Hous­ing woes: Why fo­cus on for­eign buy­ers?

Mu­nic­i­pal red tape is slow­ing con­struc­tion


Rather than tar­get­ing a small group of for­eign home buy­ers to stop pric­ing es­ca­la­tion, the On­tario gov­ern­ment should fo­cus on en­sur­ing that reg­u­la­tions don’t pre­vent the sup­ply of new hous­ing from meet­ing de­mand.

Ac­cord­ing to a re­cent an­nounce­ment from the On­tario gov­ern­ment, 4.7 per cent of prop­er­ties pur­chased in the Greater Golden Horse­shoe (be­tween April 24 and May 26) were ac­quired by for­eign in­di­vid­u­als or cor­po­ra­tions. This in the wake of the raft of gov­ern­ment mea­sures an­nounced in April, in­clud­ing a 15 per cent non­res­i­dent spec­u­la­tion tax, os­ten­si­bly aimed at im­prov­ing hous­ing af­ford­abil­ity.

It’s dif­fi­cult to say how for­eign buy­ers ul­ti­mately im­pact the cost of buy­ing or rent­ing in Canada’s big­gest ur­ban re­gion, and it’s far too soon to es­ti­mate the ef­fects of the pol­icy changes the On­tario gov­ern­ment is in­tro­duc­ing.

But we do know that the laws of sup­ply and de­mand ap­ply to hous­ing, and it’s hard to be­lieve that a small per­cent­age of buy­ers are re­spon­si­ble for the mas­sive ap­pre­ci­a­tion of hous­ing prices in the Greater Toronto Area over the past decade.

For gen­er­a­tions, the Greater Golden Horse­shoe has drawn new­com­ers from across On­tario, Canada and the world, mo­ti­vated by many fac­tors (jobs, sta­bil­ity, high stan­dard of liv­ing). To serve a grow­ing pop­u­la­tion, de­vel­op­ers and home builders (who must project sev­eral years into the fu­ture when con­ceiv­ing new hous­ing) re­spond by build­ing thou­sands of units an­nu­ally. If they can’t keep up with de­mand from buy­ers and renters, prices likely rise.

The Hous­ton, Texas, metropolitan area is roughly as pop­u­lous as the GTA (about 6.5 mil­lion peo­ple), and has grown sub­stan­tially in re­cent years. Ci­ties in the Hous­ton area is­sued build­ing per­mits for al­most 64,000 hous­ing units in 2014 com­pared to 36,000 units in the Toronto and Oshawa cen­sus metropolitan ar­eas.

In 2016, the av­er­age home in metropolitan Hous­ton was val­ued at ap­prox­i­mately $250,000 US de­spite the re­gion ac­com­mo­dat­ing al­most twice as many new­com­ers as the GTA did be­tween 2011 and 2016.

So what’s pre­vent­ing ci­ties in the Greater Golden Horse­shoe from is­su­ing more build­ing per­mits? In short, mu­nic­i­pal red tape. Be­tween 2014 and 2016, Fraser In­sti­tute re­searchers sur­veyed hun­dreds of home builders across Canada to bet­ter un­der­stand how reg­u­la­tion af­fects their abil­ity to ob­tain per­mits. In the Greater Golden Horse­shoe, it typ­i­cally takes 18 months to ob­tain a per­mit and per-unit costs to com­ply with reg­u­la­tion amount to al­most $50,000.

Ap­proval time­lines can also be af­fected by the need to re­zone prop­erty. Ap­prox­i­mately two-thirds of new homes in the re­gion re­quire this pro­ce­dure, which adds 4.3 months (on av­er­age) be­fore builders can ob­tain per­mits.

An­other de­ter­rent to more sup­ply is lo­cal op­po­si­tion to new homes. Sur­vey re­sults show that coun­cil and com­mu­nity groups in Toronto, King Town­ship and Oakville are more likely to re­sist the ad­di­tion of new units in their neigh­bour­hoods, pre­vent­ing new­com­ers from mov­ing in.

Un­for­tu­nately, only one of the 16 mea­sures pro­posed by the pro­vin­cial gov­ern­ment in April even men­tions these bar­ri­ers to hous­ing con­struc­tion. Buried near the end of the Fair Hous­ing Plan is men­tion of a “Hous­ing Sup­ply Team” that would “work with the devel­op­ment in­dus­try and mu­nic­i­pal­i­ties to iden­tify op­por­tu­ni­ties to stream­line the devel­op­ment ap­provals process.”

Hope­fully, that re­sults in mean­ing­ful ac­tion on re­duc­ing bar­ri­ers to hous­ing con­struc­tion, although the lack of em­pha­sis is not en­cour­ag­ing.

A tight hous­ing sup­ply hurts ev­ery­one, from first-time buy­ers to renters look­ing to get a toe­hold in Toronto’s job mar­ket. It can even hurt long­time home­own­ers whose chil­dren can no longer af­ford to live nearby.

Thank­fully, gov­ern­ments have the tools to tackle this prob­lem by al­low­ing Canada’s big­gest and most dy­namic ur­ban re­gion to thrive as a place to live, work and play.

That should be their fo­cus, rather than try­ing to sniff out for­eign buy­ers.

Steve Lafleur and Josef Filipowicz are an­a­lysts at the Fraser In­sti­tute. Dis­trib­uted by Troy Me­dia

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