Housing prices are now the big issue in Ontario

How will solving Toronto’s crisis affect the rest of us?

Hydro is so early 2017. All the rage now are housing prices.

As we wait ... and wait ... for the Ontario budget to finally come down, we’re also waiting to find out what the government is planning to do about housing affordability.

Every day brings a new outrageous story out of the Greater Toronto Area’s skyrocketing housing market. Premier Kathleen Wynne has promised a “package” of reforms is coming soon. The opposition parties are staking out their ground, with the NDP hammering away on rent controls and the Progressive Conservatives zeroing in on red tape around real estate development. This is now the big issue in Ontario politics, and it’s very possible it will be the big issue of next year’s election.

Finance Minister Charles Sousa summed up the political situation to reporters at Queen’s Park Wednesday morning: “Families are pissed they can’t win bidding wars.”

There are a few questions to think about here, and the first is, what is the actual problem? Is it a lack of supply due to overly strict regulation? Is it get-rich-quick schemers flipping too many houses? Is it foreign speculators dodging taxes, or foreign millionaires parking capital somewhere safe? Is it the result of decades of generous government policies encouraging everyone to be a homeowner? Is it a recovering economy and rising wages combined with a booming metro region that everyone suddenly wants to live in?

If you answered “some combination of these,” as most people do, it’s not really all that helpful for telling us what the policy response should be.

The government has been collecting data recently to try to diagnose what’s going on. And it’s been watching the effects of policy changes both federally and in British Columbia, where the provincial government recently brought in a foreign buyers tax to cool off Vancouver’s market. (The tax defused the situation for a bit, but prices are already starting to rise again.)

This is the sort of careful deliberation we should want on a subject that so deeply affects quality of living.

But politics are now taking over, and this can wreak havoc. Each party will be extremely sensitive to what the voters are feeling, and the opposition parties will take every advantage they can.

So the next question to think about is what kind of response we really want to see from Queen’s Park. A housing market crash would be bad for everyone — including the government, by the way, which collects a land-transfer tax on real estate transactions that has lately been bringing in more than $2 billion annually. The province’s fiscal watchdog has warned that even a small market correction will drop that number quickly, not to mention the fallout on the rest of the economy.

And there’s something else to keep in mind from that Financial Accountability Office report. The market is already likely to see a correction in the near future, not only because it’s so overvalued, but also due to potential interest rate hikes. If the prices are likely to go down regardless, how much do we really want the Ontario government making moves now?

For now, then, expect the government to act cautiously, for multiple reasons (including financial self-interest). But remember what happened last fall, when the government announced the HST cut on electricity bills. It didn’t have the desired political effect, and within months a massive effort was underway for bigger action. Whatever is announced in the coming weeks, this is a long way from over.

Meanwhile, if you’re reading this in Ottawa or any city outside the centre of the universe, another concern may also be popping into your head: If the problem is entirely in the Toronto region, what effect will the rest of us feel from the imposed solution? It’s a question you may want to be putting to your MPP.