Facing rapidly rising home prices in the GTA, last month the Liberals introduced a 16-point plan to cool the red-hot real estate market. Ontario’s Fair Housing Plan includes a number of measures to address the escalation of home prices in southern Ontario. Measures include a 15% tax on non-residents, rent control and a ban on the flipping of pre-construction units, among others.
Will these changes lead to the results the government is hoping for or will there be unintended consequences? I spoke with some industry experts to get their take on Ontario’s ambitious housing plan.
What do the changes mean for first-time home buyers and repeat buyers?
It’s tough to be a home buyer in the GTA. For first-time home buyers, home prices are rising faster than they can save for a down payment. In addition, first-time home buyers and repeat buyers share the same pain of regularly facing bidding wars, leading to disappointment and frustration.
“I think the new measures may have helped loosen up the market for all buyers and in combination with the traditional spring market, it’s made it easier to buy a home than it was a month ago. Whether it will last remains to be seen,” says Sean Schumacher, a mortgage agent at Safebridge Financial Group.
A real estate agent I spoke with shares similar sentiments, although, still views it as a good time to be a home buyer.
“We feel that the Fair Housing Plan may have a temporary effect on the market but aren't convinced that it will continue for too long. This announcement has coincided with a flood of supply currently hitting the market. We think that right now is a great time for first-time buyers and repeat buyers to make a purchase because more of the demand is spread out through the influx of resale listings. Any buyer who is feeling tired or defeated from the early spring market should get out there and bid as they may just get lucky,” says Chris Olsen, a sales Representative with the Thurston Olsen Real Estate Team.
Although there was speculation for a while that the government would be introducing some measures to cool the real estate market, Schumacher says the housing market continued to thrive leading up to the changes, mainly due to an increase in refinances (sometimes for renovations in lieu of moving in to an upgraded property).
And now that the Fair Housing Plan is in effect, Olsen says his gut instinct is that the market will continue to move upwards in the coming months and years.
Schumacher agrees that the plan has pushed housing supply to loosen up a bit, and mortgage applications will continue to come flooding in.
“I see more potential buyers coming out of the woodwork for pre-approvals and a greater number of our existing pre-approvals winning their bids and getting into homes,” he said.
That being said, Olsen doesn’t believe prices will increase at the same torrid pace it has over last couple of years, but will continue to increase at a more reasonable rate.
What do the changes mean for renters?
The housing market isn’t just tough for buyers – it’s tough for renters too. Stories have been floating in the news lately about the rent of some tenants doubling. So to address this, the Ontario Liberals expanded rent control to units built after 1991, meaning a cap will be placed to prevent substantial rent increases on newer units.
“We think that this may have an effect on renters as it could lead to a tighter rental supply. Less investors may be willing to allocate their capital in rental properties if they can't turn a profit or break-even while renting out their properties. It may even have an effect on a landlord's incentive to continually update or modernize their existing units if they can't offset the cost of improving their units with an increase in rent,” says Olsen.
Both experts are also skeptical of the city of Toronto introducing a vacant home tax to encourage property owners to sell or lease unoccupied units. One of the actions in the provincial Fair Housing Plan to increase housing supply is introducing legislation that, if passed, would give Toronto the power to implement a vacant property tax.
“The market needs more rental and freehold listings to help control the monumental increases in both rent and sale prices over the past few years. In our opinion, we don't feel that this will have much of an impact as we believe this would be hard to enforce. Any landlord who has a vacant property could easily put a family member or friend in the unit at a low rental rate just to avoid this potential tax. It would also depend on how they plan on enforcing it and what the tax rate would be,” says Olsen.
How do you feel the new Fair Housing Plan will affect the real estate market in Ontario? Leave a comment below or follow us on Facebook and Twitter.
