Fair or foul: making sense of Ontario's housing plan

Is Ontario’s new Fair Housing Plan, comprising 16 measures designed to stabilize the real estate market while protecting homeowners’ investments, actually fair? Or foul? Or is it a fail, even?

Well, that depends on what part of the housing market you’re in.


Homebuyers will like the plan, if it has the desired cooling effect on the market. After two consecutive years of double-digit gains, average house prices in the Toronto region reached $916,567 in March 2017, up 33.2 per cent from a year earlier.

Even, as some sources suspect, the pause lasts only a few months, would-be buyers may catch a break from the norm of the past couple years – prohibitive price growth and, in resale homes, multiple offer situations and bidding wars.


Homeowner Hero



Homeowners will probably be okay with the measures, if they don’t lead to any precipitous drop in prices. Even if price growth – currently at double digits in the GTA – slows to somewhere between five and 10 per cent, as some suggest, those are still handsome gains. Judging from the number of “for sale” signs out there this spring, however, it looks like some owners believe the market may be peaking.



Sellers, on the other hand, may not love the plan, as it may reduce buying activity and price growth, even if only in the short term.



Single digit price appreciation in a housing market is healthy. What’s been happening in the Ontario is unsustainable, and many have been saying it for months. The return of some normalcy to the market would be a good thing.

“Given the frothy real estate price growth across the Greater Golden Horseshoe, policy action was needed to reduce the growing risks to the Ontario and National economy,” says Craig Alexander, senior vice-president and chief economist, The Conference Board of Canada. “More sustainable and moderate price growth is in the interests of buyers, sellers, the financial system and the economy. In recent years, the federal government has delivered several rounds of housing policy tightening that impacted real estate markets from coast-to-coast. The next logical step was regional policy actions where the imbalances are greatest. It was time for Ontario to act.”

The true impact of these new measures, however, may not be seen for many months, particularly when it comes to rentals.

“It is very clear from the announcement that Kathleen Wynne fails to understand the psychology of real estate economics for the typical landlord (real estate investor),” Calum Ross, broker and wealth planner, The Mortgage Management Group, Toronto, told YPNextHome.

“When you are a public sector employee with an unbelievably generous (actually ridiculous) defined benefit pension plan that is funded by the public tax dollar, you can’t relate to a real estate investor who often desperately needs that monthly cash flow number to fund their retirement income. How the government can issue a statement that in one point states, ‘In March 2017, real estate values are up 33.2 per cent from a year earlier,’ then follows up by suggesting they will increase rent control – and not see the coming rental crisis is laughable.

“The provision for allowable rent increase for 2017 is 1.5 per cent under the current Residential Tenancies Act,” says Ross. “It tells me the government basically has no understanding of investor math or long term economic implications of their policies.”




Many realtors believe the plan is mostly positive news. While the foreign investor tax garnered much of the headlines, those buyers’ actual influence in the market is negligible – about five per cent of purchases in the GTA. Therefore, the market will largely continue to work itself out, for primary homebuyers, while speculation activity (those who buy properties, especially multiple properties, with the sole hope of cashing in on the value increase), will cool.

“There is limited data on how many foreign speculators are active in the GTA market, but it is fair to assume that a foreign speculators tax will impact the middle-class, and not just buyers in the upper-end of the market,” says Christopher Alexander, regional director, ReMax Ontario-Atlantic Canada, Toronto.

“In the short-term, potential sales may fall through as buyers adjust to the changes, which in turn could create a ripple effect throughout the market.”

Alexander expects the foreign buyers’ tax to have a similar impact in the GTA as it did when it was implemented in Vancouver last year – negatively impacting consumer confidence as buyers waited to see how it would take effect, causing less activity in the market overall.

“Our goal as realtors is to keep the dream of homeownership within reach for millennials, first-time home buyers and young families,” says Tim Hudak, CEO of the Ontario Real Estate Association. “We had over a dozen meetings with Premier Wynne, Finance Minister Sousa, the Honourable Tracy MacCharles, Housing Minister Chris Ballard and other senior staff to bring our ideas on home affordability forward. We’re pleased to see that the government has listened. For one, increasing the supply of homes is the best way to give buyers a better shot at homeownership and the government has committed to working with municipalities to remove the barriers to getting more new homes and listings on the market faster.”

Indeed, the supply of homes is a pressing issue and a major contributor to housing affordability in the GTA (see BUILDERS). While the plan promises to explore ways to expand supply, relief on that front is months if not years away.



Before the release of the plan, builders generally were leery of any type of knee-jerk reaction from the province, especially in terms of new taxes and their unintended consequences.

Their primary concern, however, was and remains supply.

“As the industry that builds 95 per cent of new housing in Ontario, we are pleased that the government has accepted our recommendations to create a housing advisory group and Housing Supply Team to resolve land-use approvals issues and red tape, which prevent housing from coming onto the market for new home buyers,” says Joe Vaccaro, CEO of the Ontario Home Builders’ Association. “We look forward to working with our provincial and municipal partners and continue to promote solutions, such as pre-zoning, fast-tracking approvals, and fixing the EA process, in order to bring more housing supply and housing choice to consumers.”

A diplomatic response if there ever was one. Builder associations have been lobbying for years that Ontario must find ways to quicken the approvals process. In Greater Golden Horseshoe area, it can take five to 10 years for the regulatory process to play out – even in areas already slated for growth – when it should take two to three years, they argue.

And despite what some critics believe, builders’ concerns aren’t just about their own profits. Housing starts are an important indicator of economic health. If builders are building, that means they are employing; in the GTA in 2015, almost 200,000 people, earning more than $11 billion in wages, according to the Building Industry and Land Development Association.

The absence of cranes in the sky, or shovels in the ground, is never a good thing.


Toronto Apts hero



Private investors appear to be the ones taking it on the chin the most, or at least first.

“By making this statement, the government is effectively acknowledging that investors will have to take a massive hit to their yield, with only being able to increase gross cash flow by 1.5 per cent (less than the rate of inflation),” says Ross. “What the government has failed to recognize is that real estate investors need to make return, and if they don’t, they will simply deploy their capital elsewhere. With cap rates already so low for GTA real estate assets, the increased rent control could very well cause the single largest rental crisis in this city’s history. The government has just made it considerably less appealing for people to be landlords, and this new proposed policy will only serve to further restrict rental supply with certainty.

“Buying real estate based on theoretical appreciation of values is real estate speculation, not real estate investing. Smart money and those with capital don’t play the speculation game. I am currently advising most of my Toronto real estate investment clients to sell and seek yield in dividend paying equities or invest in real estate elsewhere. This announcement will only strengthen my belief that Toronto real estate investors who understand math should simply sell.”




If there’s an early winner in the Fair Housing Plan, it’s renters. Rent control will be expanded to buildings constructed after 1991, which were previously not covered by rules.

Ontario’s average vacancy rate dropped to 2.1 per cent in the fall of 2016, from 2.4 per cent in 2015, the lowest vacancy rate since October 2003; in Toronto, the vacancy rate was 1.3 per cent, the lowest in 12 years.

With such miniscule vacancies, some landlords were demanding any rent they wanted once a lease was up, in some cases doubling rents.

Anything that alleviates this pressure for renters, then, is a win.


Anecdote No. 1

A GTA realtor recently told me that a foreign investor walked into their office, unannounced, and wanted to buy 30 homes. That day. Cash.

The brokerage scrambled together agents and support staff, and within two days, made it happen.

Some of the properties were to be rented out, using the brokerage’s property management services. The others would sit vacant, with the owner hoping to cash in the value appreciation.

Anecdote No. 2

Another GTA realtor, who sold more than 350 condo units in 2016 – including about 300 new units on behalf of builders – estimated that only five per cent of their business involved sales to foreign investors.

The majority – 75 per cent – of the transactions, however, involved Canadian investors, and only about 25 per cent were primary homebuyers.



Drop me a line at wayne.karl@ypnexthome.ca



Ontario takes action on housing affordability

Focus, and heat, squarely on Toronto real estate market



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