Ontario Implemented a “Fair Housing Plan”

What exactly is going on in the Canadian Real Estate market? It seems like everyone is talking about the crazy increase in home pricing, the lack of supply to meet the demand, and trying hard to pin point reasons for the seemingly unstable market. But very few measures have been implemented by the powers that be to bring harmony back to the industry. This is largely due to the controversy surrounding why the market has spiralled out of control to begin with; everyone seems to have a different idea. Some have pin pointed foreign buyers, whereas others have deemed a lack of supply as the culprit. At this stage, it should be evident that there are numerous factors at play, and without measures being taken to tame the market, Canada runs the risk of a market crash. To what extent is debatable.

It’s been a long time coming, but the Ontario government has finally introduced a “Fair Housing Plan” in response to growing concerns. The plan is a comprehensive package meant to address the ability for Ontario residents to find affordable housing (duh, right?), increase supply, protect buyers and renters, and to finally bring stability back to the real estate market. Let’s take a look one by one:

Addressing Demand: The issue of demand relates directly to foreign investors swooping in and purchasing Canadian properties. There is no doubt that foreign investors have been a culprit in the continually increased pricing. It happened in BC, and it’s happened in Ontario as well. In 2016, BC acted and implemented a foreign buyers tax. Simply put, it worked to help bring some harmony back to the market. The Ontario government held off for quite some time, concerned with the fact that immigration has been such an integral aspect of our economies overall growth; they didn’t want it to appear as though Ontario doesn’t welcome new comers. Walking a fine line, the government is implementing a new 15 percent Non-Resident-Speculation-Tax (NRST) on the price of homes in the Greater Golden Horseshoe purchased by individuals or corporations who are not citizens or permanent residents of Canada. This is meant to address unsustainable demand by slowing the rate at which foreigners look to purchase in Canada. In theory, this will make housing more available and affordable for Canadian residents.

Addressing Supply: Hand in hand with the issue of Demand, is that of supply. There simply has not been enough supply to support the increased demand, and this has been a massive cause of increased pricing: Bidding wars drive up the average home cost. There will be action to increase production of new homes throughout Ontario, legislation to encourage landlords of vacant lots to either sell or rent out the property, legislation to encourage builders to build more new-purpose rental housing, provide municipalities with the flexibility to help unlock development opportunities, and more.

What About Renters? As house pricing rises, rental units tend to follow, albeit at a typically slower rate. The issue here, is that home pricing has been rising at a rate exceeding that of inflation. Renters are typically renting because they cannot afford to buy a home, and it’s unrealistic to expect them to keep up with the increased home pricing as a result. The act will expand rent control to all private rental units in Ontario, including those built after 1991. Under the proposed changes, landlords will still be able to apply vacancy decontrol and seek above guideline increases where permitted, but the standard will ensure that the majority of increases in rental costs will only rise at the rate posted in the annual provincial rent increase guideline, which has averaged 2% per year over the last 10 years. The government is also implementing changes to the Residential Tenancies Act to further protect tenants, and to create more predictability for landlords. A “standard lease” will be developed which will tighten provisions for “landlords own use” evictions. This will ensure that tenants are adequately compensated if forced to vacate under this rule. They will also be making “technical changes” to the Landlord-Tenant Board meant to make processes easier and fairer for both landlords and tenants.

What Else? The Fair Housing Plan has many other facets to it. It aims to work with both the real estate industry as well as consumers to help mitigate pains. The government plans to “modernize its rules”, discourage “paper flipping” (the act of entering into a contractual agreement to buy a residential property and assigning it to another person prior to closing), it aims to establish a housing advisory group that will meet quarterly to inform the government of their insights related to the market and the changes being implemented, and much more.

All in all, this new act is meant to increase collaboration among the powers that be, stabilize the market, and to educate consumers. There has been much debate among professionals on whether it will help to level out the market, or if it will cause more turmoil. It’s great to finally see the Ontario government take some action, but we’ll all have to wait and see what kind of effects this initiative will have on the housing market and economy.

 

Image Source: Chris Selley, April 21, 2017. Chris Selley: A simpleton’s guide to Ontario’s ‘Fair Housing Plan’. http://news.nationalpost.com/full-comment/chris-selley-a-simpletons-guide-to-ontarios-fair-housing-plan