How Can The Federal Election Shape The Housing Market?

Toronto Politics

9 minute read

August 23, 2021

“David: don’t make this blog political.”

That’s what I told myself each and every time I wrote parts of the blog in my head over the last seven days.

As I wrote on my blog last week, I was away in Prince Edward County, somewhere between Albury and Redernsville, and I didn’t have much of an outlet for my thoughts and opinions on all things real estate, politics, economics, and Toronto.  Thankfully, my mother was on the trip, so we talked politics a lot over the course of the week, and I think that got most of it out of my system.

So can I actually write an entire blog about the upcoming election and how it might shape the future of housing in this country while holding back all the political commentary?

Unlikely.  But I’ll try…

Alright, so we have a “snap” election that will take place a little more than thirty days from when it was called, which I suppose is better than the United States where they basically campaign from January 1st to November 20th.  Then again, they hold elections every two years so aren’t they always campaigning?

In any event, there are going to be “hot-button” issues this fall, whether it’s the COVID-19 pandemic, the social/financial recovery from the pandemic, the economy, high inflation (unless you’re Trudeau and then monetary policy doesn’t matter…), education, healthcare, taxation, social justice, climate change, immigration, and of course, housing.

Now, I’m going to say this first and foremost, and I sincerely mean it: nothing is going to change.

There, I said it.  And I’m just as sorry as I am not sorry, in that I feel awful for pointing it out, but it’s not my doing.

Not a whole lot has been done to address housing affordability since I’ve been in real estate.

There have been a lot of changes to the mortgage industry over the years, which comes from the government, via the CMHC and/or Bank of Canada.  But how much has actually been done about housing?  Next to nothing, in my opinion.

The true “issue” with housing affordability is that there are two sides to the coin.  There’s the demand-side and the supply-side, and for years, all of the focus has been on the demand-side.

More than a decade ago, changes to the demand-side made sense and, looking back, were actually quite prudent.

The younger readers among you won’t remember the cause-and-effect of the 2008 financial crisis, although, you might have seen The Big Short so perhaps you’re aware.  But I’m old enough to remember the mortgage industry before 2008 and I shudder to think about what our real estate market and the economy would be like in 2021 without the reactive changes that took place after watching the meltdown in the United States.

In 2007, I sold a house with 107% financing.  My client, who ran a hedge fund and thought he knew everything, bought a house for $1,070,000, forked over a $50,000 deposit at the time of purchase, and then upon closing, the lender gave him a cheque for $124,900 which represented the 7% above his purchase price ($74,900) and the return of his $50,000 deposit.

In 2007, you could not only purchase a house without any money as a downpayment, but the lenders would actually give you up to 7% above the purchase price!

After watching the financial crisis play out in the United States, the federal government, led at the time by Stephen Harper as Prime Minister and Jim Flaherty as the Minister of Finance, sought to rein in lending practices in light of the madness that occurred down south.

The CMHC introduced a minimum 5% down payment on all properties.  Think about that, for a moment.  A minimum of 5%?  Compare that to what we have today?  It’s madness!

Over the next few years, we saw more and more changes to the mortgage industry.

A minimum 20% down payment on investment properties, vacation homes, or any second properties.  Imagine how our market would look today if you could run around the city buying up investment condos with 5% down?

Gone was the 40-year amortization!

In 2007, a total of 37% of all new mortgages were for terms of longer than 25-years, as I wrote in my blog from July of 2008.

So just imagine in 2021, purchasing an investment property with $0 down, getting 7% back upon closing, and stretching your amortization to 40 years.

The changes made in 2008 and beyond were good.  They weren’t implemented to address “housing affordability,” but rather to avoid the financial chaos that the United States experienced.

The changes made over the last few years were anything but good, however.

The changes to the demand-side of the market, over the last few years, were borne of a complete lack of understanding of how a market works, in my opinion.  It’s also the “low-hanging-fruit” option for politicians who want to be seen as “doing something” in response to rising prices.

Making it more difficult for entry-level buyers in 2021, while leaving the door open for people with plane-fulls of cash to fly into Toronto and Vancouver and buy up real estate with Monopoly, erCanadian Tire money makes little sense if you actually sit down and think about the problems in our market.

All the changes to the demand-side over the last five or six years have done nothing to help with true “housing affordability.”

So then, as the election approaches, do we believe that any of the candidates will do something to address the supply-side of the market?

The CBC put out a great summary of each party’s housing platform in this article last week:

“Main Federal Parties All Say They’ll Make Housing More Affordable”

Here are their bullet points:

Liberals

  • The Liberals haven’t released their election platform yet, but we can glean some clues from the government’s 2021 budget, which doubles down on the government’s National Housing Strategy introduced in 2017.
  • The budget included a commitment of $2.5 billion to create 35,000 affordable housing units, $1.5 billion of which is dedicated to the government’s “rapid housing initiative,” which seeks to build new affordable housing units much faster than is typically possible.
  • The Liberals also proposed a new tax targeting “underused” housing.

Conservatives

  • The Conservatives’ election platform features a plan to build one million homes over three years, the conversion of at least 15 per cent of federal government property into housing and the creation of an Indigenous housing strategy.
  • A Conservative government would also bar foreign investors who are not living or moving to Canada from buying a home for at least the next two years.
  • The party also wants to encourage the offering of seven-to-10-year mortgages and to make tweaks to stress test and insurance requirements to help people qualify more easily for financing.

NDP

  • The NDP’s housing platform is centred on a proposal to build 500,000 affordable homes over the next 10 years.
  • The party is also proposing a 20 per cent foreign buyer’s tax on the sale of homes to individuals who are not Canadian citizens or permanent residents.
  • To help buyers get into the market, the party is also proposing the creation of 30-year mortgages insured by the Canada Mortgage and Housing Corporation.

Green Party

  • The Green Party has not released its 2021 election platform yet, but the party has recently advocated for the federal government to redefine affordable housing using an updated formula.
  • The Greens have also proposed stronger regulation of foreign investments in real estate, and the creation of a federal “empty home tax” that would apply to foreign and corporate property owners who leave units vacant.

 


 

Oh boy.

How can I follow this up without being cynical?

Alright, let me get this out of the way…

The Liberals haven’t put an actual platform yet, and probably won’t because Justin Trudeau’s best bet in this election is to avoid answering any questions whatsoever and simply continue to skate by on his smile and charm, which is how this university drop-out and former high school drama teacher was able to con his way into the most powerful position in the country in the first place.

I don’t think we’ll actually find out what the Liberals’ housing plan is.

The CBC is being kind to the Liberals by filling in the blanks with what was contained in the 2017 National Housing Strategy.

However, building 35,000 affordable housing units is barely what I would call “a start,” in a country of 38 Million people.

I will also add that we cannot tax our way out of this housing affordability problem, but I’ve beat that horse to death and beyond over the last few years.  So the “tax on underused housing” won’t address the problem, unless every penny of that tax is used to build housing.

The NDP party, unlike the Liberals, have a platform.

Theirs isn’t as clean as the 160-page PDF that the Conservatives released, but they have a section called “Affordability” on their website and from there I can cut down on the fluff and give you their bullet points as follows:

Create at least 500,000 units of quality, affordable housing in the next ten years, with half of that done within five years. This will be achieved with the right mix of effective measures that work in partnership with provinces and municipalities, build capacity for social, community, and affordable housing providers, to provide rental support for co-ops, and meet environmental energy efficiency goals.

In order to kick-start the construction of co-ops, social and non-profit housing and break the logjam that has prevented these groups from accessing housing funding, we will set up dedicated fast-start funds to streamline the application process and help communities get the expertise and assistance they need to get projects off the ground now, not years from now. We’ll mobilize federal resources and lands for these projects, turning unused and under-used properties into vibrant new communities.

A New Democrat government will also spur the construction of affordable homes by waiving the federal portion of the GST/HST on the construction of new affordable rental units – a simple change that will help get new units built faster and keep them affordable for the long term.

We will re-introduce 30-year terms to CMHC insured mortgages on entry-level homes for first time home buyers. This will allow for smaller monthly payments, freeing up funds to help make ends meet for young families. We’ll also give people a hand with closing costs by doubling the Home Buyer’s Tax Credit to $1,500.

For Canadians who are open to innovative paths to home ownership, a New Democrat government will provide resources to facilitate co-housing, such as model co-ownership agreements and connections to local resources, and ease access to financing by offering CMHC-backed co-ownership mortgages.

To help put an end to speculation that’s fuelling high housing prices, we’ll put in place a 20% Foreign Buyer’s tax on the sale of homes to individuals who aren’t Canadian citizens or permanent residents

New Democrats will also fight money laundering, which fuels organized crime and drives up housing prices. We will work with the provinces to create a public beneficial ownership registry to increase transparency about who owns properties, and require reporting of suspicious transactions in order to help find and stop money laundering.

As for the Conservatives, you can download their girthy online PDF which is called “Canada’s Recovery Plan” and features Erin O’Toole in a black muscle-shirt that many people seem to think is photo-shopped.  Of the 160 pages, it’s worth noting that eleven are of Mr. O’Toole and/or his family, and over thirty are stock images of people and places.

The section on housing can be found on pages 54 through 57.

Skipping through the political rhetoric and fluff, here’s their proposal in a nutshell:

Leverage federal infrastructure investments to increase housing supply by building public transit infrastructure that connects homes and jobs by bringing public transit to where people are buying homes; and requiring municipalities receiving federal funding for public transit to increase density near the funded transit.

Review the extensive real estate portfolio of the federal government – the largest property owner in the country with over 37,000 buildings – and release at least 15% for housing while improving the Federal Lands Initiative;

Incent developers to build the housing Canadians both want and need, by: encouraging Canadians to invest in rental housing by extending the ability to defer capital
gains tax when selling a rental property and reinvesting in rental housing, something that is currently excluded; and exploring converting unneeded office space to housing

Ban foreign investors not living in or moving to Canada from buying homes here for a two year period after which it will be reviewed.  Instead, encourage foreign investment in purpose-built rental housing that is affordable to Canadians.

Encourage a new market in seven- to ten-year mortgages to provide stability both for first-time home buyers and lenders, opening another secure path to homeownership for Canadians, and reducing the need for mortgage stress tests.

Remove the requirement to conduct a stress test when a homeowner renews a mortgage with another lender instead of only when staying with their current lender, as is the case today.  This will increase competition and help homeowners access more affordable options.

Increase the limit on eligibility for mortgage insurance and index it to home price inflation, allowing those in high-priced real estate markets with less than a 20% down-payment an opportunity at home-ownership.

Fix the mortgage stress test to stop discriminating against small business owners, contractors and other non-permanent employees including casual workers.

Last, but not least, this little ditty:

Canada’s Conservatives will never tax Canadians’ capital gains on the sale of their principal residence, something many within the Liberal party are threatening to do.

Alright, that last part had nothing to do with building 1,000,000 homes in the next three years, or their “detailed plan to tackle home prices,” but it’s worth noting because I remain 100% convinced that exemption on capital gains tax on a primary residence is coming to an end.

So how did I do?

I mean, about not making this political? 🙂

Okay, I’ll make you a deal: if the Liberals actually put out a platform in the form of a PDF or even a crayon drawing by Justin, then I’ll buy Tim Horton’s coffee for anybody who calls me out on it.

In the meantime, what measures do you think are necessary for the next government to undertake to actually enact meaningful change in the housing market?

For those who are low on initiative today, how about multiple choice?  The topics to address:

a) Building affordable housing
b) Addressing foreign ownership
c) Building/investing in infrastructure to help urban sprawl
d) Tackling money laundering and chasing taxes owed by non-residents
e) Changes to CMHC policies regarding amortization, mortgage term, stress tests/qualification, etc
f) Incentivizing and/or partnering with developers to boost housing supply
g) Something novel that I haven’t included!

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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22 Comments

  1. RPG

    at 7:24 am

    I think you took it easy on Trudeau.

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  3. Appraiser

    at 9:23 am

    Difficult to put much believe behind the platform of a party where 54% of the members don’t think climate change is real.

  4. Appraiser

    at 10:36 am

    Of note: Not one party suggests cutting immigration levels to combat the housing crisis.

    Is that because discussing immigration is an untouchable issue?

    Or is it because immigration is vital to the progress and prosperity of the nation?

  5. Kyle

    at 11:24 am

    “nothing is going to change.”

    This is 100% bang on. People love to lay the blame for the lack of housing affordability at the foot of the Federal government and its agencies. All the policies that try to target foreigners, investors, speculators, immigrants, money launderers, etc. that one can dream of will do nothing, because those things are all just symptoms of the true problem – not enough supply.

    It’s really no different than toilet paper during the pandemic, you could impose as many rules and limits as you want, but people only stopped hoarding, speculating, crossing into other areas to buy once the shelves were replenished. When you address the supply, you eliminate the incentive and benefit of doing those things.

    Supply is not something the Federal government has a lot of control over. The real solutions can only come from the municipal level, being open to increasing supply. Talk to anyone who has dealt with the City to get permits and they will tell you, it is very cheap and easy to get permit approval to do things that make housing more unaffordable (i.e. convert multi-res to SFH or expand homes to make them more expensive), heck they even have a Fast Track for that. But it is way more difficult and expensive to get permits to add new housing (convert a SFH into multi-res, build a laneway house, build a condo, sub-divide a lot, etc). If you want to add housing units, it’s like pushing water up a hill and when you finally get the water to the top you have to pay crazy development charges for your troubles.

    1. Jason

      at 7:13 pm

      Couldn’t have said it better!

      The battle between NIMBYs, Green-Belt proponents/opponents, condo developers, and those against densification/intensification will never be won or lost. It will just continue to be fought forever. The municipalities decide what’s going to be built and the province can help or hinder with investment in infrastructure. There nothing the federal government can do outside of setting monetary policy.

      1. Appraiser

        at 8:48 pm

        I beg to differ to some degree. I believe the Federal government can provide greatly increased funding to house the homeless as an urgent first step toward the “housing crisis”.

        Next the affordable housing and purpose-built rental inventory must be rapidly developed. This is a bit trickier, but public private partnerships as well purely private investment must be deployed and / or incentivized asap.

        I believe the federal government has a role to be a leader and an investor in the housing sector. Especially if we view housing not only as vital physical infrastructure, but as an integral part of social cohesion.

        In my vie the government can’t afford not to invest in housing.

        1. Kyle

          at 9:39 pm

          Actually I agree, when it comes to non-market housing they do have a much bigger role that they should be playing. And none of the party platforms above adequately address it.

          Homelessness is the real housing crisis that needs to be addressed, not the renter who reads John Pasalis and Ron Butler tweets who thinks he *should* be able to buy for 2018 prices.

          1. Appraiser

            at 8:12 am

            I recall in high school when average house prices were around $30,000 and I thought I would have to win the Wintario Lottery, which was novel at the time, if ever I were to own one. https://www.playsmart.ca/social-hub/ontarios-first-lottery/

            I don’t recall blaming the generation before me for high house prices though.

          2. Kyle Lin

            at 11:53 am

            You are bang on again. Once upon a time:
            – there were generations that received land for free as long as they settled it
            – there were generations that returned from war and received massively subsidized post war bungalows from what is now CMHC
            -there were generations that could easily afford a detached house on a single income
            – there were generations that were able to buy after a recession knocked prices down

            And so on, and so on…Until now, subsequent generations didn’t go around blaming the previous generation (and everyone else but themselves) when they couldn’t afford to buy. Nor did they feel entitled to what their parents had. Instead they accepted the economic reality of their time. And the reality is owning in a desirable maturing City has gotten more more difficult for each generation. Just look at any other World Class City in the world and this trajectory should have been obvious to all but the willfully blind. But countering that is economic opportunities have also increased for each generation. We have entire sectors and industries of high paying jobs that didn’t even exist in previous generations.

            One thing that remains consistent across generations, is that those who accept reality and adjust will continue to succeed, those that want to delude themselves and blame past generations, will continue to fail.

          3. jeff316

            at 7:44 pm

            I think it is rational and understandable why current generations feel “entitled” to home ownership – look at that list you wrote right there Kyle Lin. They’ve seen the subsidies and conditions provided for previous generations that have facilitated home ownership.
            Every generation has its share of whiners – there certainly were many in the days of 20% interest rates, and there certainly are now like the woman in the recent CBC article saying she can never expect to buy a home on her 15$ an hour gas station manager salary.

            Over the years, I’ve frequently sang a similar tune to those here – a lot of this commentary strikes of those fortunate enough to have purchased a house in advance of these conditions.

            But prices now are really venturing on completely out of reach for the local communities they are in, or so high that they’re simply risky for average buyers.

            Homelessness is the number one housing problem. But housing being out of reach or too risky for well-paid, two income families is a strong second.

    2. Grace Jeffrey

      at 7:51 pm

      BINGO! You got it exact.y right. ????

  6. Pragma

    at 8:42 am

    Almost my definition, a solution to the housing crises means that property prices would have to drop significantly to get back into line with real incomes. We are so heavily dependent on real estate and real estate related industries that any such correction would be quite painful for our economy, and no government wants that to happen on their watch. In fact, I would argue that governments are motivated to do the exact opposite and if not pump it, at least keep it from pulling back in any meaningful way. (Just look at Trudeau’s first actions when COVID hit). Govs are materially constrained by their 4 year horizons. Both Libs and Cons have shown they will say and do anything to get power and stay in power. I don’t think they have the heart or concern about what’s good for the long term of the country, they just care about what’s good for the election/re-election. I think the NDP still have some heart in them and might do something, but libs/cons will just give lip service.

    1. Izzy Bedibida

      at 10:03 am

      Good points on the gov relying on Real Estate industry. It’s now one of the biggest industries in the Canadian economy. All levels of gov are now relying on all of the associated taxes buying and selling bring in. On top of that a 2 income family is required which brings in more taxes.
      What’s not discussed are the social costs of the stressed out families working only for mortgage payments and not spending through the economy as a whole.

    2. Appraiser

      at 11:08 am

      How do you propose we get to this magical place where “real incomes” match home prices?

  7. Steve

    at 10:24 am

    The Liberals are proposing to end blind bidding ….. what sayest thou?

    1. Appraiser

      at 5:25 pm

      Short on details thus far as to how the process will be prohibited and what will take its place.

      Aside from perhaps preventing a perceived and much bally-hood, yet almost non-existent fraud concerns, the practice itself will be ineffective at preventing prices from rising.

      Much like the proposed 2 year ban on foreign buyers, which I am dismayed to learn is also in the Liberal plan, and for which there will likely be retaliation in kind by those countries affected, it will be mostly useless at rebalancing the important market distortions that exist.

      1. Shana

        at 9:36 am

        Agreed. Australia has open bidding, and had a lengthy ban on foreign buyers, and house prices continued to bubble higher.

        I do like the Liberals idea to ensure all buyers are entitled to a home inspection, but we’ll have to see what that proposal really looks like.

        1. jeff316

          at 7:46 pm

          Thank you Shana. If I have to hear “Look at Australia!” one more time I will lose my mind.

          What’s fascinating about this is whether voters actually expect the Liberals to follow through on this. I would suggest not, and this is more about signalling values and empathy than action.

          After all, as recently as last week I saw an ad from them touting that they’re the first government to have a housing strategy. They’ve had two terms and their strategy has been…to watch prices skyrocket?

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  9. Dan

    at 1:46 pm

    How about all of the above?

    a) Building affordable housing
    I’d gear this more towards rental units personally. There is also an onus for people looking to get into the market to adjust their expectations. Most people in Toronto don’t live in detached or even semi-detached homes. Most post-war homes were built around 1200 sq ft, and the sizes of families were larger than it is now.

    b) Addressing foreign ownership
    This gets more attention than I think it really deserves. Yes it contributes, but it’s impact is overstated. It really fits in with “d) Tackling money laundering and chasing taxes owed by non-resident” which doesn’t address housing affordability, but permits the government to spend in other areas to help housing infrastructure.

    c) Building/investing in infrastructure to help urban sprawl
    Yes. Also rezoning and density needs to be added around transit hubs (Go stations etc.) The Conservatives make a good point in their plan about tying Federal funding for transit to this.

    e) Changes to CMHC policies regarding amortization, mortgage term, stress tests/qualification, etc
    Extending amortization rates for FTB would help those not in the market get in. You could extend it to 30 years for all, but have a 35 or 40 year rate available for FTB.

    f) Incentivizing and/or partnering with developers to boost housing supply
    There’s money still to be made in development. The best incentive I think, would be a graduated tax rate for unused land e.g. if you don’t develop within five years, your rate goes up X% in year 6. This might cause more transactions of vacant plots, but the government would receive LTT.

    g) Something novel that I haven’t included!
    Design and layouts of condo units in Toronto aren’t something that can realistically be addressed, but there is a need for smaller three bedroom units that are functional (900-1100 square feet).

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