There is no denying housing in Toronto is having an affordability crisis. Renters, new homebuyers, and even existing homeowners are struggling with the astronomical rise in housing prices. Our governments are at times powerless to stop it, and other times are complicit in causing this crisis. We need housing reforms that look past the rhetoric and acknowledge the real sources of the problem.
- The History of Affordable Housing
- Government Finance
- Funding Development
- Affordability is the Problem, Not Supply
- Speculators, Investors, REITs and P3s
- Foreign Buyers and Money Launderers
- Inclusionary Zoning, Upzoning, Open Door Toronto, and TCHC
- MPAC and OLT
- Rent Controls and Supports
- Real Housing Reforms
The History of Affordable Housing
Before discussing the current issues surrounding housing affordability, it must be mentioned when the problem of housing affordability really began in earnest. The federal government used to spend all kinds of money on affordable housing until Paul Martin’s neoliberal-appeasing 1994 budget cuts eliminated ALL spending on housing. After that it was up to the provinces, and in 1995 Mike Harris followed suit and cut spending on housing in Ontario while allowing rents to go up and allowing vacancy decontrol (rents could be raised after a tenant moved), leaving affordable housing all in the hands of municipalities, who have the least ability to raise revenues.
Fast forward to the present and Doug Ford is making even more cuts to housing and rent supports. The feds have promised new funding to repair affordable units, have forked over $132 million in the Rapid Housing Initiative, and proposed a top-up to the housing benefit, but that does not make up for two decades of underinvestment. It has been downhill ever since that mid-90s one-two punch from the neoliberal Lib/Cons.
Government Finance
The problem goes beyond merely funding the construction of affordable public housing, because, along with it, there is a need for funding of infrastructure and services for new residents. Because senior levels of government have cut funding and transfers to municipalities, all while underinvesting in infrastructure, it has left cities like Toronto with a glaring infrastructure deficit. Despite the fact Toronto is the tax revenue cash cow of the province and feds.
Because Toronto gets most of its revenue from property taxes, this incentivizes increased development as one of the few ways to generate new revenue without raising taxes on existing residents. Doug Ford won’t shell out money for supportive housing, but he will throw millions of dollars at municipalities to sweep away the “red tape” of development approvals for all his developer buddies.
Apart from funding from senior levels of government, there are a few revenue tools available, and many more that have yet to be tried. The Municipal Land Transfer Tax is the only progressive property tax we have because it has brackets that tax income at a given rate (more about using it here). However, such a tax will not on its own generate the massive funds needed to build new affordable housing so, when and if building anew becomes necessary, there is no reason the city cannot finance as other developers do.
Funding Development
Developers finance projects a few ways, but essentially it comes down to some combination of debt financing (loans) and equity financing (investors putting up money to own a stake). Obviously the city would not do the latter, so that leaves the former. And what better a borrower, with billions in collateral, than the city of Toronto? What bank would not lend to the city at reasonable rates to build housing? Or borrow from the CMHC, keeping the whole endeavour public.
The CHMC already offers a variety of loans for housing, the irony being the loans for rental housing are resulting in “affordable” rents higher than the average rent. Who could use a CMHC loan more efficiently than the city, as the city avoids many costs (like RFPs and land acquisition) and there are no profits to be skimmed off the top? And let’s not forget, the city offers tens of millions in capital funding for Open Door Programs, money which could instead be used for the city to be its own developer.
We need a New Deal for Toronto, either with a new share of the revenues that flow out of the city, or new powers to generate revenue. There are many potential sources of revenue that could be tapped, and the beauty of publicly-owned housing is that eventually it becomes a source of revenue too. The problem is our decision makers tend to think very short-term, selling off properties for one-time payouts, or privatizing services that are profitable (like Toronto Hydro), instead of playing the long game.
Affordability is the Problem, Not Supply
Politicians, developers, and affordable housing advocates have all been beating the same misguided drum, that if only we had more supply somehow that would solve all our problems. Despite the fact that Toronto has spent the last decade adding more supply of units than almost any other major city in a developed Western nation, adding units at a faster rate than the population has grown, and it has not solved a thing. There are a few reasons why supply is not the core problem and why more supply will not solve our problems.
Supply is ample
BMO has refuted the notion we have a supply problem when it found, for two decades, housing supply was growing faster than population, and BC municipalities found the same thing and pushed back on the notion that just adding more supply will somehow magically solve housing affordability.
Occupied units are unaffordable
As of Jan 2021 there were 81,000 households on the waiting list for affordable housing. One might think that number alone justifies building more supply, but it must be understood, the vast majority of those 81,000 households are not homeless, they just cannot afford their current unit. They do not need someone to build a newer more affordable unit, they need where they currently live to be more affordable. High rents are a FAR bigger contributor to unaffordable housing than a lack of supply of truly affordable units. Add to that TCHC’s inefficiency at filling vacancies, and the problem is worse than it ought to be.
Interest rates
There are numerous variables that contribute to the price of housing and rentals. The number one driver currently seems to be interest rates: when they are super low suddenly there is no housing supply because buyer demand, driven by cheaper mortgages, goes up, conversely when rates rise suddenly, markets cool and supply is less of an issue. Until the recent interest rate hikes, prices in Toronto had gone up around 40% over COVID, following many years of prices rising faster than incomes or inflation.
Bidding wars
Worst however is that competition for housing and the resulting bidding wars are not just between people looking for a home to live in, there are also speculators, investors, and developers competing too (more on that in the next section), and they have deep pockets and the collateral of properties they already own. Banks are much more willing to hand out a mortgage to a person who already owns property, because then there more assets to repossess should things go awry.
Blind bidding is also a huge part of the problem. People desperate to win a bid end up going not just over asking, but well over the bid beneath them, and this unnecessarily drives up prices.
Vacant units
Estimates about our vacant supply vary greatly, from 65,000 empty condo units (admittedly an inflated number due to various factors like units in the middle of being sold, or occupied by short term tenants who do not change their address), to city staff’s estimate of 9,000 to 27,000 vacant units. That does not include the 3300 vacant TCHC affordable units, 1579 ready to be lived in but they are behind on the wait list, and 1754 languishing in need of repair. Even at the low end of estimates, we have enough vacant supply to house everyone currently in shelters. The housing picture can change quickly with rising interest rates, but in Feb of this year Toronto vacancies were on the rise. We do not know what the actual state of housing is until this vacant supply is unlocked.
The meaning of “affordable”
There is also an issue with the very semantics of “affordable” in Toronto. Affordable units, that are rent-geared-to-income, have the most flexible affordability, requiring rent to be no more than 30% of the income of the tenant. But affordable rent units are at or below average market rent and, when that average has skyrocketed over the last decade, it does not help people whose incomes are not climbing as fast as rents.
Supply doesn’t lower rents
More supply will not decrease rents either, because a landlord has no reason to rent a unit out for less than the average when demand is so high and renters so desperate for a place to live. The only reason average rents in downtown Toronto lowered during COVID was because of a temporary lack of demand, the loss of students and other shorter term tenants.
More to the point, more supply does not decrease the rent for people in their current units. Landlords don’t turn to their existing tenants and lower their rent just because thousands of new units were added.
Unscrupulous developers
We also must consider the impact on housing prices due to the unethical hijinks of some condo developers, for example cancelling pre-construction condos to then start over with a higher price.
New supply increases prices
As most people only see housing as the finished product, many do not realize that, in the current inflationary environment, building new supply will paradoxically increase prices. One must consider the supply and inflated cost of building materials, the availability and cost of labour, the cost of taxes and fees, and the increase in environmental standards of new buildings. The more you build the more all those things increase in price. Not to mention buildings cost more per square foot the higher you go. Lastly, new developments also tend to increase property values around them, further worsening affordability.
One must ask why a developer would even bother to build if it meant lower prices? They are driven by profits and do not build housing benevolently and they are not going to build more and charge less, so why do people believe more supply will somehow change this dynamic?
Toronto has had more construction cranes in the air the last decade than many major North American cities combined. And yet, despite adding around 40,000 units every year, Ontario still has the fastest decrease in affordability. Antiquated notions that if we just increase supply it will lower prices and rents are long obsolete; the housing market has become completely unhinged from reality
Speculators, Investors, REITs and P3s
Housing is supposed to be a human right, but it is no longer merely a place to live, it has now become just another investment commodity whose price is no longer determined by what a local buyer can afford but by how much rental income can be extracted from it. And it is not just REIT’s, investors, and speculators, even regular people who own their house see it as an investment, as a nest egg for their retirement, depending on irrationally high home prices to buoy them up down the road. There is no question house hoarding by speculators is happening, the question is what to do about it.
Speculators and investors
BMO has refuted the notion we have a supply problem when it found for two decades housing supply was growing faster than population, and yet prices kept skyrocketing, proving it was fuelled by speculation, not people looking for housing. Even the Bank for International Settlements, the central bank of central banks, has a report that low interest rates fueled housing inflation and speculative demand. Not to mention the Bank of Canada has stated investors in housing are a risk to the economy.
According to one analysis, investors are scooping Toronto homes at double the usual rate, owning 39.1% of total homes in the city, with 90% of newly-built units going to investors. Investors eating up supply reduces the ability of first-time homebuyers to enter the market, and now they outnumber first-time buyers.
With house prices appreciating as much as 40% per year in some areas, it has made negative cash-flow properties worth holding onto, so much so that there are even sites recommending investing in negative cash-flow Toronto properties as a viable investment strategy. More importantly, many investors do not want to be landlords. They want to park their money and watch it grow as the value of their property rises, and as long as home prices keep rising as they are, there is no incentive to rent or sell an asset that just keeps seeing massive gains.
Market psychology is also at play, as another BMO report notes, “expectations for home price gains are the highest in at least a decade; while expectations for mortgage rate changes are the lowest in at least a decade”. Rising prices drive people to buy at an inflated price out of fear that prices will only continue rising and price them out (which has resulted in insane bidding wars), and may discourage sellers who see rising prices as reason to wait a little longer to sell. Investors of all stripes who bought into an inflated housing market will be loathe to sell their investment at any kind of loss, and so are encouraged to hold on to units until the market gives them the price they want.
REITs
REITs (real estate investment trusts) and other “financialized landlords” (those who transform housing into an investment) are a huge part of the problem, and Toronto needs to work with senior levels of government to phase them out of the market entirely. Essentially a REIT is a massive pool of investor money used to purchase rental properties to generate dividends for the investors and, deregulation of rent controls in the 90s, made them a very profitable venture. Even worse, REITs in Canada enjoy certain tax exemptions, which have only made them more attractive and profitable and given them more funds with which to scoop properties. REITs went from owning zero rental units in 1996 to nearly 165,000 suites in 2017 — representing 10 per cent of Canada’s multi-family housing stock.
Typically REITs purchase large multi-residential rental buildings because that provides them with easy rent extraction. Part of the problem is they often want to gentrify an existing rental building in order to bring in higher income tenants (displacing the lower income tenants) and increase their rent extraction.
And REITs aren’t shy about their prioritization of profits for investors, admitting they will actively crank up rent extraction as much as possible: “CAPREIT told investors it pursues above-guideline rent increases “in line with its focus to maximize average monthly rents.” It’s not just REITs either, other institutional investors like public pension plans or massive global investment firms like Blackstone are getting in on the profits, and competition between such investors for multi-unit rental buildings is fierce.
In the US, due to the housing crash, house prices dipped low enough it was worth it for REITs to start scooping up single-family detached homes on the cheap and renting them out. The only thing that has prevented this in Canada is our high detached home housing prices, making such a move uneconomical, but there is a company trying.
Core Development Group has been very open about its US-inspired business model, and has already snapped up 81 homes in Ontario and increased rent on most of them, some more than double what it was previously. If we allow entities like REITs and other moneyed corporations to purchase single units, as well as multi-residential buildings, eventually everyone, except the wealthy, will be renters. Just imagine being a homebuyer trying to outbid a REIT, you would have no chance.
P3s
Every time the city says the phrase “development partner” they are talking about a public-private partnership, or P3, and it appears there is no development the city undertakes that is not one. The logic of a P3 is to leverage the excess of investor money, searching for a return, to build public projects. The reality is that it is just a way to ensure public projects enrich private investors, a textbook case of neoliberal ideology.
Whether it is Auditor General Bonnie Lysyk’s report on the extra costs of P3s or the Federation of Canadian Municipalities’ findings that “There is no evidence to suggest that P3s consistently cost less to deliver than traditional public projects or consistently provide better services”, it has been clear for a long time that P3s are simply a way to extract profits from public projects with little to no benefit to the public. There is simply no reason to continue using them; they are a parasitic drain on public projects. If investors have too much money and not enough places to grow it (because clearly they are not being taxed enough on capital gains), then they can invest in Toronto’s debentures and bonds so we can fund development ourselves.
We must use as many tools as possible to pry supply out of the hands of speculators, investors, REITs, and P3s, and find ways to either ban such practices, or seize properties from corporate landlords as residents voted to do in Berlin, or make them so uneconomical it is not worth the time or effort to invest.
Foreign Buyers and Money Launderers
Foreign money and money laundering have also been a factor in inflating housing prices. These are two types of homeowners that typically keep the home vacant.
Foreign buyers
Wealthy foreign buyers were a big problem in Vancouver, due specifically to an influx of Chinese money, and Toronto has been no exception. There is also plenty to suggest this has become a vehicle for tax avoidance. Despite the public perception, foreign home ownership is not the main driver of housing inflation but, none the less, the federal and Ontario governments each recognized enough of a problem to take action, both by taxing foreign-owned homes and temporarily banning sales to foreign owners.
Money laundering
Over $30 billion in GTA housing was linked to money laundering, and a 2019 RCMP report estimated $46.7 billion across Canada in 2018. And so far the federal government is doing little about it. This is made easy by using Ontario’s anonymous numbered corporation system, combined with no registry of beneficial owners and using unregulated lenders. Our system literally encourages money laundering by facilitating it. It is just another reason why no corporation should ever be able to buy single units.
Inclusionary Zoning, Upzoning, Open Door Toronto, and TCHC
There are a few different ways Toronto is trying to increase affordable supply, and a few programs and city agencies facilitating it.
Inclusionary zoning
On the surface inclusionary zoning seems like a great way to force more affordable housing: just ensure a certain percentage of new units in a development MUST be affordable, and voila, you have just increased affordable and regular housing. If only it were that simple.
First of all, if you force a developer to include affordable units it will drive up the price of all the regular units, so that will make housing even more expensive. This is compounded by the fact the city isn’t offering any incentives for inclusionary zoning (other than not having to include any parking for affordable units, further limiting who can live there). BILD predicts “Using this approach, the City of Toronto is essentially requiring purchasers of market rate housing units to subsidize affordable units at the rate of $65,000 and $116,000 per rental unit over the lifetime of the unit.”
The agreement for inclusionary zoning units being affordable also has an expiry date, albeit 99 years in the future (one has to wonder if everyone but the wealthy will be renters by then). And of course there are far too many exceptions currently, and increasing the number of required units is pushed too far into the future.
The “inclusionary” aspect could also be entirely ironic, as it is likely that the developer will keep condo owners in separate spaces from market and affordable rental spaces, as a few buildings downtown have done. That may not turn out to be the case, but it is quite possible.
Upzoning
Upzoning is unfortunately not going to help affordability either. Density may be increased somewhat, but the resulting units are always high rent and it is usually a form of gentrification, not to mention it can increase property values for surrounding properties, further worsening affordability.
Open Door Program
The Open Door Program has similarities to inclusionary zoning, basically offering incentives by way of fee and taxation exemptions and possible grants, to encourage developers, especially non-profits, to build more affordable housing. The catch is that the affordable units in these rental buildings (no condos allowed for Open Door) only have a 40 year affordability term, after which they can, over 5 years, transition to market rates. This is still better than the short-term affordable requirements of the new Mirvish development (“85 of the units will rent for 80 per cent of average market rent (AMR) for 25 years, after which point rent can be raised again. Another 281 units will rent at 30 per cent of median before tax total income for households in the area for 10 years”).
One of the slightly more encouraging moves by the city is the Multi-Unit Residential Acquisition (MURA, part of Open Door Toronto) program, to help qualifying non-profits, co-ops, and land trusts to purchase and operate rental buildings to keep them affordable. However, this is still passing the buck in a way; it still relies on private sector players (albeit non-profit ones) to run the show and own the property.
No matter the superficial good intentions of non-profits, there is still not the same kind of oversight and accountability one gets with a public enterprise full of highly experienced professionals overseen by elected representatives, and could result in cases like this condo building that allowed itself to fall into such disrepair it is stuck with over $14 million in repairs the owners cannot afford. The city should not be relying on private market players to do the right thing, it should just up and do it itself.
TCHC
The TCHC selloff of nearly 800 units is a branch of this mentality, but is still a step in the wrong direction and more passing of the buck. Supposedly the TCHC simply does not want to maintain these houses, but now we must trust them to some other organization to maintain? Will they not have the same issues the TCHC does but with none of the resources? Regardless of the sell-off going to non-profits, this is just a version of stealth privatization of public assets in the guise of providing affordable housing.
There’s also the ongoing issue of TCHC being behind on their waitlist and repairs. At last count there are 3300 vacant TCHC affordable units, 1579 ready to be lived in but they are behind on the wait list, and 1754 languishing in need of repair.
Inclusionary zoning and Open Door are simply ways to justify unsustainable increased density and satisfy the profit lust of development corporations and their shareholders, all in the guise of providing more affordable housing. If there is so much impetus to build affordable housing, ALL new housing should be affordable, and if that is not profitable enough for developers, then it is up to the public sector to do what they will not.
MPAC and OLT
The Municipal Property Assessment Corporation (MPAC) and the Ontario Land Tribunal (OLT) are two of the provincial agencies that stand in the way of affordable housing and a sustainable economy. Together they ensure development goes ahead no matter the cost or impacts, and no concerns of residents or municipal governments get in the way.
MPAC
MPAC is the body that determines the value of a property that will be subject to property taxes. But there are a few issues with their powers, because they can wield them in ways that show their pro-development bias.
MPAC typically uses a CVA, a current value assessment. This takes the various physical features of a home (number of storeys, bedrooms, bathrooms, driveway, etc), then compares it to other homes recently sold that share those features and are in a similar area, and then looks at the market value of those other homes to determine a value for the home being assessed. The problem is, our housing market has become completely unhinged from reality, with some areas seeing gains of over 40% since COVID.
BMO claims the market is 38% overvalued, so any supposed “value” determined by the market is grossly distorted and so cannot be relied upon as a fair metric upon which to tax a property. The supposed logic is a homeowner whose house appreciates in value (despite the house not physically changing in any way) should be fine with this because it means, when they go to sell, they will realize the gains and all is well. If only that were so.
That does not help a widowed senior, on a fixed income and living in her family home, to pay her bills when her property taxes have gone through the roof (a story I heard last time on the campaign trail). She could still be very able-bodied and want to stay in her family home where she can sleep her kids and grandkids when they come over to visit, but because the almighty “market” says her very modest home south of Queen St in the Beach is now worth $2 million, she is getting taxed out of her property and her neighbourhood. MPAC does not care, she can starve or sell, the “market” has demands.
Secondly, and sneakier, is MPAC’s best-use valuation for commercial properties. This is where MPAC can unilaterally decide that your two storey apartment building with ground floor retail should actually be a 6 storey mid-rise condo, and then start taxing you as if it is already a 6 storey condo. Don’t like it? Well, better sell to a developer who will then turn it into a condo.
MPAC and Toronto’s lack of control over categories of property types (like not having a separate category for luxury homes) ensures that we have little input as to how our properties are taxed other than the rate. Therefore, more equitable taxation so those who have more pay more, and those who have less are not burdened by an out of control housing market, cannot be ensured. The Municipal Land Transfer Tax is at least progressive, having different rates for different brackets of home value so higher value homes pay more, but that only applies to the sale of a home.
OLT
The OLT is another stumbling block. Formerly the OMB, then the LPAT, now rebranded yet again as the OLT, this a body that arbitrates development disputes and appeals. But as anyone with experience knows, it is mostly a façade: developers almost never lose, they constantly overrule local governments, and it is basically a rubber stamp for development while giving residents the illusion that their concerns have been heard. I was part of one such fruitless fight over the Shell Station development at Queen and Woodbine (more info here).
Doug Ford and John Tory have made crystal clear their intention to have development at any cost, without any regard for its contribution to climate change or the negative impacts of increased densification, in particular on our food security. And the OLT ensures that nothing can get in the way, the province will impose development if need be. The timelines for approving a development application are too tight, if a city takes too long to approve a development application it can trigger an automatic OLT appeal and cause the application fees to be refunded to the developer. It is just one big green light for developers, everyone else be damned.
MPAC and the OLT are just more levers to keep Toronto under the thumb of the province and unable to determine its own destiny. We cannot transition into a sustainable circular economy if such gatekeepers still hold the keys to our future, and are using those keys to worsen the situation.
Rent Controls and Supports
Rent-seeking has become the name of the game, and governments are not doing much to prevent it, despite it getting out of control. Every time the media puts out yet another article about the average rent in Toronto going up, it becomes justification for every landlord whose rent is below the average to raise it as soon as they can. Renters are now afraid to move, even from terrible units, because they will face even higher rents if they do.
Rent controls
Issues with skyrocketing rents in Toronto is not a new story unfortunately, and rent is predicted to just keep going up. You know it has gotten really bad when there are bidding wars for rentals. The problems with rising rents started under Mike Harris as he eliminated certain rent controls, and then Doug Ford picked up where he left off and eliminated a few more.
In 1996 Mike Harris allowed vacancy decontrol as some kind of tradeoff for building rental units that never materialized. It is crucial that we eliminate vacancy decontrol, which is what allows landlords to set rent at whatever they want after a tenant vacates.
One of the first things Ford did, when in power in 2018, was scrap rent controls for new buildings. This has led to some tenants getting double digit rent increases, not because costs went up, but merely “to better reflect current market conditions.” This is basically code for saying the market got even more distorted and inflated and RioCan (a large Canadian Real Estate Investment Trust) is just piling on the bandwagon and making it worse. Add to this an Ontario Landlord and Tenant board close to crisis, and what are renters to do?
It is no wonder the province increased rent subsidies for MPPs, it is a self-fulfilling prophesy when the province reduces rent controls, causing rents to continue skyrocketing. Of course MPPs need protection from the impacts of their own policies. The notion that scrapping rent controls will encourage more building of affordable rentals does not hold water, it only ensures less affordability, history bears this out. Quite simply, the private sector cannot be relied upon to do anything other than increase the cost of housing to their own benefit.
Toronto’s rent controls need to be much stronger. Demovictions and renovictions are ongoing problems, exacerbating the impacts of loss of rent controls, and need to be much more closely monitored. We should also be taking a page from Montreal’s book and creating a rental price registry and certification program for landlords in order to deter and expose those who are unscrupulous. We must also find ways (although, yet again, control of the Landlord and Tenant Board is provincial) to disallow REITs and other financialized landlords to continually get above-guideline rent increases (46% of AGIs from 2012 to 2019 were from financialized landlords, despite only owning about 5% of units).
Rent supports
There are rent support programs like the Housing Stabilization Fund and the Toronto Rent Bank, but these are stopgap solutions that do not address the root problem of incomes not keeping up with the profit-lust of landlords who are far too free to raise rent as they please. With 11% of renters in Ontario in arrears due to the impact of COVID restrictions, we also need support from senior levels of government before more people fall through the cracks. The federal top-up to the housing benefit is a direct response to high rents and COVID disruption, but it is a bandaid that does not address the core problem of gouging landlords.
Another problematic development is the movement of the Ontario Landlord and Tenant Board to a fully online forum, as this disadvantages low income renters who may not have easy or sufficient online access. We should not be making things harder for the most vulnerable of renters to have their voices heard.
Fixing the lack of rent controls is not accomplished by introducing new ones, but by bringing back the lost rent controls and applying them to ALL rental spaces.
Real Housing Reforms
The city has little to no control over the market for properties, but there are some things it is doing, and there is no reason the city cannot lobby senior levels of government for better solutions. The crux of the problem is the distortions and volatility that come with allowing speculators and investors to treat housing as a commodity rather than as a place to live.
Resistance to reform
The biggest resistance to housing reforms by politicians comes from two problematic dynamics: firstly, housing reform that will truly address the problem will inevitably lead to a lowering of house prices, and secondly, the removal of investors and speculators from the market will be required.
No politician wants to be the person who causes existing homeowners to lose the equity in their homes. And it is not just the equity built up by people who own their houses outright, it is people with existing mortgages too. Imagine you just bought a million dollar home, and in 6 months your home has lost a third of its value. In a TVO interview MP Adam Vaughan admitted to all of this, that the feds simply will not do anything to cause a loss of home values, and not just for homeowners, but for developers, as lower prices may cause them to stop builds.
Unfortunately, however, a mortgage will not lose a third of its value. (It is important to note here the etymology of the word “mortgage”, two French words together, “mort” + “gage”, literally translating to “death pledge”, a euphemism poking fun at the fact the term of a mortgage is so long it is akin to signing your death pledge. This is why in Quebec and Europe it is called a “hypothec”, because who, in their right mind, wants to sign their “death pledge”?). So unless a government can reimburse homeowners for lost equity or convince banks to lower mortgages when house prices crash, no one wants to deflate the housing market. Homeowners would bring out the pitchforks.
The other half of the problem is keeping out investors and speculators. Not only can investors and speculators be blamed for housing inflation, they can also be blamed for the oncoming housing correction (hopefully not crash). There are also other distortions, where sellers are delisting units because of the dip in prices, able to afford holding back supply until the market is more favourable. And now, as the market cools, homeowners are feeling the pinch as they lose equity in their homes.
Politicians are loathe to eliminate investors and speculators for numerous reasons. First, it reduces housing demand and therefore reduces the market for developers to build more (and we all know governments cater to developers whose deep pockets fill their campaign donations).
Second, it reduces the ability to rent-seek, an activity also coveted by contributors to campaigns, not to mention something some MPs and MPPs themselves profit from, which may explain their reluctance to tackle the problem.
And third, it generally alters the market landscape so that it is not as easily dominated by rent seekers, which is against the neoliberal free market ideology pretty much all current politicians subscribe to. By comparison Singapore recognized the depth of the problem and slapped high taxes on second homes and even higher on third homes, and both go up if you are not a citizen.
Housing and economic growth
The other problem from a politician’s perspective is how much of our economic activity is tied to housing. When a huge amount of GDP growth is due just to housing it’s risky to rely on it for growth, but rocking that boat will put many people out of work.
We have spent 20 years building over a hundred thousand units in Toronto and that has propped up many industries beyond just developers, from the builders, to the producers of all the various materials needed, to the energy suppliers fueling it all, to all the architects and designers, and of course the proliferation of realtors attracted to obscene profits from rising housing prices (and allegedly profiting from some unscrupulous practices themselves).
All these industries thrived from a boom in building housing that was never going to be sustainable, but now their business models all short-sightedly depend on construction continuing, and growing, or their companies fail. It will be hard to unwind this dependence, and will undoubtedly require supports from senior levels of government when the housing industry inevitably cools.
Effective housing reforms
So where does that leave us? It is obvious that affordable housing and profits don’t mix, and the “free” market cannot be trusted to do anything except make money for the elite who dominate the market, so we must turn to the public sector. Here are some reforms that could be phased in over time:
- a corporation cannot own single housing units, only multi-unit residential buildings.
- a person can only own one primary residence and one secondary, no single unit rental properties, only multi-unit residential buildings .
- blind bidding should be eliminated, to keep bids within reason. Blind bidding by people desperate to own a home is another factor in rising prices, because people have no idea how much higher they need to go to win the bid, and often they overbid well beyond what the next bid below was.
- strong justification should be required for gutting, demolishing, or building additions to homes. Just because someone has money does not mean they should be able to take up resources and add to emissions by changing a perfectly livable home. If they do not like a perfectly fit home as it stands, then it is not the home for them.
- the city itself should make it a priority to acquire as much multi-residential rental property as possible and be the equitable landlord people deserve.
The first two suggested reforms take almost all the speculation and investors out of the market, which opens up ownership to regular people. The third is about reducing unnecessary increases in price. The fourth one is partly about preserving the history and character of neighbourhoods, but also about keeping environmental impacts down. The fifth is about keeping rentals affordable forever, something only the public sector can be trusted to do.