Ontario’s big moves on Thursday to dampen its housing market were watched avidly by many in British Columbia, after residents of the metropolitan Vancouver region went through two years of real estate pain before governments started acting.
Of particular interest is whether Ontario’s plans to tax foreign speculators and toughen up protections for renters will simply put the province on an even footing with B.C. or if there are some new ideas that this province should copy.
Here’s what they’re looking at most.
Non-resident speculator tax
Like B.C., Ontario has chosen to focus on offshore speculators first, rather than domestic ones. And it has adopted what looks like, at first glance, the same tax: a 15-per-cent tax on non-residents who buy investment properties. But Premier Kathleen Wynne specified that it would not apply to non-citizens who are working or to students, nor would it apply to permanent residents.
When B.C.’s tax took effect last August, it applied to any buyer who was not a citizen or permanent resident. Earlier this year, after much uproar and a proposed class-action lawsuit, the government revised it to ensure foreign workers with provincial-nominee work permits would be exempt.
“It’s better in tone and in details. It’s less anti-outsider,” said Paul Kershaw, the founder of the B.C.-based organization Generation Squeeze. His group, now expanded to Ontario, advocates for fairer government policy to help younger people deal with the triple burdens of high housing, daycare and postsecondary-education costs that they face.
Mr. Kershaw, who teaches at UBC, said that Ontario politicians also encouraged offshore investors to put their money into purpose-built rental, which was a more welcoming and useful move.
Ontario stayed away from a higher tax, like the 30 per cent that the BC Green Party has suggested in platform during the provincial election campaign.
Premier Christy Clark sounded pleased that Ontario had copied B.C., saying “the 15-per-cent tax on foreign buyers has really made a difference in slowing down the growth in the cost of housing so it did exactly what we want to do.”
However, a Royal LePage report this week said it appeared that prices were back up again.
UBC business professor Tom Davidoff said the data is too muddled yet to say what the impact has been.
B.C. has had rent control on all types of rented housing since 2002, when then-premier Gordon Campbell’s Liberals introduced new legislation that allowed landlords to raise rents only by the rate of inflation for a tenant who remained in a unit. It’s now inflation plus two per cent.
Ontario only had rent controls in place for buildings constructed before 1991. That meant that rents started to jump noticeably in newer buildings as the housing squeeze accelerated in the past year.
The new Ontario proposal is for rent control on all units, with increases allowed only at the inflation rate.
For Mr. Kershaw’s group, which got 3,000 signatures on a petition asking for that change, the Ontario proposal was good news. For the landlord group in B.C., it’s an ominous sign that could lead to a slowdown in building new apartments.
“You could see some of what’s in the pipeline stall,” said David Hutniak, CEO of Landlord BC. That’s because developers build in anticipation of getting a certain amount of rent over the years. If they think they won’t be able to get that, they may decide the balance sheet for the building doesn’t work any more. That’s one argument that many economists have made in opposition to rent controls.
Ontario politicians talked about introducing legislation to allow potentially any city in the province to impose a vacancy tax. It’s something Toronto Mayor John Tory has expressed interest in.
That would be a much-expanded program compared to B.C., where the province has only passed legislation to allow Vancouver to create a vacancy tax. Vancouver saw the number of units “unoccupied by the usual resident” – a census term – increase from 1.4 per cent of all stock in 1981 to 3.7 per cent in 2011, or about 22,000 units.
Vancouver’s vacancy tax won’t be charged until next year, after the city gave homeowners a year to document their use and possibly rent out their unit in order to avoid paying it.
Mr. Davidoff thinks the vacancy tax is a good move for Ontario. “It could have considerable bite.”
But others say it’s unclear yet how effective it will be in Vancouver or anywhere. Mr. Hutniak said early signs aren’t encouraging. His organization has been working with the city by offering education sessions to people about how to become a landlord.
“We had hoped for a couple of thousand units (to come into the rental market),” said Mr. Hutniak. “But we’re not seeing that kind of traction.”
Flipping of assignments for pre-sale condos
When B.C. imposed its foreign buyers’ tax last August, it did not include the transactions that happen when people buy unbuilt condos through pre-sales. It had previously put limits on the practice of flipping properties that were already built homes.
Ontario’s finance minister, Charles Sousa, has been talking for weeks about the need to go after “property scalpers” who re-sell the contracts for pre-construction units many times before the deal finally closes. The Ontario package of housing policies doesn’t have anything specific on this yet. But politicians did promise to work to understand and tackle practices that allow “paper flipping” and other similar strategies.
That’s something that NDP MLA David Eby says B.C. should be doing.
“We want to stop the speculation on pre-sale condos,” said Mr. Eby, whose party has included that as part of its platform in the current provincial election campaign.
But the developer association in Vancouver doesn’t believe that’s needed. “Developers already put huge restrictions on allowing people to assign,” said Anne McMullin, CEO of the Urban Development Institute. She said current statistics indicate that fewer than 10 per cent of pre-sold units are re-assigned by the original buyers.
The supply side
Housing experts sometimes disagree about whether controls on demand or incentives for supply work best to bring prices down in a hot market. B.C. and the City of Vancouver have done a number of things to encourage supply. The province is putting $1-billion into affordable-housing projects the next two years, while the city is contributing land and providing density bonuses to do the same. The NDP has also promised to expand housing supply, especially at the lower end, if it is elected. In addition, the Liberals last fall introduced a program to give first-time homebuyers an interest-free loan to help with downpayments.
Ontario stayed away this week from that last kind of program. “I’m really glad they didn’t do any of that first-time buyer stuff,” said Mr. Davidoff, who said it just inflates the bottom end of the market.
Instead, the measures introduced Thursday include things like putting $125-million into program to encourage rental housing, creating a special “housing supply team” task force to look at regulations or barriers holding up construction, and promising to free up government-held land for projects with housing available for households with different income levels.
Simon Fraser University finance professor Andrey Pavlov said both Vancouver and Toronto have not done enough to increase supply, which he sees as the main cause of the housing crisis in both cities. Although he does say that foreign investors do have an impact on prices, they are not the top reason for the inflated markets. “Both Toronto and Vancouver are growing cities and we have done absolutely nothing to increase the supply of land.”