign buyer’s tax — which they’d prefer we all call a Non-Resident Speculation Tax. The NRST will have plenty of exemptions for actual humans actually living in actual Ontario, but is designed, as much as the province can, to catch international money flows. A surtax of 15 per cent will apply to any transfer of land with one to six units of housing on it. Apartments of seven units or more, as well as all agricultural, industrial, and commercial property, are still fair game for foreign buyers.
(Premier Wynne told reporters she changed her mind on the foreign buyer's tax because market realities had changed — and in fairness the government can’t be faulted for a turnaround in the face of 20 and 30 per cent increases in GTA home prices.)
One big exemption in the NRST: it will offer rebates to foreign students who have been in-province attending colleges or universities for at least two years. Those who believe foreign speculators have been driving up the market have put a lot of weight on the supposed role of international students attending universities in Vancouver and Toronto. This exemption would seem to leave that door still mostly-open.
Non-rental homebuilders were left mostly untouched by the government’s proposed changes. Municipalities will get a “use it or lose it” taxing power intended to prod developers into building on land that’s already been zoned and serviced. It’s a nod to mayors like Rob Burton of Oakville, who accused developers of hoarding land they’d already received permission to build on. (In Oakville's case, Burton claimed there were as many as 6,000 units that had approved but weren't being built.) This will be a key issue to watch, both in terms of how much leeway municipalities actually get from the province and what results, if any, such a tax actually produces.
For current tenants, the news is good: The government is ending the 1991 exemption on rent control — the one that has exempted new construction from the rules capping annual rent increases — that has seen tenants in new condominium units endure double-digit increases in Toronto’s hot market. The Liberals are also proposing to tighten the rules for when a landlord can make a “own use” eviction, where a tenant is suddenly told the owner’s family needs the space. This should mean that tenants both have more stability in how much they pay, and more security in their tenure.
- Ontario needs a rental rethink, but should tread carefully
- The Agenda: Rent control in Ontario
- The Agenda: Forget about buying a home
- The Agenda: Rent, don’t buy
The potential danger of tighter rent control rules is that it will stop developers from building new units, because they won't be able to recoup their investments. The CEO of the Federation of Rental-housing Providers of Ontario, Jim Murphy, made exactly that warning after the government’s announcement. There’s some merit to this concern, but rental housing is also complicated, and landlords will still have some flexibility: they are keeping the right to set rents to the market rate whenever a tenant leaves, for instance. (One rental developer with a project in Toronto currently going through the approval process told TVO.org that nothing announced today would stop that project, but might make the company rethink future ones.)
To try and accommodate those worries the Liberals have also included some measures to try and encourage rental housing construction. For example, the government is going to require all municipalities to adopt a property tax rate for new rental construction that’s identical to new detached homes or condos. (Currently, owners of rental properties often pay much higher taxes than owners of detached homes or condos.) The problem is Toronto and some other cities already offer a harmonized “new rental” property tax class, the provincial change would make it province-wide. So while this may do some good, the effect will be limited.
Similarly, the government is committing $125 million over five years to rebate development charges — the fees municipalities charge housing to recoup sewer and road costs that new homes bring — back to rental developers. There are nearly 28,000 units of rental housing in the regional pipeline according to Murphy, so that works out to about a $4,500 rebate per unit. Currently the lowest development charge in is more than $17,000 per apartment; in Peel Region it's $20,400. So at best, the province’s rebate will only cover a small part of the bill cities levy on new units. (If Murphy’s right and the industry starts dramatically cutting back new rental construction those numbers would change — the $125 million would be shared among fewer new units — but that’s exactly what the Liberal say they’re trying to avoid.)
There will be other issues to keep a close eye on over the next year. What will changes to rent control mean to projects currently in the pipeline — will they convert to condominiums so the developer can simply sell the units and walk away? Some GTA projects have actually been doing the reverse (converting from condos to rental) as federal mortgage changes made ownership more difficult and the demand for rentals is climbing.
Another: Will current condo investors start selling their units en masse, now that they’re being caught by the province’s rent control rules?
The government was asked, repeatedly and by multiple reporters, what its own data was predicting and what data it had used to come up with the changes it presented Thursday. They did not provide any clear answers.
But one kind of data is publicly available and obvious: there’s an election coming in 14 months, the Liberals are struggling on multiple fronts to address household affordability issues, and opposition parties have been hounding them for weeks and months to do something. The measures announced today may do some good, but that’s almost not the point.
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