Ontario’s Fair Housing Plan – fair enough but too little too late

Ontario’s Fair Housing Plan

Has the unwinding process for the Toronto real estate market finally begun?  Time will tell I guess but I think it’s rather too little too late.

Ontario’s Fair Housing Plan brings a list of changes.  Here are some highlights from the plan:

  • Rent control will be applied to all units, including those now built after 1991.
  • Legislation will, if passed, impose implement a new 15% Non-Resident Speculation Tax (NRST) on the price of homes in the Greater Golden Horseshoe (GGH) purchased by individuals who are not citizens or permanent residents of Canada or by foreign corporations.
  • Annual rent increases for existing tenants will be no higher than the rate of inflation.
  • *Rent increases will be capped at 2.5%, even if the rate of inflation is higher.
  • There will be a standardized lease agreement for all tenants.
  • Bans are now imposed on flipping pre-construction housing units.

*The guideline rent increase for 2017 is 1.5% in Ontario.

So who’s happy about this?

I guess maybe our provincial leader Kathleen Wynne.  She probably believes this is a meal-ticket from Toronto renters for re-election.

I believe Toronto renters are rejoicing over this.  After all, I read the average home price in the GTA (Greater Toronto Area) jumped over 30% last year.  Yeah, I know.  I re-read that stat again for my own benefit too.  That is nuts.  Unsustainable.  #Crazy.  #Insane.   Apparently real estate hunters in Toronto feel paying 30% more this year over last year for something is a very good deal…

Toronto Real Estate

Would you buy this house above, in Toronto, as it slowly approaches $1 million?

How about surviving a bidding war for this home (below) – that apparently sold for over $1,000,000 (that’s $1,000,000 over the asking price!)  The townhome sold for close to $3 million.

Toronto Real Estate 2

With house prices already through the proverbial roof I suspect renters are happy – renters now have a tangible cap on what landlords can charge year-over-year. This will provide them with some stability.

Landlords must be pissed though.  Their gravy train has come to an end but they’ve had it very good.   I mean very, very good.  I suspect inflation will slowly eat into those 2.5% rent cap increases over time but given the capital appreciation in that city over the last ten years there is no sympathy coming from me.

What about REITs (Real Estate Investment Trusts) and investors of residential REITs?  I’ve read a few reports on this and by all accounts, most state Ontario’s new rent control legislation will further reduce rental accommodation availability over time.  That will put a premium on good rental units.

Are these changes coming too little and too late?

Absolutely.

It doesn’t take any genius to figure out real estate price increases of 10% or 20% let alone 30% year-over-year are a bit ridiculous.  Heck, I’ve even read reports where some landlords have essentially doubled rental charges in recent years.

I suspect our government has not intervened to date because of a) a lack of competence in real estate issues, b) a prolonged desire to see price increases continue to keep our economy afloat, c) the bureaucracy involved in planning and implementing these legislative changes or d) a combination of all the above.

Outside of Wynne’s control, I also blame dirt-low borrowing costs for the last couple of decades as another primary cause.  People seem to believe current lending charges hovering around 2% for variable rate mortgages are ‘normal’.  I suppose they are in the new normal with no end in sight.

My plan for a prolonged low interest rate environment

There are pros of course with low interest rates that many Canadians have fully taken advantage of:  low interest rates promote consumption that may not otherwise happen.  It makes spending look like the right thing to do.  Real estate has buoyed our economy since 2008-2009.

However, I believe this has done more harm than good for some Canadians who have no business taking on more leverage.  Prolonged, low interest rates hurt folks, like retirees, with fixed income assets like bonds and saving accounts.  It by no means rewards fiscal responsibility by businesses or individuals.  Low interest rates discourage savers.  You have to save more for retirement.  Combined, low interest rates make saving look like the wrong thing to do.

Summary

At the end of the day, these changes are generally positive.  Not everyone will be happy.  Besides, not everyone should be expected to ‘Wynne’ with any legislative change.  Ontario’s Fair Housing Plan will do little to alter the systemic Toronto real estate market because these changes have come too little and too late to curb supply and demand forces entrenched across GTA over many decades.  (An aside – I was in Toronto this past weekend and I used to live there many years ago. I was absolutely shocked to see the number of units being built 45 minutes outside the downtown core costing more than $600 per square foot.  Think about that cost proposition for a moment…)

For those that own your own your house or condo in Toronto, or you’re close to it, consider yourself very lucky.  You’ve been riding a great financial wave folks.  Good on you.  This is a good time to remind you most of Canada is not nearly as fortunate and never will be – surf on as long as you can.

For those who continue to rent because they recognize the insanity of the Toronto real estate market, you continue to make a wise choice.  You were somewhat lucky as well – the government has finally done something small to intervene.

What’s your take on Ontario’s Fair Housing Plan?  Good for who?  Do you think this will help cool Toronto’s red hot real estate market?

Mark Seed is the founder, editor and owner of My Own Advisor. As my own financial advisor, I've grown our portfolio from $100,000 to well over $500,000. Our next big goal is to own a $1 million investment portfolio for an early retirement. Come follow my saving and investing journey by subscribing to my site. Delivered by Subscribe Here to My Own Advisor

16 Responses to "Ontario’s Fair Housing Plan – fair enough but too little too late"

  1. I believe that this is a ridiculous intrusion of the government into the market that is going to have very negative long term consequences.
    Rent Control simply doesn’t work. Who is going to build rental accommodations in the GTA now? Would you?

    This interference is especially ironic because despite the headlines that love to blame foreigners, the supply of housing has been strangled in the GTA because of.. wait for it.. Government interference. New housing starts are down 98% in the GTA in the past 10 years. So new housing starts have already been busted by government regulation – now multi-tenant rental accommodations will quickly follow.

    So basically, the GTA just got a ‘government solution’ to a ‘government problem’
    This is what politicians love to do and lots of voters convince themselves to go along for a rise and demand more.

    Reply
    1. “Who is going to build rental accommodations in the GTA now? Would you?”

      Nope. Not with the cost now and cap on rents! If I was a landlord I would get out now. That’s just me.

      If multi-unit rental accommodations will not be built then maybe REITs will thrive? Thoughts?

      Do you live in TO One Dad?

      Reply
      1. No I do not. Real Estate is nice and cheap in the Maritimes. I am starting to see people from Ontario cash out and move here – and why not? You can shave 10 years off your working life if you were to do it. We lived in Calgary before moving here and while the differential in Real Estate pricing was significant, it’s not anything like it is today.
        As well, NB has a competitive dividend taxation rate.

        It was on twitter called #eastsizing
        In the age of working from home and ridiculous real-estate prices – specifically in TO – I honestly don’t know why more people don’t do this – especially Maritime Ex Pats. Honestly the maritime governments should be promoting it as an option.

        Reply
        1. I personally think such measures, short term, are good. Long term. Horrible. There will be a premium on rentals and housing and that should, IMO, start the unwinding process. I referred to as much in my opening line:
          “Has the unwinding process for the Toronto real estate market finally begun?”

          I think the government should have intervened some time ago but it’s too little too late since it could create a massive chain-of-events.

          Will that happen?

          No idea…but I could see a small exodus of people leaving TO, selling their rentals, basically and figuratively “chequing out”.

          “As well, NB has a competitive dividend taxation rate.”

          I love dividend stocks. You have provided us with a new option 🙂

          Reply
  2. One reason they didn’t come in with something sooner was the very defensible belief that they thought the problem would solve itself. Predicting ‘irrational exuberance’ is not a trivial thing.

    It’ll be interesting to see what happens. There are A LOT of people out there who do NOT want the party to end.

    Reply
    1. Well, that’s very government of them 🙂 Agreed, lots of people want to party on with RE in Toronto. Even if prices come down 20%, it still not close to normal though.

      Reply
  3. As you say Mark, too much meddling and short-sightedness by Government to regulate a cock-up that they are partly responsible for in the first place.

    So when rental properties become a poor investment with government regulated returns that are capped and may not even keep pace with inflation, where do investors start putting their money? And so there becomes a rental shortage. And what do landlords do if they can’t raise the rent for existing tenants? Evict the current ones to put new tenants in at inflated rents, because they can, to make sure that their investment provides a reasonable rate of return.

    As much as the general population like to hate capitalist, greedy landlords (which we landlords are, of course), there is a fine balance between ensuring that the rents stay reasonable for tenants but give a comfortable return for investors. It sounds like the government hasn’t thought through all of the implications in their new policy. Surprise, surprise.

    Reply
    1. This is what I think with happen Martin…here in our country:

      1. Government intervention, short-term a good thing.
      2. Gov’t intervention, long-term, bad thing.
      3. If rents capped….then investors go elsewhere for “free” market.
      4. Rental shortage ensues.
      5. Supply (low) + demand (high) = more price increases.

      “It sounds like the government hasn’t thought through all of the implications in their new policy. Surprise, surprise.”

      Yes and no. Governments tend to think short-term for votes. They don’t care about long-term vision. Sadly…!

      Good to hear from you on this issue!

      Reply
      1. I’m not sure I entirely agree with this.

        The only points I see are for investors what about renters. When people in Toronto see their rents double and they can’t afford to pay rent what happens? Do they quit their job and move out of the city? Do employer’s say hay I realize your rent went up 50% here’s a 50% raise?…not likely. Just think if next month your mortgage/rent doubled? Just cause a single market goes up doesn’t mean it’s healthy for the rest of the economy.

        Who’s to say that in the near future the city of Toronto doesn’t drop property taxes on multi unit rentals to encourage investors? There are plenty of other options they can explore to encourage rental property. This measure was just to prevent something even bigger from happening.

        Capping at a 2.5% per increase is not that bad. A smart investor would be looking at the long term property value gain. A smart investor would have used the 1% rule when purchasing a property to ensure the rental income doesn’t exceed the amount borrowed when interest rates go up. Interest rates haven’t moved more than 2% in any given year since the early 90’s. At 2.5% per year (plus increases in property value) could definitely stay above interest rates.

        Just my 2 cents.

        Reply
        1. I think in the short term, capping at 2.5% is OK. Long term I wonder about the demand though.

          “A smart investor would be looking at the long term property value gain.” Yes, they should!

          Unless you got into the Toronto housing market about 5-10 years ago I’m not sure it makes sense to buy a house in that city. Again, you’d have to do the math and figure out your lifestyle!

          p.s. Thanks for the kind words about the site. Cheers.

          Reply
          1. I’m not sure that’s a fair comparison. I see the angle but surely a $500 cell phone is not equivalent to a real estate property. Many orders of magnitude of difference. Are you a landlord OneDad?

          2. Why isn’t it a fair comparison?

            If the Government stepping in to save ourselves from Rent increases is now seen as a public good then why not the same treatment for other things such as mobile phones etc etc?

            No, I m not a landlord, more of a libertarian. 🙂

          3. LOL. When I can see the analogy but a cell phone isn’t a right. Clean water, adequate housing, food supply, appropriate healthcare and education etc. should be what the government focuses on. I have to wonder if rent control will over time lead to more perverse behaviour? i.e., when prices are capped people have less incentive to fix up and rent out their place. This means it slows supply growth.

  4. This is certainly a difficult situation.

    I am on the same page as one dad – strongly against government intervention in the marketplace, which is often politically motivated and ill planned. It almost always distorts the market and causes greater harm over the long term.

    Reply

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