How do you cool a heated Real Estate market? Implement taxes to keep investors out of buying? Create incentives for Buyers to save down-payments or to get rebates on buying? End blind bidding? Or does any form of “controlling” a free market comes at the cost of collapsing Real Estate values and seeing equity stripped away from owners? It is all so complex. Let’s dig in a bit to see what can be done.
If we start with what is easy, we can look at the “demand” side of supply and demand, the economic laws that are at work in our Real Estate market. The reason I mention “easy” is the demand side is the easiest part of the market that politicians and policy-makers can affect. Taxing investors on a rate higher than currently exists sounds like a good start. However, in the 1970s a speculation tax was brought in in Ontario and what happened afterwards was catastrophic. Values dropped and stayed stagnant for years and as we approached the 1980’s we entered into a dark time where mortgage rates we over 20%.
Other fixes like ending blind bidding, increasing the mortgage rates for homes used as rentals and implementing foreign Buyer taxes are an effective way of.. well of politicians getting headlines, appearing to be leaders controlling a market that in all honestly cannot be controlled on the demand side. These approaches sound good in headlines, but in reality, they do little to help.
The real issue rests on the supply side.
The supply part of the Real Estate market is the issue Durham Region is facing currently, however, to address this issue means the local government has to make major changes in how they apply policy to get more “shovels in the ground.” Not just shovels, but the costs of getting homes built. This rests at the Regional and Municipal levels.
A good example that I had the experience of being part of happened pre-pandemic. (I mention this to clarify this example happened prior to the disruptions we have seen recently.) I had a small builder purchase the back yards of a corner property and the home next door to create a separate lot that would end up fronting onto the street the corner lot sided too. What looked like an easy project took over 1 ½ years to complete. Not the building of the home, but just to work through the Provincial, Regional and Municipal levels to allow a building permit to be issued. Along with the wait, the costs to allow a permit to be issued was just under $100,000!
I mention this example, not to gripe, but to show how long the process takes, to just allow one home to be built. The process, in any town in our Region, is expensive, painstakingly long and complicated. The supply side of the market, meaning “newly created” homes is totally controlled by the Region and Municipalities. This is what needs to be looked at when discussing adding new inventory.
One of the other issues of creating a new inventory is activism. It is fascinating to observe people who are activists with voices of how we need inventory to deal with the issues of rising home prices and the challenge that exists with buying homes, and then change their activist hats to object to any homes built close to where they currently live. This is called “Nimbism” “Not In my backyard.” This not only is an issue that happens with homeowners, it also can be used as a way for local politicians to get noticed in the media.
When the development process is cost-effective and easy to navigate, stuff happens. A great exercise to look at is the growth of accessory apartments. This is a fancy name for mostly legal basement apartments. In the early 2010s, the Provincial government created a policy allowing legal apartments to be created in all types of residential zones (prior to this they could only be allowed in certain types of zoning.) The city of Oshawa was required to allow these new apartment applications and with no development charges, making them an affordable option. Therefore, hundreds of new legal, rental places were created. In fact, a quick check on the Oshawa registry of legal accessory apartments shows that over 1,900 units exist in Oshawa. This means 1,900 rental units have been created to meet the dire need of a lack of inventory for rentals. The rental market is as much of a challenge as the resale market, with bidding wars on rentals and very low inventory.
From my perspective, what needs to happen is for the Region and Municipalities to rethink the development charges they apply when a new unit is being created, be it a rental or a newly constructed property. Also, the bureaucracy that exists to create new properties needs to be streamlined allowing a more seamless process when someone has a dream of creating new homes or rentals.
I remember a conversation with a local politician years ago, saying what they planned on creating was a “concierge” person to help speed up and navigate the planning process in getting building permits issues more quickly. To my understanding, not only has this not happened, it’s taking even longer to get “shovels in the ground.”
The outlook for the next few years is bleak. Canada currently has the least amount of homes per resident than any other G7 country. In fact, Canada needs 1,800,000 homes to catch up with the G7 average. Add to that the goal is to attract 1,200,000 immigrants in the next 3 years, the market we see will continue.
It all begins with Regional and Municipal Governments.
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