A new online book by a Toronto real estate veteran not only explains why homeownership in the region will be more precarious for future generations, it also offers solutions.
R. Scott Davie, owner of Davie Real Estate, who spent decades marketing and selling condos and houses in the Greater Toronto Area, and who also worked as senior VP of Milborne Group, is disquieted by what he sees happening in the regional housing market, so he wrote The GTA Affordable Home Ownership Crisis. The problems Davie identified run so deep that they threaten to destabilize the region’s middle class.
“I’m concerned the next generation won’t be able to afford to buy real estate without help from their parents, and the ones who do buy won’t be able to live in the same size home or same neighbourhood they grew up in, meaning they might have to move further away to Milton or settle for a downtown Toronto condo,” Davie told REP.
“The danger here is if the whole next generation can’t buy real estate, that can hollow out the wealth of the middle class because, although now we have the richest generation ever living in the GTA with the highest standard of living on record, the next generation will be the first since the industrial revolution that won’t do as well as their parents.”
Davie added that most GTA homeowners’ wealth is tied up in home equity, but if the next generation spends as long as a decade and a half renting, they’ll be wasting their money. However, they may have nary another choice but to do just that.
“It’s cheaper to carry a house over that span than to rent,” he said. “People won’t have as much income to invest over the mid and long terms, and the danger is that if 70% of the next generation that would normally be buying is renting, it hollows out the middle class and will devastate the economy, not to mention people’s prosperity.”
According to The GTA Affordable Home Ownership Crisis, the preponderant reason local residents have trouble attaining homeownership is taxes. Davie says most people are unaware that up to a quarter of the cost of a new home in the GTA is comprised of levies.
“Twenty-two to 25% of the price of a new home or condo is taxes,” he said. “It’s alarming because the average condo is $500,000 and the average house is $1 million, and resale is about $800,000, so millennials are paying more in taxes than the down payment they struggled to come up with.”
In addition to the land transfer tax, there are levies on lots, education, parks, and now carbon. However, Davie says the provincial government can intervene and rescind the excessive tax regime.
Canadians have struggled even mightily to attain homeownership since January 2018 when the B-20 mortgage rules took effect, and Davie says that’s unfortunate because the Office of the Superintendent of Financial Institutions, which implemented it, isn’t even a government agency. Rather, OSFI, which is funded by banks, has a mandate to protect banks’ stakeholders and that’s why the agency is staffed with people from the industry.
“There are Canadian banks in the American market, but we don’t have any American banks here,” said Davie. “We should have limited American banks here so Canadians can benefit rather than being held hostage by their own banks.
“My suggestion is for the Ontario government to bring in a few American banks and register them provincially so they don’t fall under OSFI’s rules and let them pick up the business Canadian banks are ignoring by leaving people out in the cold so that it puts the mortgage markets in balance.”