Canada Elections 2021: Will They Solve The Real Estate Housing Crisis For Canada & Toronto?
If you look at real estate news in Canada these days, you’ll probably see something related to the elections. It’s not the first elections that there’s a focus on housing affordability, but given that real estate prices in Canada have shot up so quickly recently, there’s now a bigger emphasis on real estate this time around.
As real estate investors, we want our investments to see healthy growth, so a stable housing market is just as important for us. Now there’s different ideas bouncing around between parties and of course some might be better than others. In this video, let’s break down the key ideas from the three major parties and see how they stack up to each other in terms of giving real results.
What's Causing Our Canada Housing Crisis?
Before we look at the solutions, I think it’s important for us to review what exactly is causing our housing crisis.
Now even though vacancies and speculation do make things worse, I don’t think they are the key problem and you can see proof by looking at what’s already happened in Vancouver and Toronto. Vancouver was the first to start an empty home tax in 2017 at 1%. It didn’t do much to the market so they bumped it to 1.25% in 2019. It probably still isn’t working well so next year they’re going to try to bump it to 3% and see where things go. Here in Toronto, we also have plans in place for the vacant home tax starting next year. 1% didn’t do much in Vancouver, so we don’t expect it to do much here either especially if real estate continues to do well and grows at 5 to 10% per year.
On the speculation side, both Toronto and Vancouver also already have a non resident speculation tax in place and for this one. Even though it did tame the market for a couple of years here, we’re now back to very high levels of growth so it’s not a long term solution to help free up supply.
The key problem that’s causing our housing crisis in my opinion is a supply issue. Our population keeps growing and we’re not building supply quick enough to meet this demand. Every year, we’re getting a bigger housing deficit and that’s what’s fuelling our rapid property price growth. Nobody knows for sure what the deficit looks like, but I did a quick guesstimate to see where we’re at. Our current population in Canada is around 38M, so assuming that each household is around 2.5 people, then this means we actually need 15.2M homes in Canada. At the current moment, we have around 14.2M homes, so based on this calculation, we’re lacking around 1M homes in Canada and this supply needs to be added back quickly so slow things down.
Another issue that needs a revolution is on the financing side. Because property prices have grown much quicker than our incomes, we’ll need some extensive changes to mortgage qualifiers if we want more new home buyers to enter the market. In year 2000, Toronto home prices were 4 times the average home price. So to come up with the 20% downpayment required, that’s 80% of one person’s annual salary. Today, home prices are 10 times our average income, so now it takes two people’s combined salary for one year in order to come up with the 20 percent downpayment.
On top of this, a single income could have easily qualified for rest of the mortgage in year 2000. Now, two people’s average annual salary barely qualifies for an average home’s mortgage assuming an eighty percent loan to value ratio.
And if home buyers want to get help from CMHC, they might not even qualify these days because the program has a hard cap of $1 million whereas the average home price in Toronto is reaching the $1M mark.
So if the goal is that we want more home owners, then the government will not only need to help with saving up for the down, they will also need to combine that with easing up on mortgage qualifications as well.
The Liberals' Canada Real Estate Solutions
The Liberals plan on creating 1.4M new homes in 4 years time. Now if this actually gets done on time, this is good news and can reduce a huge chunk of our supply issue, and we’ll only be short 80K homes in four years time compared to our current deficit of 1M homes. Just note time is of the essence, and each year we wait or it gets delayed, we will have to pay for it on the other end with more home buyer subsidy programs if the end goal is for renters to become homeowners.
The Liberals also have policies to target vacancies and speculation by banning foreign buyers from buying homes for 2 years, imposing a 1% vacant home tax for non residents, and introducing a flipping tax. These might sound great but like I mentioned before, I think these will only have minimal long term impact to Canada‘s overall housing supply given what we’ve seen in Vancouver and Toronto already.
On the buying side, they want to bump up the first time home buyer credit from $5K to 10K and implement a new home savings account where you can put in $40K tax free, withdraw it tax free and put it towards your first home. To help with carrying costs, they plan on reducing CMHC mortgage insurance by 25%, and giving mortgage deferrals if someone loses a job. Another interesting plan they have is to introduce a new rent to own program to make it easier for renters to eventually become home owners and it’s mainly for condos.
Now these solutions sound great, but I feel like they will mainly help if someone wants to buy a condo in Toronto but the amounts and programs won’t be enough if someone wants to buy a house in Toronto and might even create a bigger disconnect between condos and houses moving forward. The other big thing is that the Liberals haven’t addressed the mortgage side and this will probably still be the biggest barrier to home ownership.
The Conservatives' Canada Real Estate Solutions
The Tories believe our core problem is a supply issue, and we definitely see eye to eye here. In this plan, they want to build 1M new homes in 3 years which will address the housing supply issue quicker than the Liberals but we’ll still be short 320,000 homes at the end of 3 years. The Conservatives have the right idea but they’ll need to keep ramping up new home builds even after the three years.
One common front with the Liberals is that they have the same stance towards foreign investors. The Conservatives also plan on banning foreign investors from buying in the next two years.
On the mortgage side, I feel that the Conservatives are tackling the core issue by easing stress tests so it’ll be easier for home buyers to get mortgages. Details include easier stress test requirements for self employed people, removing stress tests for new home buyers, and removing stress tests requirements when people switch lenders. Other mortgage related mandates include encouraging 7 to 10 year mortgages and limiting mortgage insurance.
I also like that the Tories are doing more on the rental front. Even though they are banning foreign investors from speculating, they encourage them to invest in purpose built rentals to boost rental supply. Finally, the last idea I want to highlight is not renter friendly but also investor friendly so I think it’s great. They plan on creating a capital gains tax deferral when you sell a rental property provided that you’re reinvesting your funds into new rental housing.
The NDP's Canada Real Estate Solutions
Finally, let’s look the NDPs who believe real estate prices will probably never be attainable for most, so their focus is really to help renters out. Because of this, their solutions related to buying are definitely weaker. The NDP’s plan on adding 500,000 units of affordable housing in the next 10 years, which is only 50,000 units per year, so definitely not enough. To target vacancies and speculation, they’ll slap a 20% foreign buyers tax on homes which is a weaker position compared to the other parties.
There’s also less impactful solutions on the buying side. The NDPs plan to double the home buyers tax credit to $1,500 to help with closing costs and realistically that won’t be enough at our current home prices. They plan to create a new 30 year mortgage term, which might help with financial planning, but doesn’t help with entering the market.
Where they shine are definitely in the rental solutions. They plan on creating more affordable rental solutions by streamlining funding for co-ops, social and non-profit housing and waive the GST/HST on new construction of affordable rentals. One more thing to note is that they plan on raising the capital gains inclusion rate from 50% to 75% and the end result might be two fold. This will probably discourage investors from selling so more investors might refinance to grow and hopefully boost rental supply. But having investors hang onto more real estate might actually add to the housing crisis from the end user buyers perspective.
Your Response: Poll Results & Summary
When I made a poll on Instagram asking if you think new government policies will help our housing crisis, the result came back with a pretty clear no!
To be honest, housing policy is hard. The government has other mandates like maintaining low interest rates for sustainable economic growth and meeting immigration targets and these will contribute to growing real estate prices. At the same time, a huge part of our GDP is reliant on real estate and we have more home owners than renters in our population, so we really need to treat real estate with kid gloves.
How We Can Help
As real estate investors, even though we want real estate prices to go up, the growth needs to be sustainable and healthy. So if we’re aiming for stable growth in real estate then providing a better balance of supply and demand is really the best long term solution for everyone. Wealth from real estate investing doesn’t only come from appreciation, but it’s a combination of appreciation, rental income plus leverage which really helps us generate stable yet amazing investment returns.
We’re big believers in investing in real estate in Toronto and if you want to chat more about this, we’re ready for you! We can look at your requirements and preferences and then match you up with the best investment property that fits your needs. After we help you buy it, our team also provides renovations guidance, leasing and property management if you need it. Just connect with us if you want to learn more about our services!
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