By targeting foreign buyers, Queen’s Park misses the point
According to a recent announcement from Queen’s Park, 4.7 per cent of properties purchased in Ontario’s Greater Golden Horseshoe (between April 24 and May 26) were acquired by foreign individuals or corporations. This in the wake of the raft of measures announced in April including a 15 per cent “Non-Resident Speculation Tax” ostensibly aimed at improving housing affordability.
It’s difficult to say how this portion of the housing market—foreign buyers—ultimately impacts the cost of buying or renting in Canada’s biggest urban region, and it’s far too soon to estimate the effects of the myriad of policy changes the Ontario government is introducing. But what we do know is that the laws of supply and demand apply to housing, and it’s hard to believe that a small percentage of buyers are responsible for the massive appreciation of housing prices in the GTA over the past decade. Rather than focus on a small tranche of buyers, we should focus on ensuring that regulations don’t prevent the supply of new housing from meeting demand.
For generations the Greater Golden Horseshoe has drawn newcomers from across Ontario, Canada and the world, motivated by many factors (jobs, stability, high standard of living, etc.). To serve a growing population, developers and homebuilders (who must project several years into the future when conceiving new houses, townhomes and apartments) respond by building thousands of units annually. If they can’t keep up with demand from potential buyers and renters, prices likely rise.
Let’s illustrate this concept with a real-world example. In Texas, the Houston metropolitan area is roughly as populous as the Greater Toronto Area (about 6.5 million people), and has grown substantially in recent years. Cities in the Houston area issued building permits for almost 64,000 housing units in 2014 compared to 36,000 units in the Toronto and Oshawa census metropolitan areas. Fast-forward to 2016, and the average home in metropolitan Houston was valued at approximately US$250,000 despite the region accommodating almost twice as many newcomers as the GTA did between 2011 and 2016.
So what’s preventing cities in the Greater Golden Horseshoe from issuing more building permits?
In short, red tape at city hall. Between 2014 and 2016, Fraser Institute researchers surveyed hundreds of homebuilders across Canada to better understand how government regulation affects their ability to obtain permits. In the Greater Golden Horseshoe, it typically takes one-and-a-half years to obtain a permit in this region, and per-unit costs to comply with regulation amount to almost $50,000. Approval timelines can also be affected by the need to rezone property. Approximately two-thirds of new homes in the region require this procedure, which adds 4.3 months (on average) before builders can obtain permits.
Another deterrent to more supply is local opposition to new homes. Survey results show that council and community groups in Toronto, King Township and Oakville are more likely to resist the addition of new units in their neighbourhoods, effectively preventing newcomers from moving in.
Unfortunately, only one of the 16 measures proposed by Queen’s Park in April even mentions these barriers to housing construction. Buried near the end of the Fair Housing Plan is mention of a “Housing Supply Team” that would “work with the development industry and municipalities to identify opportunities to streamline the development approvals process.” Hopefully that results in meaningful action on reducing barriers to housing construction, though the lack of emphasis is not encouraging.
A tight housing supply hurts everyone, from first-time buyers to renters looking to get a toe hold in Toronto’s job market. It can even hurt longtime homeowners whose children can no longer afford to live nearby.
Thankfully, governments have the tools to tackle this problem by allowing Canada’s biggest most dynamic urban region to thrive as a place to live, work and play. That should be their focus, rather than trying to sniff out foreign buyers.