I was on CBC radio’s Ottawa Morning with Hallie Cotnam today to talk about the Ottawa real estate market and the proposed (as yet unknown changes) to be introduced in the April 27 budget. (Here’s a link to that interview!) Those changes, as we know, are meant to cool down the Toronto housing market which saw a 33% year over year increase in prices.
On radio, there isn’t a lot of time to amplify the discussion, so I thought I’d take a minute to do so here.
First of all, while Ottawa’s market is hopping, it’s nowhere near as hot as Toronto’s. We saw a 17.5% increase in residential sales year over year and a 22% increase in condo sales in March. Prices were up 5.5%. So that’s a nice, healthy increase, but not out of whack for a market that’s been slow, almost stagnant, for the last several years.
One factor that shows the difference is our average days on market (that’s how long it takes to sell the average house). We’re at 92 in Ottawa. It was 12 in Toronto the last time I asked a realtor pal in that market.
We talked a bit today about the government’s stated goal of wanting to make housing more affordable. If that’s the case, some of the options being tossed around don’t make sense and could have unintended consequences.
For example, the last time the feds tried to slow down the housing market, they made it harder to borrow money. The changes to the mortgage rules made it harder for first time buyers to borrow. They certainly didn’t make housing more affordable for them; they had to come up with more money for down payments.
Similarly, the provincial government says it now wants to close a loophole that allowed landlords of post-1991 built buildings in Toronto to raise rents without being subject to rent controls. There are reports of condo tenants whose rents have doubled since that announcement while landlords try to get their increases in under the wire. Not exactly more affordable for those folks either.
I’ve heard the provincial minister, Charles De Sousa, talk about real estate speculators as well. He seems to be concerned about buyers who buy new builds and assign (sell) their contracts to new buyers for more money before closing. (In BC, this was happening with home purchases generally. The problem was addressed by requiring seller’s consent to any resales, and ensuring they get any profits.)
But in the condo market, those buyers — the ones who come in and often buy four or five condos before the shovel hits the ground and then assign their contracts for a profit before the buildings are finished — are often providing the financing the builder needs to reach the 70% in pre-sales required to get the project rolling. Shut them out, and you are shutting down a perfectly valid investment strategy (why shouldn’t I be able to make a profit when the underlying value of the property I bought rises in the year or two it takes for a condo building to be completed?). You may also find yourself with fewer condo developments,. That means less supply and higher prices.
Then there’s the foreign buyer tax in BC that may be replicated in the Ontario budget. Will it be targeted at Toronto only? Pundits credit the 15% increase in BC for a 40% drop in sales there.
First of all — are foreign buyers the reason behind Toronto housing prices? Do we know? And secondly, if they are, where are they from? We don’t have any data to answer that question. We can’t even be sure that the BC market was being driven by foreign purchasers; studies now suggest that it wasn’t and that it’s the uncertainty in the market those changes created that’s caused the present drop.
One thing we do know that Ottawa has lots of foreign buyers who come here to work in our technology sector, work at our hospitals and teach or study in our universities. Do we really want to discourage those people from finding affordable housing?
As I mentioned to Hallie, I was contacted by someone in BC last year who was directly impacted by the 15% foreign buyer tax. He was an American who’d been offered a job in the Lower Mainland. He decided to buy a home for his family — as I recall, he and his wife had four kids. He put down a hefty deposit, only to find out before closing, without any advance warning, that he had to come up with an extra 15% or forfeit his deposit. He couldn’t afford to do either. The new tax kicked in without any reprieve for those who’d already purchased.
Is that really the way we want to treat good faith buyers? Like some kind of banana republic where the inflation rate changes daily?
My problem with the government trying to fix the Toronto problem is that they have no idea what’s driving the market increase. It’s possible that the 15% foreign buyers tax in BC actually drove foreign buyers to Toronto and has driven up prices. Assuming that’s true, introducing a foreign buyer’s tax in Toronto could drive more buyers to Ottawa, making homes less affordable here, and then what? New taxes in Ottawa? It’s like a game of whack-a-mole. But the point is: we don’t know. There is no data.
Imagine a doctor saying to you, “I know you’re sick but I’m not sure why. Here’s a prescription based on your symptoms, without any accurate diagnosis. It may not make you better, but it could cause side effects you don’t like and it might just kill you.”
I’ll wait to see what the budget brings, but I’m not optimistic.
(One small correction from my CBC interview. The average sale price in Ottawa is currently is $415,467. Hallie had suggested $ 300K; I said I thought we were over $ 500 but I was thinking of sales volumes in March. That’s what happens when you get up at 5 in the morning for an early interview!)
And finally, always nice to see this kind of feedback, from our Mayor: