Canadian Housing Market Need More Houses, Not More Taxes and Promises
 
Let’s face the truth; The housing problem is simply because of supply and demand. When supply is low, demand increases. This problem can only be solved by building enough affordable homes to offset supplies. Christopher Alexander, Senior Vice President at RE/MAX Canada, said “Policies that impact market dynamics usually end badly for homeowners.

The solution should not be about changing market dynamics but should focus on tackling supply challenges.” The three major political parties are dancing around the main issue, making promises, proposing major policy changes, and increasing taxes. 

One of the Liberal policies is to ban blind bidding. On the surface, this looks great but let’s look at why people are bidding in the first place. The reason is simple—there are about four buyers to every seller. If there are enough houses, then, the bidding war will stop. Open or closed bidding will not help to solve the problem. The President of The Ontario Real Estate Association, David Oikle, stated that “You cannot fix Canada’s housing crisis by denying millions of hardworking families the choice of how to sell their home and by pitting homeowners against buyers. In fact, this plan would have the opposite effect—negatively impacting Canada’s housing market and making homeownership even more unaffordable.” According to Mr. Oikle, “Auction fever creates a three-ring circus on front lawns, as hopeful buyers crowd in front of a home with a live auctioneer, or online, and the bidding begins.”

Another Liberal idea is to band foreign buyers from buying Canadian homes for the next two years. Foreign buyers are indeed depleting our housing stock, but to what extent? According to a survey conducted by RE/MAX of Brokers and Agents in Western Canada, Ontario, and Atlantic Region, 96% of transactions were being done by sellers selling their home and buyers buying a home to live in. The housing problem is home grown. Foreign buyers are already penalized in Ontario and BC with foreign buyer tax which has not cooled the housing market.

The NDP proposal to raise capital gains tax on investment properties is implosive. Capital gains is the profit made when an investment is being sold. Currently, the investor keeps 50% of the profit and the other 50% is considered as regular income. By reducing the incentive, investors will not invest in rental properties. As such, there would be fewer rental properties available which will cause rental rates to climb. 

Jagmeet Singh, The NDP Leader, stated “Tax the ultrarich to invest in people. That’s our plan. And really no other party is willing to say those words.” An average investor with one or two rental properties will not be considered ultrarich. These are regular folks who worked two jobs and saved so that they can build some wealth. A government who kills the spirit of its citizens to become financially independent, is creating a society of people who will become financially dependent. If there is enough supply, the market will correct itself. You cannot solve the financial crises by sucking the financial life blood from hard working people. I do agree that speculators, both local and foreign, should pay—but not investors with long term investments.

The Conservatives promised to build about 330,000 homes yearly or one million homes in three years. Currently, there are about 210,000 new homes built yearly. An additional 120,000 homes yearly is a good start but is not enough to quench the thirst for housing. The Liberals, on the other hand, promise to “build, preserve, or repair” 1.4 million homes. This is a statement with no official plan. The Liberals took office since 2015 and literally did nothing to prevent price escalation. 

Instead of walking around the problem, the political parties should confront it. The bottom line is that we need more affordable homes. This can be done by engaging the three levels of government to work together. Developers and builders should be encouraged to build more affordable homes by providing incentives such as tax breaks when building affordable homes. Another idea is streaming the approval process. Currently, in Toronto, it can take over two years to get final approval and another few years to build. It’s like driving on the highway with only one lane open.

Another idea is for all levels of government working together to spur economic development in smaller, less populated cities. This will encourage people to move away from the big city, easing the upward pressure on housing. Giving incentives to first time buyers is a temporary fix for an underlying housing problem. The older generation never had any incentives given to them when they bought. There was enough supply and with their income, they were able to buy a home and support a family. We need to go back there- open more land and make it a priority to build more homes. 

Seniors usually add about 10% of homes to the housing stock. With the pandemic, many remained in their home. Give seniors an incentive such as moving costs and waiving the land transfer tax to relocate to smaller towns. This way, they can sell their home in GTA and buy another home much cheaper, freeing up money for retirement. 

Housing is a red-hot issue and that’s why no one wants to touch it. Instead, the political parties are dancing around the main issue. I am afraid that after the election, when things are settled, the fire will continue to spread until the next election when the dance will resume.