How will the Liberal platform impact housing? 4 experts weigh in
Will the Liberal housing platform move the needle on supply and affordability? Will their proposed Home Buyer's Bill of Rights make it easier to buy a home – especially for the first time? Will the 2-year ban on foreign buyers make a difference? Are the proposed increases around housing supply realistic – and are they enough?
There are no hard-and-fast answers to these questions, but talking to experts immersed in the real estate world offers some interesting insights.* We spoke to Brendon Cowans, Property.ca VP of Sales, Todd Armstrong and Mark Ronne, Brokers and Branch Managers, and Peter Epstein, Broker Manager, to get their take on how the Liberal platform could impact housing – especially in the GTA, where the crunch has hit potential homebuyers HARD.
1.4 million homes is a start, but we need more. Way more.
Everyone we talked to agreed on one thing: we desperately need more housing supply. And while the Liberal promise of “building, preserving and preparing 1.4 million homes” will certainly fill some of that need, there are two key things to consider:
The promise is for 1.4 million homes nationwide. The GTA will only get a percentage of that. The proposed $4B Housing Accelerator Fund “will grow the annual housing supply in the country’s largest cities every year, creating a target of 100,000 new, middle-class homes by 2024-25.
The government has committed to bringing in 400,000 new immigrants a year over the next several years, an estimated 150,000 of whom will settle in the GTA annually.
The growing population will eat up any new supply. And since demand and competition are what drives prices, our experts doubt the new supply will have any impact on affordability.
“Canada has the lowest number of units per 1,000 residents of any G7 country and the highest housing prices,” says Epstein. “Demand and low interest rates keep driving prices up. Honestly, 1.4 million homes is a drop in the bucket.”
“In reality, there are a huge number of homes being built in the GTA already,” says Armstrong. “The number of towers under construction right now is in the high 200s, which is 3-5 times more than any other urban centre in North America. And it's all being snapped up.”
Where will the new homes go?
“They aren't making more land,” says Cowans. “So where will all these new homes be built? Will protected areas be reallocated? Will we end up with more situations like the cancelled Rail Deck Park? The need for densification raises legitimate concerns about livability and the status of protected areas.”
While condo towers are a given, they aren’t the only path to supply. Armstrong likes the idea of California’s recent ban on single-family home zoning as a path to necessary densification. “In California, they’ve opened up single-family properties to allow for multiple units,” he says. “If it was easier here to take those big bungalow lots in Etobicoke and build 2 or even 4 units instead of the typical lot-size single-family monster home, that could make a difference.”
Laneway homes, which were finally approved by the city a couple of years ago, are a step in the right direction. Now garden suites are under consideration, but there's no telling when they will be approved. If the Liberal focus on enabling municipalities to speed up construction actually works, these types of structures could contribute to supply. The promise of rezoning underused commercial space and government buildings into residential units could also add a promising piece to the puzzle.
Banning foreign buyers won't necessarily have a big impact
This is a HOT-button topic: most people assume foreign buyers with deep pockets are buying up properties, driving up prices and squeezing locals out of the market. All three major parties proposed limits on their ability to purchase homes in Canada based on this assumption. But Ronne feels they aren’t impacting the market to the degree people think.
“Foreign investment is maybe 2-4% of the resale market,” he says. “Resale is driven by local buyers. Where foreign buyers do make an impact is in the pre-construction market.”
Pre-con is priced based on anticipated value instead of current value, which makes it harder for end-users to afford. So it’s often purchased by investors instead, a percentage of whom aren’t Canadian.
“In some cases, foreign buyers enable new condos to be built,” he says. “Builders may need capital from investors in addition to what they can get from banks...so what happens when you take some of those investors out of the mix? Fewer condos get built, and supply drops even more.”
Breaks for buyers? Yes, please.
First-time buyers have it tough, and all four of our experts like the Liberal focus on making it easier for first-timers to afford a home.
“The First Home Savings Account, which allows for tax-free savings of up to $40K towards a down payment, is great,” says Epstein. “Anything that helps offset those costs is a positive thing. But why is this savings vehicle limited to those under 40? In this market, there are plenty of first-time buyers over 40.”
Doubling the First-time Buyers Tax Credit from $5,000 to $10,000 also gets a unanimous thumbs-up, but Epstein feels there's more the government can do here, including providing a tax credit for land transfer taxes. “Buyers pay land transfer taxes with after-tax dollars,” he says. “That’s taxes on taxes, and it further erodes their capacity to buy.”
Reducing the charge on insured mortgages by 25% is another Liberal proposal, but this one elicited some concern. “While passing on savings to the buyer is a great idea, there’s a reason the CMHC charges the premiums they do,” says Epstein. “Discounting it narrows their buffer for protecting against defaults. As buyers take on more debt, the likelihood of default is higher.”
Rather than jeopardizing the CMHC’s ability to insure mortgages, Epstein proposes an alternative: not charging tax on mortgage insurance premiums. (Every premium is currently subject to 8% GST.)
And the promise to put $1B towards rent-to-own projects? Also a great idea...in theory. However, our experts are taking a wait-and-see approach on how these plans pan out: without significant government intervention, there's little incentive for developers and landlords to participate in this program.
The Home Buyers’ Bill of Rights: the good, the bad and the blind
In the current low-supply market, all the power is in the hands of sellers. Protecting buyers with a bill of rights is commendable. However, there are a few things in that proposed bill that our experts think may not work in practice.
Having the legal right to a home inspection. When there’s competition for a property, sellers tend to accept the offer that’s the most money and the least amount of hassle. This means an offer with an inspection condition won’t make the cut. (Many sellers will provide their own inspection, or offer a small window of time for an inspector to come in, but the ideal is having your own trusted inspector, with enough time to do a thorough job.) But legislating a right to an inspection, as positive as it sounds, won’t stop aggressive buyers from waiving that right – and pushing everyone else out of the running. So unless the Liberals make it illegal to NOT have an inspection, this could end up being ineffectual.
Banning blind bidding. This one is causing a lot of debate. Having a system where you can see what the competition is offering certainly makes things easier for buyers. Anyone who’s ever been in a bidding war knows how stressful it can be, and how easy it is to overspend: it’s appealing to not have to operate in the dark. However, apart from making the process less stressful for buyers, it’s unlikely to impact prices.
“People will just go up in smaller increments,” says Ronne. “If you look at Australia, which has an open auction system, their prices are comparable to ours. The aggressive bidders are still out there.”
Total transparency in sold prices. This is one point ALL our experts agree on 100%: having access to this information helps buyers and sellers alike. Property.ca and condos.ca give users access to historical data so they can see what a specific property sold for – going back to 2003.
“Full price transparency can only be a good thing,” says Cowans. “By seeing what comparable properties sold for, buyers can determine value, identify deliberately underpriced listings, and avoid the frustration of losing out on property after property. Sellers can use the information to help gauge what their own homes may be worth and avoid unrealistic expectations. The problem is that not many real estate companies have allowed the public ‘behind the curtain.’ For example, you can’t find out what the house next door just sold for on realtor.ca. You have to know where to look. But sold prices aren’t the only thing people should be looking at. Knowing accurate square footage can also help gauge value, and that’s something else condos.ca offers that few others provide.”
Waiting for a concrete plan.
“I'm all for building more housing, reducing red tape to help cities accelerate construction and making the process easier for buyers,” says Armstrong. “But in my opinion, the only thing that will make a real difference is to build a ton of homes...a much higher number than what the Liberals have proposed.”
“The Bank of Canada declared interest rates will hold into 2023,” says Cowans. “Without increasing supply fast enough, what’s to say that giving first-time buyers greater access won’t expand the buyer pool and drive demand (and prices) even higher? I don’t see homes getting any cheaper: nothing jumps out that will significantly help the twin issues of supply and affordability. On the other hand, many of the promises are still quite vague, we will have to wait and see what happens.”
“Much of the platform comes across as grandiose promises and band-aid solutions,” says Ronne. “None adequately address what we need most: real supply.”
“Ultimately, until we see all these proposals ironed out in detail, it’s hard to predict the effectiveness of the Liberal plan,” says Epstein. “Right now, they’re all just talking points.”
Are there any issues in the Liberal platform you feel strongly about? Read more about them here, talk to a property.ca agent to get their “on the ground” insights, or write an email to your MP with your questions, concerns and suggestions.
The Liberal Housing Plan: an overview
Build, preserve and prepare 1.4 million homes over the next 4 years
Help cities accelerate housing construction
Impose a 2-year ban on new foreign ownership
Ban blind bidding so all buyers can see what other bidders are offering
Establish a legal right to a home inspection
Ensure complete transparency around home sale prices
Require mortgage lenders to act in the best interests of buyers
Develop a national action plan to protect customers
Double the First Time Home Buyer Tax Credit to $10,000
Put $1B towards rent-to-own projects
Create a tax-free First Home Savings Account which lets buyers under 40 save $40K towards their purchase
Reduce the price charged by the CMHC on mortgage home insurance by 25%
Read the full Liberal housing plan (it starts on page 11, at “Build a Better Canada for Everyone”)
*These are the opinions of individual REALTORS®, reflecting different experiences in different markets and pockets of the GTA. They do not necessarily reflect the views of Property.ca as a whole.