In the past, Federal Election housing affordability was a hot button topic and most likely be the defining issue of the upcoming provincial election this June.
In January, Doug Ford is hosting a housing summit with the mayors of Ontario’s 29 largest cities to drive the narrative. Look for housing affordability as one of the dominating media stories this year. We at Fox Marin have been talking about this for the last two decades. The truth is that this issue is a supply-side issue and not a demand problem; it is not a short-term fix, and it requires a type of long-term thinking, patience, and progressive policymaking that will likely never happen.
The media and politicians since 2017 have been blaming foreign investment as the root cause of housing unaffordability in the GTA. As we have seen throughout history, it is easy to scapegoat foreigners as the root cause of domestic issues.
It’s always easier to point fingers at someone else, especially non-voters who don’t have a voice. We have always stated that taxing foreigners and foreign demand for our real estate would have next to no impact on bringing affordability into residential housing. This argument has lost validity with substantial price increases during Covid in a period of limited immigration and foreign investment.
So now what?
Will the government fix their sights on “evil investors” and “greedy realtors”? A recent report suggests that 25% percent of all residential purchases were investors. So the logic goes that if we can tax or penalize investors, that will slow down demand.
In 2022 the Federal Government will be looking to either increase deposits for investors or increase capital gains on the proceeds at the time of sale. Such measures may poll well and even cause a short term to slow down, but in the long term, most likely will have the same success as the 15% foreign investor tax has had – none. Investors are the drivers of the rental housing market. If you discourage investors from investing, new condos will not get built, and rents will rise. If the government wants affordable rental units, we need more supply and not less. We will never move the needle on affordability until we effectively and significantly increase supply.
After investors, how about the “greedy realtors”? Surely they must be the ones responsible for sky-high housing prices, and god knows everyone hates realtors! Look for changes in how real estate transactions take place. The Liberal government will be assessing ways to make good on its promise to end blind bidding wars. In and of itself, we have always been supporters of more transparency in real estate. However, this will not make Toronto Real estate more affordable.
An Ottawa-based think tank, SPI, conducted a study about open bidding and its effect on pricing. The results? In countries where open bidding was permitted, like New Zealand, Australia and Sweden, it was found that prices had escalated faster than here in Canada! Hard to believe but true. As quickly as prices have escalated in major Canadian cities, they have been far faster in New Zealand, where open bidding is standard practice. The study also looked at Ireland, where closed and open bidding is commonplace, and they found that auctioned properties sold to 25% higher than then list, while privately negotiated sales sold for 10% above. Figure that?
While helping first-time buyers might be politically adept at gaining millennial votes, it’s like throwing gasoline on a raging fire in practice. As part of this campaign promise, the Federal Liberal Government is creating a $40,000 tax-free first home buyers home savings account and increasing the limit to get a CMHC loan from $1M to $1.25M with less than 20% down. While this may have been a positive policy to attract young voters, it is only going to increase demand, which will in turn have the effect of throwing gasoline onto a raging fire. If you think purchasing a starter home in Leslieville is competitive today? You haven’t seen anything yet!
The bottom line is that you can expect to see a lot of Government intervention in 2022 on all levels as housing affordability will become the dominant political issue aside from Covid. All of the policies on the table will have next to no long-term impact on affordability. When changes are announced, or new policies are passed, buyers take a wait-and-see approach. Still, these changes will have a short-lived effect and are often more psychological than anything else!
