On Thursday, April 20, Kathleen Wynne introduced Ontario’s Fair Housing Plan, a set of measures that will tax foreign buyers, and establish more regulations for speculators entering the Toronto real estate market.
Many owners and renters in the city are feeling the pinch as housing costs increase exorbitantly and rents rise faster than wages. Others are moving farther afield in the hopes of finding something in their budget, fuelling pricing increases in cities like Hamilton and the Niagara region.
The 16 measures outlined in the plan address the recent trend of Toronto’s red-hot housing market by attempting to regulate some of the rules governing agents, buyers, landlords and speculators, while also establishing more purpose-built rental property.
“We are not interested in controlling the market,” Wynne told the CBC. “That is not the aim. But we do believe that there is a need for interventions right now to calm what is going on, to put protections in place.”
Most of the rules must be passed in legislation before moving forward, but one was implemented the date of Kathleen Wynne’s announcement on Thursday, April 20, protecting renters in units built after 1991 from rental increases above the rate of inflation.
So how will these rules affect new home buyers and speculators, and will they change the city’s real estate market? Here’s a run-down on Queen’s Park’s extensive new measures that will affect homebuyers.
- Tax on non-resident foreigner buyers
The province has proposed a 15 per cent tax on so-called foreign real estate investors. This measure, which echoes the revised 15 per cent foreign buyer tax implemented in Vancouver, will not apply to foreign citizens residing in Ontario, multi-residential rental apartment buildings and non-residential land.
Refugees and skilled workers enrolled in provincial programs would also be exempt from this tax, and anyone who obtains permanent residency or citizenship within four years of purchasing their property will receive a full rebate. So will international students who have been enrolled in a full-time program for at least two years. There is currently no data on how many homebuyers in the GTA are foreign speculators, but industry insiders suggest it’s a small percentage.
- Tax on vacant homes
According to recent census data, 4.5% homes in the GTA are unoccupied (approximately 65,000 homes according to Toronto mayor John Tory). These properties are either owned by real estate speculators who plan to sell the units before renting or living in them, or are on the short-term rentals market.
The province will grant authority to Toronto and municipalities in the Greater Golden Horseshoe (GGH) to tax owners of vacant property. This measure will encourage owners to rent or sell these properties, rather than hold on to them in the hopes that the value goes up.
- More rental units and protection for tenants
A few of the measures are targeted at Toronto’s renters. Landlords were not permitted to raise rents above the rate of inflation, however rental units built after 1991 were not subject to this rule allowing landlords to raise rents at unreasonable rates.
The measure that went into effect on April 20th protects renters by capping rent increases for all residential property at 2.5 per cent regardless of the year it was built, even if the rate of inflation exceeds that number. In addition, the province will introduce a standardized lease document for tenants throughout the GGH.
In light of these rental caps, and to counteract worry it would discourage developers from building new rental units, the Fair Housing Plan also includes measures to encourage construction of new rental buildings.
New policy will give $125-million in rebates on municipal development charges to builders for creating more rental housing. It should be noted that the city is experiencing a renaissance when it comes to new rental property. According to CIBC and Urbanation, during the final quarter of 2016, 5,000 apartment units were under construction compared to 2,000 two years prior.
Kathleen Wynne’s government also plans to investigate provincially owned surplus land (such as the West Don Lands and 27 Grosvenor St.) and whether or not this land can be used for affordable housing.
- Protection for homebuyers
The only measure aimed at real estate agents is a review of the rules that protect consumers in property transactions, including an investigation into the practice of double-ending. This controversial practice, which some believe is on the rise in Toronto, happens when an agent represents both the buyer and seller in a housing deal. This breaks the Real Estate and Business Brokers Act (REBBA) code of ethics by giving a favoured buyer confidential information to ensure their deal goes through.
Additionally, the provincial government will review so-called paper flipping (also known as assignment sales), which allows investors to assign a real estate contract to another homebuyer before the closing date. This takes advantage of the speed at which housing costs are rising by taking the difference between the sell and closing date.
The province will review all rules that real estate agents must follow according to REBBA, as well as the ways real estate investors are capitalizing on the ever-changing market, to make sure homebuyers are not exploited or unfairly left out of a housing deal, making the rules of engagement the same for everyone.
Entering the Toronto real estate market is a risk like any other: you’re investing not only in property, but also in the city as a whole. What will it be like to live in Toronto be in five or ten years from now? Purchasing property in Toronto and the surrounding area is a bet for the city and its future.
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