Wynne rides to the rescue on housing … and makes things worse
In Toronto, where I live, all anybody talks about these days (aside from Donald Trump) is real estate. People are both transfixed and horrified. They’re worried for their kids. Prices have spiralled to the moon, and would-be first-time homeowners have turned desperate. Even basic houses in the hinterland now cost more than ordinary people can afford without beggaring themselves. No one can agree on the roots of the problem, but everyone agrees that urgent action is required to fix it.
Foreign buyer tax, expanded rent control in Ontario housing plan (The Canadian Press)
Enter Kathleen Wynne, Ontario’s Premier. She’s turned desperate too. The Liberals have flatlined in the polls. At this rate, a dead dog would beat her in next spring’s election.
Given all this desperation, it was inevitable that Ms. Wynne would do something. So she and her brain trust have come up with an impressive-looking package of measures to cool down the housing market, as well as rent controls for tenants. The goal is to rein in the greedy bloodsucking landlords who’ve been exploiting the housing shortage by jacking up rents.
These measures are surefire crowd-pleasers, especially with the type of voters (e.g., renters) that Ms. Wynne wants to win back. Her re-election strategy is to make a hard left turn and crowd out the NDP. As Andrew Steele, a former senior Liberal adviser, wrote in the Globe earlier this week, she plans to pull out all the spending stops with new infrastructure projects, new social housing, and possibly a sharply higher minimum wage. Never mind Ontario’s $300-billion (and growing) debt. Time is short. She only has a year to make people forget how mad they got about their electricity bills.
So, will the Wynne treatment work? In fact, rent controls will make things worse. Rent controls are among the most destructive housing policies ever devised. This isn’t me saying so. This is practically every economist on the planet saying so. New supply will dry up in a nanosecond, and existing rental units will deteriorate. Rent controls create a two-class system of people desperately hanging on to crumbling, cheap apartments and other people forking over $4,500 a month for a shoebox because there’s no supply. Rent controls invariably hurt the people they’re supposed to help. But in the short run they’re a vote-getter.
The same is true for the foreign-buyers’ tax, an idea lifted from British Columbia. Foreigners with bags of loot (possibly ill-gotten loot) loom large in the popular imagination. There’s little doubt that foreign buyers helped distort the housing market in Vancouver. By contrast, foreign buyers probably account for no more than 4 or 5 per cent of the Toronto market. No one knows for sure. But never mind. They make a handy scapegoat.
Will a foreign-buyers’ tax depress prices? Not likely. After the tax was imposed in Vancouver, sales volumes went way down. But the effect on prices turned out to be temporary. After an initial dip, the price of single-family houses is pretty much back to where it was before.
The real problem in the GTA isn’t demand. It’s supply. Half the new houses on the market are being bought by immigrants, according to one survey, who are streaming into Ontario at a rate of more than 100,000 a year. But fixing the supply problem will take a while. Planning and development are bogged down by bureaucracy and red tape at every level. The head of one big Ontario home builder says it now takes as much as 10 years to gain all the approvals needed to make farmland builder-ready. In Toronto, it takes three to five years just to get a building permit – providing nobody objects. On top of that, the province and the municipalities are fundamentally at odds. The province wants smaller municipalities to build medium- and high-density developments, but the municipalities won’t do it because the voters object.
Not all these problems started with the Liberals. As industry insiders told me, there’s plenty of blame to go around. But the Liberals have let them fester. During their 14-year reign, the province has become markedly less pro-growth. A blizzard of new environmental regulations has slowed the process even more. The result of all this red tape and delay is that everybody suffers. The people who suffer most are the ones who desperately need affordable housing. There’s no quick fix. As one veteran planning lawyer told me, “If they’re serious about increasing the supply of affordable and rental housing, they’re going to have to cut the regulations and approval times by two-thirds.”
Now that would break the speculative cycle. And the chance that it will happen is just about zilch.
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