Wynne Announces 16 Measures to Cool Ontario Real Estate
Author: Tracy Ruddell
The Provincial government announced today a plan to help cool the Ontario Real Estate market. The announcement comes after yesterday’s meeting in Toronto with all three levels of government including Federal Finance Minister Bill Morneau, Ontario Finance Minister Charles Sousa and Toronto Mayor John Tory.
We’ve talked before about some of the options that our government may consider to help cool the Toronto Real Estate market. Some of our readers are delighted at the prospect of government intervention in what they view as an out-of-control market while others fear any type of artificial control measures are a recipe for disaster and a negative for those who already own a home in Ontario. For those cheering on a market intervention, there has been an outcry over bureaucratic volleying between government officials over who’s responsible and for what. For example, Sousa sent a letter to Morneau urging him to put changes to capital gain’s taxes in play in the Federal Budget (aimed at cracking down on speculation), while Prime Minister Justin Trudeau stated in several interviews that Federal measures aimed at cooling two very specific markets (Toronto and Vancouver) could have negative consequences for the rest of the country, suggesting that the respective Provincial and Municipal governments needed to lead the charge.
Today, Premier Kathleen Wynne, together with her colleagues Charles Sousa and Chris Ballard, Ontario’s Minister of Housing, did just that with an announcement of a comprehensive list of 16 action items that will help address Ontario’s housing affordability crisis. This plan includes measures to protect buyers of both re-sale and new build homes as well as renters. Let’s take a closer look at the Province’s plan and what these new measures mean for buyers and sellers of Toronto homes for sale as well as for renters.
The Ontario plan includes multiple measures to address everything from speculation in Toronto Real Estate to out-of-control rental prices. You can review the 16 steps as laid out in the Ontario Fair Housing Plan on the Ontario website. Here, we’ve structured the key points thematically and discuss what these measures may mean in practice:
A 15% foreign buyer’s tax will be introduced, effective as of April 21, 2017. This would be imposed on non-resident buyers in the Greater Golden Horseshoe area, i.e. non-citizens or non-permanent residents; the idea here being, if you’re a permanent resident or new Canadian citizen who’s working or studying in Canada and buying a property to live in, you won’t be taxed. It’s aimed at cracking down on speculative buying that leads to over-inflated values and vacant properties.
This is a fairer version of the tax imposed on Vancouver foreign buyers in 2016 as it's really only intended to tax foreign speculators who never even set foot in Toronto.
In addition to the Province-wide foreign buyer’s tax at time of purchase, there will be new legislation that will empower individual municipalities to impose their own vacancy tax on top of this, should they wish. This would be a property tax imposed on owners of homes or units that are vacant for over a certain period of time, encouraging owners to sell or rent their properties rather than let them sit empty.
The Province has also committed to increasing efforts to better understand and address the issues leading to tax avoidance with an emphasis on cooling speculative buying. They also mentioned that they would be partnering with the Canada Revenue Agency (CRA) on reporting requirements. We’re happy to see these points addressed in the plan because creating new tax laws is one thing but enforcing them is another. It will take a lot of planning and cooperation between the Province, municipalities, the CRA and industry entities such as Real Estate boards to ensure buyer and seller data is being tracked and communicated properly.
Finally, property tax for new apartment buildings will be the same or similar to the rate used to tax other residential properties.
Greater rent control laws will be introduced, applicable to all Ontario rental apartments / homes / condos and not just those built before 1991. Under current legislation, a landlord of a unit built after 1991 is not subject to rent control laws. He or she can legally increase a tenant’s rent each year above the cost of inflation, forcing some tenants to have to move. This change to the law will ensure rent increases cannot exceed the rate posted in the annual provincial rent increase guideline which, over the past ten years, has averaged around +2% annually.
Updates to the Residential Tenancies Act will also be introduced including a standard lease agreement and a re-structured Landlord-Tenant Board to deal with complaints in a fast and fair manner. There will also be changes to the “landlord’s own use” clause in the Act; currently, a landlord can legally evict a tenant once their lease becomes month-to-month (typically after 1-year) to reclaim the unit for their own use. What’s happening though is landlords are using this as a loophole to get more rent; they're evicting under that proviso and then renting to another tenant at a much higher price.
We see this happen all too often on units built prior to 1991. Landlords tied to rental increase caps see the kind of income they could generate if they started fresh with a new tenant on a new lease (when you can set the price however high the market will tolerate). They then illegally evict their current tenant, claiming they want the property back for their own use, only to turn around and rent it out to someone else. An illegally-evicted tenant can fight back but once they’ve been evicted and have found another place to live, few want to assume the stress and time commitment of going after a bad landlord. And really, would you want to stay in a unit under ownership of a landlord you just filed a complaint against? The current law puts all the onus on the victim, i.e. the illegally-evicted tenant, to take action when they are the very consumers that this law is meant to protect. The proposed, new legislation will hopefully prevent this type of thing from ever happening in the first place.
A new, $125 million program set out over 5 years will be introduced to encourage developers to build new rental apartments by offering a rebate. The rebate will be on a portion of the development charges which, currently, can be prohibitive. Builders are private entities and so, of course, they are going to build the types of properties that net them the greatest profits and that are the easiest to get approval on, avoiding as much red-tape at City Hall as possible. Monetary incentives to build multi-unit, rental apartments are one step towards enticing developers to help build more sustainable cities.
There will be a new program introduced, aimed at using any surplus in provincial land assets to develop mixed-use housing projects that include both market-value housing and affordable housing. Potential sites under consideration for a pilot project include the West Don Lands, 27 Grosvenor/26 Grenville Streets in Toronto, and other sites in the province. This is a strategy that has worked very well in some developments such as Regent Park but has, arguably, failed in others such as Alexandra Park so hopefully the administrators of this program learn from our past successes, and mistakes.
The details are not yet available but a promise has been made to individual municipalities in Ontario that they will have more flexibility when it comes to setting property taxes. We presume this to mean that cities can either raise or lower taxes to encourage development in the areas that their city needs most (e.g. it may be rental apartments or single-family homes, for example).
The Province has also committed to the creation of a new Housing Supply Team to identify barriers to and opportunities for new housing projects. This team of provincial employees will work with individual municipalities as well as builders to create new build strategies.
The Province also wants to encourage the development of a greater range in unit sizes in high-rise buildings to address market needs and, as they've put it, "accommodate a diverse range of household sizes and incomes". We all know that there’s a sad lack of family-sized Toronto condo units, for example. What’s not clear is how effective this plan is going to be; so far, it simply states there will be “new provisions" that will include "requiring that municipalities consider the appropriate range of unit sizes”. A requirement for someone to “consider” doing something isn’t exactly a requirement to do that thing. Time will tell if this has any real bearing on the development landscape.
The Province has committed to a review of the rules that Real Estate agents must follow to ensure consumers are protected. As a team of Toronto REALTORS®, we’d like to add our two cents here: the issue isn’t in the rules per se, it’s in the lack of accountability. Although the rule book, REBBA 2002, is outdated and could use a re-think (particularly around multiple offers and bully offers), the existing rules are generally very protective of consumer’s rights and best interests. The problem is when unethical REALTORS® choose to disobey those rules.
While the Real Estate Council of Ontario is meant to be the industry’s watch-dog, protecting consumers’ rights, they can only investigate unethical behaviour when it’s brought to their attention, i.e. when a consumer or another agent has filed an official complaint, and that doesn’t always happen. And even when bad agents are caught doing bad things, the fines are often nominal in comparison to the commission they've received from conducting deals that line their pockets at the expense of their clients. So, let's be clear. It’s the policing of the industry and the accountability stakes that need to be raised to resolve any issues of unscrupulous behaviour by agents; addressing the "rule book" in isolation won't do much.
What’s also not clear in the proposed plan is how the Province intends on ensuring a more transparent and fair bidding process. Sousa has stated previously that that he sees this as a priority. As quoted in the Toronto Star, he said:
“We’ve heard the frustrations by many who get caught in bidding wars and lose out and it’s infuriating for many people . . . so all of those things are being addressed and they’re coming out soon.”
His further statements suggest that honest consumers shouldn’t fear any additional, new legislation, that they’re really focusing on speculation here:
“Listen, investing in real estate is OK. Buying and renovating and providing more rental stock to the marketplace is a good thing.”
Most REALTORS® are just as frustrated as buyers with bidding wars but the alternatives are not necessarily any more attractive (for example, an open, auction-style system like they have in Australia). This one is clearly a hot button issue and for good reason but it’s not going to be simple to address. We don’t suggest holding your breath for reform on this one, rather, focus on hiring an expert REALTOR® whom you trust. Make sure to interview several REALTORS® and ask the right questions.
For tips, have a read of our post on how to find a REALTOR®.
The Province also announced a new housing advisory group which would meet quarterly to advise the government on the state of the housing market and continue the discussion around any new measures that are needed (or corrections to current measures that may not be working).
They also committed to generating greater awareness amongst consumers on their rights. In particular, what it means if a buyer and seller use the same REALTOR® on one deal. This is known as double-ending and we’ve talked before about why we feel it should simply be banned. No amount of consumer education is going to alleviate the problems we see happen with double-ending when it’s a shady agent at the helm.
To learn more, have a read of our previous post on the dangers of double-ending.
There were a few, additional things mentioned in the plan. For example, the Province wants to see specific deadlines set for elevator repairs in condo and apartment buildings, working with the Technical Standards & Safety Authority.
This may seem like a silly addition but we’re thrilled to see it included. Some developers are notorious for opening new builds for occupancy before the elevators are even installed. For all of our readers who are condo dwellers, you know how disruptive it is to have your elevator down for weeks or even months with no accountability on behalf of the builder or building management, while you continue to pay full maintenance fees. For residents with disabilities and others, having no working elevator isn’t just an annoyance; it can mean your unit is unlivable until the problem is fixed.
Closing out the announcement, Wynne said that, while they aren't ruling out additional measures, “right now, we believe these are the measures needed to help people find a place to live that they can afford". You can watch a video of Wynne’s announcement on the loop.ca and read the official statement here.
The statement issued by the Premier's office also reminds consumers of the actions already taken to address housing affordability. As stated on the Ontario website, measures already taken include:
-Helping more people purchase their first home by doubling the maximum Land Transfer Tax refund for eligible first-time homebuyers to $4,000. This means eligible homebuyers in Ontario pay no Land Transfer Tax on the first $368,000 of the cost of their first home.
-Modernizing the Land Transfer Tax to reflect the current real estate market, including increasing rates on one or two single-family residence over $2 million. Revenue generated from the increased rates is being used to fund the enhancements to the First-Time Homebuyers Refund.
-Making it easier for not-for-profit affordable housing providers to buy surplus government lands.
-Introducing an inclusionary zoning framework for municipalities that will enable affordable housing units as part of residential developments.
-Amending the Planning Act and the Development Charges Act to support second units, allowing homeowners to create rental units in their primary residence and creating additional supply.
-Freezing the municipal property tax burden for multi-residential apartment buildings in communities where these taxes are high.
-Collecting information about Ontario's real estate market to support evidence-based policy development.
Additionally, the Province had already committed to consumer protection reforms for people who purchase new build homes. Tarion's responsibilities will be restricted while a new consumer protection body will be created to do what Tarion has arguably failed to do: adequately protect buyers of new construction properties in Ontario against unlawful and unethical developer behaviour. You can read more about these upcoming changes in our post about new home buyer protections.
What do you think of Ontario's new, 16-step Fair Housing Plan?
Lead image: Ontario legislature buildings, Queen's Park, by Benson Kua taken in August 2008, from flickr, CC BY-SA 2.0.