November 27, 2017
Author: Leor Margulies
In an attempt to cool the Toronto and Vancouver housing markets, the provincial and federal governments are pulling no punches in throwing big pots of water on what they believe to be raging fires in both communities. Unfortunately, the impact of these rules is not restricted to these 2 very strong real estate markets and will have a negative impact across Canada.
Here are just some regulatory changes that are going to make it difficult and more expensive for new homes buyers, especially first-time buyers, to buy particularly in these strong markets
The changes will effectively take away the ability of the OMB to substitute its decision for that of the municipality for virtually all new developments, save for projects where the developer is prepared to have 2 rounds at City Hall and 2 rounds at the new OMB. The zoning application process at the municipal level will change to one which is more akin to a judicial hearing. This is a process that municipalities are ill-equipped to handle and will make the zoning process lengthy and costly.
George Carras in the October 28, 2017 Toronto Star ( http://tinyurl.com/yakujju7 ) pointed out that there was no transition measures contained in the OSFI proposal. That would mean pre-construction purchasers who had bought their units expecting to live by the old mortgage rules, would now be subject to the new rules if they closed post-January 1, 2018 and may not qualify as a result. This could put purchasers into default unfairly and expose their deposits or even greater liabilities.
As usual, the government decides to shoot first and think later.
Fortunately, the Canadian Homebuilders Association lobbied OSFI to put in fair transition rules and it now appears that purchasers who have a bona fide purchase agreement before the release of these new guidelines and have paid a reasonable deposit, can, at the discretion of the lender, still abide by the old rules. This would at least protect existing purchasers of new homes and new condominiums, and even purchase agreements for resales that are closing post-January 1, 2018, from potentially being disqualified from mortgages with excessive carrying costs.
However, even with this small concession, there is going to be a significant impact on the marketplace, particularly for the lower end homes and first-time buyers who need to stretch themselves in most cases to qualify for mortgages. By more than doubling the eligibility requirements, unless these purchasers can come up with significant deposits from their parents, or other sources, they will be effectively eliminated from the marketplace or forced to buy product that is far less than what they had expected they could afford based on the current rules.
None of these rules and the “Fair Housing Rules” that Kathleen Wynne imposed last April 2017 regarding foreign buyer tax and caps on rental rates, will have any impact on reducing prices. Restricting demand may slow the price growth, but only creating greater supply at a lower cost will produce more affordable housing.
It is sad to say, but until there is another recession like the one we had in 1990 for 5 years, governments will continue to treat the new home industry as a cash cow and scapegoat for all the ills of society. Lost in the myriad of regulations and taxes, is the fact that homebuilders build homes and communities for people. Governments create regulations that add material costs to these homes. Also lost on government policy makers is the fact that the new home construction industry creates more jobs than virtually any other industry in Canada.