A Failed Housing Plan for Ontario
The homebuilding industry across Canada has been heavily focused on influencing government policy affecting housing affordability for the past 5 years. The Canadian Home Builders’ Association’s annual housing advocacy day took place on Parliament Hill, March 7th when members from across Canada held over 75 meetings with MPs. Some very informative documentation was created to help educate public officials on how serious the problem had become and measures that could be taken to deal with it. Unfortunately the subsequent budget offered little to address the mainstream market challenges and provided only new financing programs to deal with social housing issues.
On March 20th the Ontario Home Builders’ Association held its housing advocacy day at Queen’s Park where dozens of meetings were held and again the focus was on housing affordability. On April 21st, the Premier and announced a sixteen point program of measures to deal with the GTA’s housing challenges.
For professionals in the housing industry it was a rather disappointing effort that will have little if any positive impact on Toronto’s housing problems. Much was made of a 15% tax on foreign buyers who were referred to as “non-resident speculators” even though this group represents only a tiny fraction of home buyers in the GTA. The real seeds of Toronto’s housing problems were sown in 2006 when the Ontario government introduced its residential growth plan. This plan removed thousands of hectares of future housing lands from the market and reinforced a policy of ‘intensification’. This policy appeared to be based on the assumption that urban apartment dwellers would abandon the Canadian dream of eventually owning a ground oriented home and willingly decide, in mass, to permanently occupy high rise apartments because the government would provide transit systems to support it.
The government’s ‘Fair Housing Plan’ completely misses the target because it does little to address the real problem which is a supply shortage. Even though Premier Wynne refuses to acknowledge that this is the biggest part of the problem, it is a statistical fact that was most recently covered by a report from the Centre for Urban Research and Land Development at Ryerson University in Toronto. That document noted that at the end of March 2017, there were only 932 low-rise homes – including just 233 detached houses – available for buyers in builders’ inventories, compared with 17,854 in March 2007, and 1,001 in February of this year. At the same time, builders sold a monthly record 5,675 condo units in the GTA in March, up 38 percent from 4,106 units in March last year. Including condo units, there were 10,153 new homes available for sale in builders’ inventories at the end of March, a 50 percent decline from 21,006 units in March last year.
The only gesture the government offered to deal with the structural supply problem was to offer up some small parcels of surplus land. But even this failed to acknowledge other serious problems with the housing supply chain such as outdated zoning and approval processes that can take 6 – 8 years to show results.
Instead of taking responsibility for the problem and dealing with it in a meaningful way, the government adopted a tactic of misdirection and offered up rent controls across the province. This has little to do with solving the housing affordability issue but plays on the general public’s historically negative perception of builders and landlords as somehow being responsible for the problem. This approach has been used by provincial and municipal governments in the past however there is some evidence that recent media coverage of the GTA’s housing affordability problems has helped the general public to understand that is not accurate. Builders must keep housing prices as low as possible so that they will have the future buyers they require to remain in business. It is all three levels of government that have driven taxes on a new home from 3% to 25% and benefit from continuous revenue increases as housing prices escalate. Government has no incentive to lower housing prices and is the only participant in the housing cycle to benefit from pricing increases. Consider Land Transfer Tax (LTT) alone where revenue was $1.778 billion in 2014-15, $2.118 billion in 2015-16, projected at $2.688 billion in 2016-17 and $3.139 billion in 2017-18. Residential construction is the biggest industry in Canada and the tax revenue funds much of our quality of life, particularly when it comes to sectors such as health care and education. Any decrease in these revenues would have serious negative political implications on spending programs.
Rent controls are politically popular amongst a narrow range of constituents because they provide short term relief. Unfortunately they also cause medium and long term damage because builders’ stop developing new projects resulting in rental supply declines. There are untold risks associated with developing high rise projects and builders will naturally take whatever approach appears to offer the best return on investment. In an environment where condominium prices are increasing at 20% or 30% per year, builders will stop developing new rental projects that would be subject to rent controls and instead focus on developing condominiums that could be offered in the open market. Even this market will decline under rent controls because condo investors will stop purchasing units to offer for rent since they will no longer be able to cover basic carrying costs.
A second negative impact of rent controls is a decline in facility maintenance. As landlords are no longer able to generate the revenue required to renovate and upgrade existing structures they enter a state of decline. Over time, this generates many other conflicts between landlords and tenants. Without a business community to develop new rental apartment structures, investors to purchase and rent units or owners to properly maintain them, it is only a matter of time until the rental market goes into decline and clients suffer.
The Ontario government’s housing strategy has failed to implement any meaningful measures that could help in dealing with the GTA’s housing affordability problems while needlessly harming the rental market across the province. It looks like Premier Wynne should begin preparing for single digit popularity numbers.