Will The Ontario Fair Housing Plan Slow The Toronto Market?

House ValuesOn April 20, the Ontario government announced a 16 point package of measures designed to “help more people find affordable homes, increase supply, protect buyers and renters and bring stability to the real estate market”. Interestingly, if predictably, none of  these measures are designed to help or protect sellers or landlords. The key points are:

  • A 15% speculation tax on non-residents and foreign corporations who buy single family homes in the ‘Greater Golden Horseshoe’ area. This tax, once enacted by legislation, would be retroactive to April 21. It seems unlikely that this tax will have a significant effect on demand for housing in the GTA. A recent survey undertaken by the Toronto Real Estate Board indicates that the proportion of non-resident buyers is very low (in the 5% range), and the legislation will have many loopholes, for example an exemption for children of foreign residents who go to school in an “approved” educational institution for at least two years after the property is purchased. This is not Vancouver.
  • Enabling legislation that would give the City of Toronto the power to introduce a ‘vacant property tax’. The idea would be to encourage owners of vacant properties to either sell them or rent them out, thereby increasing supply. Apart from a rather obvious ‘tax grab’, there isn’t any solid evidence that there are large numbers of vacant properties, so it seems unlikely that this tax will have any significant effect on the supply of properties for sale or for rent.
  • Expanding rent control to all rental units in the province; this change will be retroactive to April 20. Up until now, all rental units which came into existence after 1991 have been exempt from rent control, meaning that, once a lease has expired, the landlord is free to increase the rent by as much as he likes. This change may well have the unintended consequence of increasing the supply of condos for sale, as investors may decide to sell their units rather than rent them out. If this happens, the supply of rental condos will fall, and average apartment rental prices will rise, the opposite of what the legislation presumably intends. The rent control exemption was originally intended to encourage building of new ‘purpose built’ rental apartment buildings’ and so the removal of the controls will probably tighten future supply of rental apartments from that source. Bottom line: the imposition of rent controls on all rental units may help those who are already renting, but it could make it much more difficult for those lo0king for a rental apartment.
  • Tighter rules for evicting tenants for ‘landlord’s own use’, including compensation for tenants evicted in this way. As for the rent control change, this may have the unintended consequence of reducing the supply of rental units, as homeowners with basement apartments, for example, may decide not to rent out the apartment, fearing difficulty gaining future access for their own use.
  • Several measures designed to increase housing supply, for example by reducing restrictions on land development. These measures will have only a longer term impact on supply if any at all.

Overall,  these changes seem unlikely to have any significant effect on the exploding resale market in the GTA. Paradoxically the only one that might have an impact, and then only on the condominium market, is the expansion of rent control to all apartments. The trade-off for that is potentially an even tighter rental market; not sure this makes much sense. So, the only way these changes could slow the market would be if buyers and sellers believe they will slow the market, in which case a slowdown could become a self-fulfilling prophesy.