Housing Promises From The Ontario Elections & How They Impact Toronto Real Estate Investors 2022
Introduction
The provincial elections are happening on June 2, which is less than a month away. If you’re a real estate investor, you might have certain housing priorities, and government housing plans might continue to influence how you choose to invest.
So, in this video, I’ll go over the most important housing ideas from the PC party, the Liberals, and the NDPs. I’ll also talk about how these ideas might affect the housing market if they are put into action.
Housing Supply
I’ve put the promises into three main groups: the supply of housing, the demand for housing, and details about renting. So let’s jump right in and start with the big one: building more homes.
Premier Ford put together a housing task force at the beginning of the year to look into our housing crisis. The group came up with a few key suggestions: The task force says that 1.5 million new homes will need to be built in Ontario over the next 10 years. And to do this, we’ll need to get rid of rules that make this impossible and speed up the approval process.
The good news is that the three major parties all agree on the same things and based their supply goals on the task force’s recommendation, which is to build 1.5 million homes in the next 10 years. But that’s about all they have in common, because how they do it is very different.
Honestly, the PCs don’t say much about how they will go about making this new supply, but they do promise to use the task force report as the basis for their housing policy.
Their point of view is that housing development should be done on a municipal level, and the provincial government should be there to help the municipalities do it more efficiently, to ensure consistency across the province when needed, and, perhaps most importantly, to give the cities the tools they need to get the job done as soon as possible.
The Liberals have a completely different plan. They say they will start a new “Ontario Home Building Corporation” and give affordable housing development back to the province. They give more specific numbers, like how they plan to build 138,000 units of affordable social housing.
The Liberals are also more specific about how they will get rid of the exclusionary red tape to increase housing supply in low rise areas. Specifically, they say they will let people build up to 3 units and 2 stories, as well as secondary suites and laneway suites, anywhere in Ontario.
On top of this, they plan to allow for more density near transit lines, since you can build more homes without parking, and more additions to purpose-built rental buildings, since it’s cheaper to add new supply through existing buildings.
The NDP has always been the most supportive of renters, and you can see this in their promise to create a new public agency called “Housing Ontario,” which will build 250,000 new affordable rental units in Ontario on a provincial level.
The rest of the ideas about supply seem pretty similar, like ending exclusionary zoning and adding more units in pedestrian and transit-friendly neighbourhoods – both of which were recommendations in the task force report.
Even though I’m not happy with how vague the Ford government has been about the supply side, I do think it’s better to deal with development at the municipal level.
Each city is different, and I don’t see many synergies if things are done on a provincial level. Aside from the Ontario building code and as of right zoning, most other barriers to new construction are usually local, like NIMBYs (not in my backyard) or local by-laws.
So, if the provinces are in charge of building new homes, different levels of government could end up stepping on each other’s toes and causing more delays.
Housing Demand
Let’s move on to the demand side, which has less on the table because, as the Federal government and the task force report both say, supply is the main issue.
On the demand side, the PCs have the least to say out of the three parties. In fact, I think their main initiative was to raise non-resident speculation tax from 15% to 20% across the whole province, which has already started in March.
From the Liberals, they promise a 5% tax on empty homes owned by not Canadians and a 2% tax on empty homes owned by Canadians. Both taxes will only apply in urban areas. The Liberals also promise to ban purchase by non-residents for 4 years. This is 2 years longer than what the Federal government will do. They promise to improve the buying side by changing things like blind bidding, home inspections, and making commissions more transparent.
But perhaps the most interesting bit would be going back to that new corporation that they plan on building. If they elected, the homes that the new corporation sells can only be bought by first time home buyers so that’s definitely something new.
Now, I’d say that the NDPs take the incentives for first-time home buyers one step further. The promise is a new shared equity program of up to 10 percent for first-time homebuyers whose household income is less than $200,000 per year. If you don’t know what this is, you can refer to something similar that already exists at the federal level.
Under the current CMHC shared equity program, the federal government will pay 5 to 10% of the home’s purchase price for you, and in return, they’ll own 5 to 10% of your home. Under the Federal shared equity program, there are other rules that pretty much limit the price to around $800,000. So, the NDP’s proposed program will most likely follow something along those lines.
We’re fine with putting limits on speculative buying and foreign buyers, but we don’t think buyer-friendly programs work well in the long run. What they do is shift demand to first-time home buyers. So it’s possible that the prices of starter homes will go up faster, which goes against the goal of making homes more affordable.
This could also cause another shift in demand toward condos, since small condos are more likely to meet the price requirements for these programs, and that’s also opposite of what the Housing Task Force wants to achieve.
Rentals
Let’s talk about rent last. The PCs say they will spend $19 million to make the Ontario Land Tribunal and the Landlord and Tenant Boards more efficient by adding more staff and improving their technology. As real estate investors, we like this plan.
The Liberals have a similar plan, with a higher budget of $15 million per year to improve similar efficiencies. But the Liberal’s change to rent control is probably our biggest concern.
What happened was the liberal government imposed rent controls in Ontario starting 2017. Once they stepped out of power, the PCs ended up removing part of that and right now, only homes built before November 15, 2018 have rent controls. If the Liberals get back into power, they said they will put rent controls back in place for the whole province going back to square one.
The NDPs have a similar view and will also switch back to the province’s wide rent controls. On top of that, they plan to close any renoviction loopholes. This is probably highly debatable, and you know which side we are on as real estate investors. But the fact is that rent controls aren’t all that great for long-term affordability, and there is history to prove it.
Without rent controls, some investors will choose properties with higher rental income instead of higher appreciation, like with purpose-built rentals, which end up being less lower risk from a volatility standpoint and end up meeting more of the criteria for affordable housing. Others investors will choose a higher appreciation over a higher rental income.
When rent controls are added, rental growth slows down a lot. This means that returns for those who choose higher rental income also drop a lot, and there will be a stronger case for more investors to choose properties with higher appreciation.
In April 2017, when the Kathleen Wynne government tightened rent controls for all rental units, this is exactly what happened. New builds that were supposed to be built as purpose-built rentals but ended up being converted into condo projects, citing concerns over limited growth.
As you can see, stricter rent controls can end up leading to less new affordable housing being built, which isn’t as straight forward to understand.
What This Means For Toronto Real Estate Investors
Housing policy is tough, and we know that many of these might turn out to be empty promises, and that other plans might have to change based on how the first ones go.
Perhaps the best way for the government to help with housing might be to let the free market do what it does best, which is to regulate itself through the forces of supply and demand.
On the supply side, we do see a consensus from all of the three major parties as we move closer to removing exclusionary rules to allow for more supply organically. In fact, a closer look at the task force report can steer us to figure out where the best growth might be moving forward.
By getting rid of exclusionary zoning, rents would go up when single-family homes were turned into multi-unit rentals. There might even be more units and faster growth in pedestrian and transit-friendly neighbourhoods.
Based on this common stance, we expect single-family homes to grow the most, and if we had to pick a price point where growth would be the fastest, it would probably be the lowest price points. Without help from the government, these will always be cheaper for end users and investors, and these homes will also be the most likely to get extra help from our federal and provincial governments.
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