Ontario opposes foreign buyers tax, but housing affordability must be addressed

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Appeared in Toronto Sun, November 6, 2016

Ontario Premier Kathleen Wynne has announced that the province will not introduce a property transfer tax on foreign buyers, similar to that introduced in British Columbia. The premier and her government should be commended for avoiding an impulsive reaction to high housing prices.

It’s too early to draw firm conclusions from the B.C. experience. Although sales in Greater Vancouver have slowed significantly since the beginning of the year, it will take time to evaluate how much of the slowdown is attributable to the tax, and whether it has any serious long-term impacts. It’s possible the tax will do more harm than good, making it harder to attract highly skilled workers from abroad and potentially leading to unintended consequences for the broader housing market.

Nevertheless, declining affordability in the Greater Toronto Area must be addressed. However, barring changes in the provincial land-use framework, the power to improve the housing supply lies primarily with municipalities, not provincial or federal governments. In particular, cities and towns can ensure that red tape doesn’t unduly constrain new homebuilding.

To assess the impact of local regulations on housing construction, a recent Fraser Institute study evaluated municipalities in the Greater Golden Horseshoe (GGH) on several metrics: timeline length and uncertainty; prevalence of rezoning requirements; the costs and fees associated with acquiring building permits; and community and council opposition to housing development.

Long and uncertain timelines for building permit approval by city staff can slow or ultimately reduce the supply of new homes. According to the study, these timelines average more than 18 months across the GGH, with a high of more than two years in Georgina (York Region) and low of less than 15 months in Burlington.

Rezoning can add almost a year to approval timelines in some cities, or less than a month in others. This process can be especially costly to homebuilding in cities where most new builds require rezoning, such as Toronto and Pickering. In fact, the typical cost of navigating the approval process in Toronto (more than $46,000 per housing unit) dwarfs the cost in Hamilton (less than $21,000 per unit).

Moreover, local councils and community groups, which can prevent the building of new homes, represent the strongest deterrent to homebuilding in King Township, Toronto and Oakville of all GGH cities included in the study. And unfortunately, council and community opposition tends to be strongest in cities where home values are highest, raising questions about the motivation of local homeowners to maintain or increase property values by deterring new housing construction.

When all measures of residential land-use regulation are combined, the neighbouring cities of Burlington and Hamilton rank as the friendliest to new homebuilding in the region. Conversely, King Township and Ajax are the most difficult to develop new homes in, of the 23 cities studied. Toronto is the fourth most heavily regulated jurisdiction in the GGH.

By learning best practices from homebuilder-friendly neighbours, municipalities can find better ways to allow the supply of new housing to meet demand more effectively. It’s particularly important that places with the greatest demand for new housing ensure that homebuilding isn’t held up by unnecessary delays, and that costs aren’t unduly inflated by fees.

Premier Wynne is right not to react on impulse to housing prices in the Greater Toronto Area. However, there are many tools already available to policymakers to help address housing affordability. Barring any changes to provincial land-use regulations, using these tools will be up to the municipalities—and they have a lot to learn from each other.