Latest posts by FIRECracker (see all)
- Guest Interview with Craig, Author and House Hacker Extraordinaire - October 7, 2019
- Book Review: Choose FI, Your Blueprint to Financial Independence - October 1, 2019
- Are You a Good Fit for FIRE? - September 9, 2019
Carrie Bradshaw from Sex and the City once said:
“Being beautiful is like having a rent-controlled apartment overlooking the park: completely unfair and usually bestowed upon those who deserve it least.”
Well, clearly the Ontario Liberal government has been watching way too much of that particular 90’s trivia, and in a fit of jealous rage decided to announce this:
So for those who believe that bitching and whining to get the government to fix stuff is the best way to solve life’s problems, you win! The government FINALLY decided to take a stab at Ontario’s run away housing market.
This 16 point plan has a mind-numbingly boring name: “Ontario’s Fair Housing Plan”.
But since I have the attention span of an over-caffeinated squirrel, instead of breaking down all 16 points, I’m just going to highlight the most interesting and relevant ones:
#1: 15% Foreign Buyers Tax
Why re-invent the wheel when you can just steal someone else’s? The Ontario government decided to crib Vancouver’s notes and slap a 15% tax on property bought by non-residents. But instead of applying it to one city, they decided it to apply it to the entire “Golden Horse Shoe” area of Ontario—the most densely populated area in all of Canada. Basically, out of the entire population of Canada, 1 out of 4 live in this region.
Eat your heart out, Vancouver!
#2: Rent Control
After Toronto tenants complained about landlords doubling their rent out of greed, the government decided to bring down the hammer.
Rents used to only be capped to inflation on buildings built before 1991, but now, like scrunchies for some reason, rent control is coming back from the roaring 90’s. Yup, that’s right, ALL rental units are now under rent control, new or old.
So what, right? Couldn’t landlords just immediately raise rent to cover any unexpected future cost increase? Nope. The rule went into effect the same day it was announced, April 20, 2017.
So if you are one of the many MANY greedy bastard landlords out there taunting your tenants and daring the government to tear you a new one, enjoy your new asshole, friend.
#3: Vacant Homes and Vacant Land Taxes
Another page from Vancouver’s books. From now on, water and electricity usage will be tracked to determine vacancy rates. Property hoarders will be forced to sell or rent out an unoccupied unit or pay a vacancy tax. Ditto for developers who hoard land.
Also, if you’re just an innocent bystander who had nothing to do with all this Toronto housing business and simply owns a humble cottage in Muskoka, you’re fucked too. Sorry.
#4: Crack Down on Property Speculators
Paper flipping or selling the deeds before a property deal closes? The government is after your ass too. Before people were getting away with not declaring or paying taxes on deals like these. Those days are over. Uncle Sam (or the Canadian equivalent, Auntie…Beaver?) is coming for you.
#5: Get Rid of “Doubling Ending”
I think this has to do with the practice of a real estate agent representing both the buyer and the seller, but in my perverted head it’s something much more disgusting.
Double Ending. *Snicker*. They can’t get rid of that! It’s, like, 10% of all the videos on PornHub! And 100% of my bookmarks!
So who are the winners and losers in this whole “government-to-the-rescue” plan?
Foreign Buyer Tax
Well, judging by how only 5% of properties in Toronto are purchased by foreign buyers and there are now over 121,000 domestic buyers who own multiple properties, the housing prices are being driven up by locals and not by foreigners. This seems to suggest that a Foreign Buyers Tax wouldn’t make much of a difference.
Good for renters, bad for landlords. A no brainer right? Well, MAYBE.
Economists have been complaining, as they tend to do, that messing with the free market will jeopardize the supply of rental housing coming into the market. Since builders can no longer make a profit by raising rents, they won’t have the incentive to build rental housing.
I think this is bull. Why? Because the problem in Toronto is not supply, the problem is rampant speculation.
Not only do over 121,000 Toronto residents own multiple properties, there are also 99,000 vacancies. So even if rent control wasn’t there and a new supply of properties enter the market, they will be bought up by speculators and Canadians will still cry “not enough supply!”
In the meantime, if you’re a renter this is essentially a wealth transfer from the landlord to you. Over time, their property taxes, condo fees/maintenance will go up, but your rent increase is capped at inflation (2.5%).
For amateur condo “investors”, the gravy train has derailed. Your tenant can easily just report you or refuse to leave if you try to pull the “Oh by the way your rent is doubling this month” trick.
So if you’re renting and want to reap the benefits of this new plan, stay where you are and don’t leave.
And sure, the landlord can pull that whole fake “family moving in” trick to put the property back on the market and raise the rent. But if they end up timing this incorrectly or doing it too blatantly, the law is on your side to be compensated in court. Also, for every landlord who’s willing to do this every single year, there are thousands out there who won’t go through the trouble. They can no longer just hand you an eviction notice saying your rate is doubling in 1 month.
The jury is still out on this one. It’s going to help alleviate some of the fake “lack of supply” problems, but it’s challenging to enforce. I think it will be positive for renters but no one knows to what extent.
Crack Down on Property Speculators.
Smacking down Property Speculators are like a game of “whack a mole”. You keep whacking them but more and more keep popping up. That’s why I think the only way to truly solve the housing issue is:
#1 Get Rid of CMHC (Canada Mortgage and Housing Corporation) Insurance
For our international readers out there, CMHC is the government entity that provides insurance for high-ratio loans. So by using public funds to back the banks, this incentivizes banks to shower unqualified borrowers with money. And who can blame them? With no skin in the game and a killing to be made, wouldn’t you?
While I’m all for banks making money (after all, the capitals gains and dividends from their stock come back to us as investors. The more they make, the richer we get), I’m not a fan of how this is turning into a precarious house of cards.
#2 Raise interest rates
Historically low interest rates has been driving up the housing market by turning everyday people, from barbers to grocery clerks, into real-estate speculators.
Research has shown that even a modest rate hike of 1% would reduce home prices by 30%.
Don’t believe rising interesting rates will cool this market? Read this article:
#3 Crack Down on Sub-prime Lending
Oh wait, we don’t have a sub-prime like the States, right? WRONG. In fact, Home Capital has admitted to $1.9B in fraudulently underwritten mortgages last year alone. Its shares also plugged 18% after the Ontario Securities Commission accused their executives of making misleading statements. Maybe this is why Billion Dollar Fund managers like Marc Cohodes are coming out of retirement to short our housing market.
Those are my 2 cents, but no one can really predict the market, whether it’s housing or stock market (remember how many people lost money shorting the market on a Trump win? Lesson learned: don’t try to predict the market).
I want to hear from you.
And not JUST from my fellow Canadians, I want to hear from the Americans, Europeans, Aussies and other international readers as well. Americans have way more experience with housing crashes than we do. Aussies seem to have the same over-heated markets like us, and the Europeans have experienced vacancy taxes in major cities like London and Paris. What do you guys think? Should governments mess with the free market?
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