Government intervention into the free market is always sure to divide opinion, as proven by real estate in the GTA. In the ruling Liberal Party’s defence, the annual price increase of over 30% meant ignoring the problem wasn’t a realistic option, as even the heads of the major banks called for cooling measures to be introduced. CEO’s aren’t best known for supporting state interference when it comes to private enterprise, so the banks’ position caused many to wonder if a correction was indeed around the corner.
Kathleen’s Wynne’s government responded last month with its Fair Housing Plan, which contained a number of new provisions, but most attention was focused on the new rent controls and a 15% foreign-buyer tax. Opponents of those measures, and there are many, argue that rent controls and a stiff tax hike will ultimately have the opposite effect the government intended, thus further constraining supply. Already, the most recent real estate data suggests the once-fraught bidding wars that have driven Toronto’s market through 2016 are starting to subside.
Housing Plan’s’ Effectiveness Not Yet Proven
Jim Roberts, an agent at Zoocasa Realty, is one such voice, as he explains how the Fair Housing Plan might not live up to its name.
“My initial reaction was that I do not trust the government to try and influence markets,” he says. “The market here depends pretty heavily on foreign investment in the pre-construction phase of developments. If you take away that segment, it could be more challenging to get new projects off the ground. That will impact the supply side of the equation negatively, which really is the biggest problem.”
This belief is shared by the Toronto Real Estate Board, which earlier this month released a study indicating foreign buyers had a negligible impact on supply constraints. The data showed that between 2008 and April 2017, the average share of foreign buyers in the Golden Horseshoe region was 2.3%.
In addition, the board found the vast majority of foreign buyers (87-90%) purchased their home as a place to live rather than as an investment vehicle.
Such data flies in the face of what the Ontario government is trying to achieve with the Fair Housing Plan, although it is far too early to say whether the measures will be a success or not. What is certain is that the market in the GTA has cooled somewhat from the hyper inflation we saw earlier in the year.
Sales Starting to Slide
This was confirmed by TREB’s April report showing that total sales were down 3.2 % year-over-year. The Easter holidays falling in April this year may have accounted for some of that drop, but Jim Roberts believes sentiment change is a more powerful force.
“I think some of the more cautious buyers have moved to the sidelines to see how things are going to play out,” he says. “The result of that is you notice that more houses are not selling on their offer night. Overall there is more selection for buyers to look at.”
His experience was backed up by data from TREB’s MLS® System that showed a 33.6 % increase in new listings in April 2017 compared to the same month in 2016.
With 21,630 new properties for sale, added to the moves by the Ontario government, certain buyers are now electing to take a more considered approach to house hunting. The bidding wars that characterized the past year will be much less common heading forward, believes Roberts.
“Buyers are in a position right now where they can set a value on a property for what they think it is worth to them, and not necessarily overpay to get a deal done,” he says. “In the past few years a lot of buyers approached offer situations thinking that if they didn’t get it done they would have to pay more for a future offer. I think that sentiment has gone now.”