Government policies and their impact on the GTA pre-construction housing market

The Greater Toronto Area pre-construction housing market is a vital segment of the real estate industry, playing a significant role in the region’s economy. Government policies, both at the federal and provincial levels, have profound impacts on this market. These policies shape the market dynamics, influencing prices, demand and supply, thereby affecting the broader economic landscape of the GTA.

One of the most significant government interventions in recent years has been the implementation of the mortgage stress test. This requires borrowers to qualify for mortgages at higher interest rates than their contract rate. The policy aims to ensure that borrowers can withstand potential future increases in interest rates, thereby maintaining financial stability. However, the stress test has made it more challenging for many potential buyers to secure financing, reducing the pool of eligible buyers for pre-construction homes. As a result, demand for pre-construction properties has softened, leading to slower sales and in some cases, price adjustments.

Development charges

Municipal governments in the GTA impose development charges on new construction projects to fund infrastructure improvements and public services. These charges can be substantial, adding significant costs to pre-construction projects. While development charges ensure that growing communities have the necessary infrastructure, they also contribute to higher prices for new homes. And although these funds are allocated towards infrastructure, there are significant shortcomings in the construction of our infrastructure, hospitals and schools, making us question whether this money is being allocated and utilized in the most prudent manner.

On June 25, a new capital gains tax inclusion rate came into effect. Previously, sellers of secondary properties paid tax on 50 per cent of any capital gains. As of June 25, they will be taxed on 50 per cent of the first $250,000 in gains, and 66.7 per cent on any amount beyond that. This change is raising significant concerns among real estate investors and owners of vacation and secondary properties. The new policy may deter individuals and corporations from investing in business, investment or recreational properties in Canada. It also places a considerable burden on smaller investors, such as families who use investment properties as a retirement savings vehicle or to help their children purchase homes.

Crucial role

Government policies play a crucial role in shaping the GTA pre-construction housing market. While these burdensome interventions such as the mortgage stress test, foreign buyer tax, development charges and capital gains tax aim to ensure market stability and affordability, they also introduce complexities and challenges for developers and buyers. Additionally, land use policies and zoning regulations determine where and how pre-construction projects can be developed. Stricter zoning laws and slow approval processes can limit the supply of new housing, exacerbating affordability issues in the GTA. Balancing these policies to promote sustainable growth, affordability and financial stability is essential for the health of the pre-construction housing market in the GTA. As the market evolves, continuous assessment and adaptation of these policies will be necessary to address emerging trends and challenges.