The Ontario government has launched a new initiative to curb Toronto’s rising housing and rental costs. But many in the real estate industry feel the Fair Housing Plan may have a negative impact on commercial real estate and the overall economy.
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“We’re seeing phantom demand that is not sustainable,” Ontario Finance Minister Charles Sousa said at a news conference introducing the plan. “We’re taking measures to try and supply some stability.”
The Fair Housing Plan, announced just ahead of Ontario’s new budget, is aimed at cooling a market that has seen home costs rise 33% in one year. A house in Toronto averages just over $900K.
The 16 proposals in the plan include closing a loophole that allowed landlords to raise rent by any amount on units built after 1991.
Morguard director of research Keith Reading is not sure rent control will solve the issue of affordable housing.
“The limit on rental increases makes new development less attractive, which does not help the low supply problem,” he said.
The plan also calls for a 15% foreign speculators tax that Premier Kathleen Wynne said is aimed at “targeting people who aren’t looking for a place to raise a family. They’re looking only for a quick profit.”
Canadian real estate has seen a surge in foreign investors recently as they seek out safe harbors for investment. While the plan is aimed squarely at helping families or first-time buyers, there are concerns that any new tax or rent controls could have a ripple effect on the economy.
“Commercial real estate is a 'service provider' to the broader economy,” Reading said. “That is, business growth leads to increased need for space for expanded business operations. If home sales soften, there is less work for related services like legal, financial, furniture sales [and] home improvements.”
Jan De Silva, Toronto Region Board of Trade president and CEO, said the board supports many of the Fair Housing Plan’s proposals, including releasing government-owned land for housing construction, incentives for rental construction and making municipalities charge closer to the residential tax rates on new multifamily developments.
But the board doesn’t favour rent control.
“Evidence from other jurisdictions such as New York City and London indicate that rent controls in fact curtail the development of new rental stock,” she said. “To truly address the Toronto region’s affordability challenge is to remove barriers to adding supply. The board will be putting forward some ideas on how to do this in the coming days.“
Both De Silva and Reading feel housing in Toronto is not in need of government intervention. Both said market forces have regulated the housing market and should continue to do so.
“While investment properties are expensive, this makes sense as the market is one of the world’s most stable," Reading said. "Therefore, demand is strong.”
“Market forces should be left to manage this situation,” De Silva said. “If anything, we need to ensure we are creating a better mix of commercial and residential development.”
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