Forecasting housing policy impact

by Justin da Rosa24 Apr 2017
One big bank lays out potential positives and negatives of new housing measures.

TD Bank takes a close look at the Ontario’s Fair Housing Plan and analyses some of the more material changes.

“We believe the government’s initiative to limit speculation in the housing market via the non-resident speculation tax and the enhancement to Toronto’s (and other municipalities) ability to impose vacancy taxes are prudent,” TD Economists wrote in a report following the policy announcement. “We also support the initiatives that would help support the development of additional housing stock in the province.

“However, we have some concerns surrounding the rent control initiatives as they are currently designed in light of potential unintended consequences. These may manifest in a diminished supply of rental stock and could also have adverse existing home market implications as investors exit the market amidst heightened uncertainty and already compressed capitalization rates.”

The Ontario Government announced a suite of housing measures last week, all intended to do one of the following: cool the market, boost supply, or expand rent control.

The positive

According to TD, the announced tax on non-residents and “paper flippers” should “stem behaviour and cool demand for properties in the Golden Horseshoe."

In terms of supply, the province announced rebates for development charges, lower properties taxes on purpose-built rentals, and streamlined approval process.

“Taken together the measures should help support development of new housing stock in the province,” the economists wrote. “These should also help mitigate some of the potential negative consequences that the expansion of rent control may have, but will not eliminate them completely.”

The negative

According to TD, the government’s announced rent control – which will cap all rent hikes at 2.5%, regardless of year buildings were built – could have some unintended consequences.

“Tying rent increases to consumer inflation overlooks the fact that it’s not the relevant metric to incent rental unit supply or purpose-built rental investment,” the economists wrote. “Nor does it take into account the carrying cost related to the high sticker-price of land and buildings in the city. As an example, over the past decade, the aggregate consumer price index has risen by 1.8% per year on average, while costs associated just for water, fuel and electricity have risen at an average annual rate of 3.2%.”

To read the full report, click here.

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