The Ontario Fair Housing Plan: A Band-Aid Solution?

The Ontario Fair Housing Plan: A Band-Aid Solution?

On April 20, 2017, Premier Kathleen Wynne announced measures under the Ontario Fair Housing plan affecting the Greater Toronto Area residential market.

The plan's goals are:

  • to moderate the demand
  • to address supply
  • to protect buyers and renters
  • to promote affordability in the provincial housing market

and altogether increase market stability.

The government announced the following 16 policy measures as part of the plan.

  • A 15-per-cent non-resident speculation tax to be imposed on buyers in the Greater Golden Horseshoe area who are not citizens, permanent residents or Canadian corporations.
  • Expanded rent control that will apply to all private rental units in Ontario, including those built after 1991, which are currently excluded.
  • Updates to the Residential Tenancies Act to include a standard lease agreement, tighter provisions for "landlord’s own use" evictions, and technical changes to the Landlord-Tenant Board meant to make the process fairer, as well as other changes.
  • A program to leverage the value of surplus provincial land assets across the province to develop a mix of market-price housing and affordable housing.
  • Legislation that would allow Toronto and possibly other municipalities to introduce a vacant homes property tax in an effort to encourage property owners to sell unoccupied units or rent them out.
  • A plan to ensure property tax for new apartment buildings is charged at a similar rate as other residential properties.
  • A five-year, $125-million program aimed at encouraging the construction of new rental apartment buildings by rebating a portion of development charges.
  • More flexibility for municipalities when it comes to using property tax tools to encourage development.
  • The creation of a new Housing Supply Team with dedicated provincial employees to identify barriers to specific housing development projects and work with developers and municipalities to find solutions.
  • An effort to understand and tackle practices that may be contributing to tax avoidance and excessive speculation in the housing market.
  • A review of the rules real estate agents are required to follow to ensure that consumers are fairly represented in real estate transactions.
  • The launch of a housing advisory group which will meet quarterly to provide the government with ongoing advice about the state of the housing market and discuss the impact of the measures and any additional steps that are needed.
  • Education for consumers on their rights, particularly on the issue of one real estate professional representing more than one party in a real estate transaction.
  • A partnership with the Canada Revenue Agency to explore more comprehensive reporting requirements so that correct federal and provincial taxes, including income and sales taxes, are paid on purchases and sales of real estate in Ontario.
  • Set timelines for elevator repairs to be established in consultation with the sector and the Technical Standards & Safety Authority.
  • Provisions that would require municipalities to consider the appropriate range of unit sizes in higher density residential buildings to accommodate a diverse range of household sizes and incomes, among other things.

It is still too early to analyze all of the measures in-depth and more details about them should be provided soon. However, we've decided to comment on what we know so far and we're also including comments by the CEO of Sotheby's International Realty Canada, Brad Henderson.

The Non-Resident Speculation Tax

The new tax will levy a 15% NRST on residential real estate transactions where a foreign buyer purchases a property and is deemed to be engaged in speculative activity.

EXEMPTIONS AND REBATES APPLY TO:

  • foreign buyers who have work visas
  • students who have been enrolled in a school in Canada full-time for at least two years from the date of purchase or acquisition.
  • foreign national with a status of "convention refugee" or "person in need of protection",
  • foreign national who has received confirmation under the Ontario Immigrant Nominee Program
  • foreign national who has a spouse, who is a Canadian citizen, permanent resident of Canada, "nominee" or "refugee", if the foreign national purchases the property together with that spouse. The exemption doesn't apply if the couple purchases a property with another foreign national.

The new tax will apply to transactions initiated after April 20, 2017, unlike the Vancouver tax which applied to closings after August 2.

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Brad Henderson

While there is still no adequate statistics about the foreign buyers, most agree that they represent a small part of the market, somewhere between 5 and 10 per cent. Brad Henderson says that the estimate of foreign buyers engaging in speculative activity is circa 1 to 3 per cent of the total market.

We expect there may be a slowdown in activity as all buyer digest the change and determine its effect. No doubt it will curb some pure speculative activity but in the longer run, the strong domestic demand twined with continued limited supply will keep upward pressure on prices.

In the months following the introduction of the Vancouver tax, the activity has indeed declined, but Henderson says that was mostly due to market participants withdrawing and sitting on the sidelines:

This constrained supply particularly at higher price points. This changed the mix of home sold to the lower end of the price scale giving the illusion that market prices were moderating or decreasing when in fact it was simply the average price of homes sold (rather than the average price of a home).

Extended Rent Control

The announced expanded rent control will apply to all private rental units in Ontario, including those built after 1991, which are currently excluded. Increases on all building will be limited to the rate of inflation — as long as it is 2.5 per cent or lower. This series of initiatives is intended to restrict increases in rents, while at the same time increasing the supply of rental units. The government also wants to match multi-unit residential property tax rates with other residential tax rates.

Brad Henderson thinks the rent control will actually reduce the supply of rental properties:

Most industry participants and economists agree that rent control will no doubt stifle new rental construction, encourage conversion of existing residential multi-unit stock to condominiums, and add to the demand for new condominium construction. All of which will have the effect of reducing the stock of available rental properties in the longer run and not really contributing to affordable housing options.

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Jim Burtnick

Jim Burtnick, Broker, SVP-Sales at Sotheby's International Realty Canada, is worried that the vacancy rate might go even lower due to this policy:

While giving tenants better guarantees that their rent will not increase drastically by setting limits (no higher than the annual rate of inflation and capped at 2.5% even if inflation is higher), this policy alone will exasperate the low vacancy rate (1%) that this City is already experiencing.

Burtnick thinks this will slow the sales of new developments in the upcoming months:

Large landlords will be less inclined to build any new rental buildings. Small landlords who typically buy pre-construction condos as an income generating investment will also be less inclined to buy pre-construction. This will slow the sales of new projects and thus lead to less future inventory of rental stock. In fact, you might see many smaller landlords decide to sell these units and lead to even less rental inventory.

Band-aid solutions

Even though it's still very early to predict what these new measures will do to the housing market, people remain sceptical. There is a lot of criticism about the plan in the papers today, especially focused on the lack of long-term supply solutions in he proposed plan. Margaret Wente, of The Globe and Mail, writes:

The real problem in the GTA isn’t demand. It’s supply. Half the new houses on the market are being bought by immigrants, according to one survey, who are streaming into Ontario at a rate of more than 100,000 a year. But fixing the supply problem will take a while. Planning and development are bogged down by bureaucracy and red tape at every level. The head of one big Ontario home builder says it now takes as much as 10 years to gain all the approvals needed to make farmland builder-ready. In Toronto, it takes three to five years just to get a building permit – providing nobody objects. On top of that, the province and the municipalities are fundamentally at odds. The province wants smaller municipalities to build medium- and high-density developments, but the municipalities won’t do it because the voters object.

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Richard Silver

Richard Silver, Sales Representative, SVP-Sales at Sotheby's International Realty Canada, also thinks the government plan is only a short term solution:

My major concern is that not enough seems to have been done on the supply side, and that will affect the long term. Density should be addressed, land use issues should be dealt with, and the length of time for approvals created by a Committee of Adjustment AND an Ontario Municipal Board, duking it out on every project adding months or years and huge cost overruns to each decision around intensification, too. Long term decisions are needed, not short term bandaids!

What do you think about the government's plan? Will it help? Or is it just a band-aid solution? Let us know in the comments.

2 Responses

  1. Christina

    These are the measures in response to popular demand of many and in consideration of the provincial election of next year.
    Certainly, it will help temporarily to cool off the market and gain the trust of constituents for the next election.
    Hopefully, these taxes will be used to fix the transportation issues in Ontario.
    There is a real crisis looming – a potential war initiated by our neighboring irrational president. When that happens, real estate and stock market will all crash. Perhaps by then, these measures will be withdrawn and a new era will start.

  2. Ryan Servatius

    Great article and WOW on what is being proposed.
    Taxing owners on so many aspects as well as rental control and a rebate program seem that those aspects alone will only cost everyone more, but do nothing to speed up development for needed housing in the coming months and years.

    I would say that having Richard Silver on the said Housing Advisory Group would be a very big plus for the municipalities to know what is happening on a up to minute scale of the market.

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