New federal housing regulations?

by Peter Squire

There’s more talk about what needs to be done to contain Toronto’s unabated sharp climb in house prices in addition to all that has already been done at the federal level.

Among the earlier changes made by the federal government to cool off a hot housing market was a new mortgage qualifying stress test based on the Bank of Canada rate of 4.64 per cent. As well, higher CMHC insurance fees kicked in last month. 

Toronto has caught everyone’s attention because the average selling price of a home in 2016 in the Greater Toronto Area (GTA) went up nearly 28 per cent. This week, the Toronto Real Estate Board reported that the average MLS® price of a home in Greater Toronto for the first quarter, when compared to the same period in 2016, was up 33.4 per cent to $1,214,422.

 When will it stop?

The questions posed about Toronto make some sense given what is happening. But in other regions of Canada, where house prices are tepid at best and inventory is high, it’s more a loud chorus asking, “Why do more federally to make entering homeownership tougher?” More regulations will only penalize markets that are doing just fine when compared to Toronto.

 Economists such as Will Dunning, of Mortgage Professionals Canada, have spoken out against existing and more federal government actions, saying such changes negatively impact the Canadian economy. In a submission made in February to the standing committee on finance, he recommended that, if the federal government is going to keep the stress test for mortgage insurance, it needs to look at a different interest rate than the Bank of Canada’s. He said the government should base it on the yield spreads between five- and 10-year Government of Canada bonds, which will add to the borrowers’ contracted rate, but nowhere near the extent of the present gap of over 1.5 per cent.

Others have talked about scalability of prices in the country; that is, not applying the stress test in more affordable price range markets where the concern over debt is nowhere near as great as those areas with higher price ranges.

In Toronto — as is often the case with high levels of price growth — it’s a matter of demand outstripping supply with the result of more buyers than sellers, so prices are bid upward. This point was made clear in the Toronto Real Estate Board’s April 5 housing market report.

“Annual rates of price growth continued to accelerate in March as growth in sales outstripped growth in listings. A substantial period of months in which listings growth is greater than sales growth will be required to bring the GTA housing market back into balance. As policy makers seek to achieve this balance, it is important that an evidence-based approach is followed,” said Jason Mercer, TREB’s director of market analysis.

So where does Winnipeg fit in all of these national housing policy discussions? We, like other local markets in Canada that have balanced market conditions or many months of inventory available for sale on MLS® systems, are concerned about the impact of any new federal government measures and how they will affect our busy spring market activity.  

With specific regard to Toronto, WinnipegREALTORS® may be of assistance to the Toronto Real Estate Board, as it actually has had some success in dealing with an overheated market.

There’s no better person to explain it than Mel Boisvert, the former co-chair of a provincial roundtable on rental housing supply established in 2011, which resulted in a WinnipegREALTORS® working paper released that March about the province’s rental housing shortage.  

“In our discussions with a broad group of stakeholders appointed to our roundtable,” he wrote, “we soon realized as much as we may have wanted the federal government to help alleviate our rental shortages which were contributing significantly to double-digit house price increases in the first millennium decade, we all agreed it had to be a made in Manitoba solution.”

A report the roundtable released in October 2012 recommended a rental housing construction tax credit. To the former Manitoba government’s credit, it recognized something had to be done to address the acute shortage of rental accommodations, which was exacerbated by the persistent demand resulting from a highly-successful provincial immigration program. A rental housing construction tax credit was brought in by the government that offered private and non-profit developers eight per cent of the capital cost of new rental housing construction to a maximum of $12,000 per residential unit.

Today in Winnipeg, you just have to drive along Sterling Lyon Parkway, heading towards IKEA and the new outlet mall, to see a burst of new multi-family construction. In fact, CMHC has put out warnings that Winnipeg’s market has too much multi-family supply and developers and builders need to take heed. Altus Group’s January 2017 report also talks about Winnipeg’s excessive new apartment inventory.

 How things change. It was so dire back in 2011 that WinnipegREALTORS® felt it had to address Manitoba’s rental housing shortage, despite the association being the hub of existing property sale activity, not rentals.

Whether Ontario follows suit with their own version of a Manitoba housing roundtable is up to them. Meanwhile, Ontario Finance Minister Charles Sousa is now aware — by way of the federal government’s recent budget — that Ottawa will not make matters worse for the rest of the country in order to solve his problems in Toronto.