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…
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.
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?
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.
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.
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?