Scotia sets spring housing deadline
‘ FURTHER ACTION’
Canada’s big banks weighed in anew on the overheated conditions in the Toronto housing market on Tuesday, with the Bank of Nova Scotia calling for new measures if the market hasn’t cooled by the end of spring.
James O’Sullivan, Scotiabank’s group head of Canadian banking, called for "action sooner than later,” but urged officials to wait until after the crucial spring season to see whether recent federal initiatives to slow real estate have taken hold.
“The spring market is everything in housing,” O’Sullivan said. "If at the end of that spring market, Toronto still has, with higher volumes, strong double-digit price increases, then I think it will clearly be time for further action.”
Potential additional measures on the table for Toronto include a foreign buyers tax similar to that in place in Vancouver, or a tax on specul ators or house flippers, O’Sullivan said.
"This market ( Toronto) has been going straight up for a very, very long time. So it’s going to come to an end at some point…. We want to see it correct, smoothly. We want to see a soft landing.”
Earlier Tuesday, CIBC’s deputy chief economist, Benjamin Tal, addressed the increasingly strained rental segment of t he Toronto market with a stern warning that any attempt to enact rent control in Ontario will destroy an emerging rebound in rental construction.
Soaring house prices in Toronto have driven consumers out of the housing market into other accommodation, with demand shifting to condominiums and renting apartments. Research firm Urbanation Inc. reported the average rent in a purpose- built apartment jumped 11.6 per cent in 2016 to $ 2.77 per square foot, a rise that has prompted calls for rent control.
Tal, in a note, said the damage is already being done as some developers are cancelling projects or changing from rental to condominium developments because of a fear the province will change the rules to restrict what apartment owners can charge in rent.
“Even the very mention of rental control as an option is having a chilling effect on developers,” writes Tal. “From recent discussions with developers we know that it’s already impacting decisions.”
The economist says that following decades of a purpose- built supply drought which was triggered by rent control, there are now 5,000 new purpose- built units about to hit the market. By the end of the fourth quarter, another 28,000 units were proposed.
Tal and others who oppose tightening rent control rules are worried about a change to legislation which has allowed landlords of buildings constructed after 1991 an exemption from rent control.
“Affordability will be achieved only by increased supply. Policy-makers should make it clear that not only is rent control no longer on the agenda but that it will not be on the agenda in the future,” he says.
Tal says rent control is simply the wrong medicine for the market, quoting Swedish economist Assar Lindbeck who said: “In many cases rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.”
He sees any move toward rent control in Toronto diverting more activity to condo construction.
And while condos too can be subjected to rent control rules, Tal says condo owners have more avenues to get rid of a tenant.
“We are at a historic moment in Toronto real estate. Renting is finally starting to be an option and we are seeing the light (with construction) and we are talking again about rent control,” Tal said.