# New gov't policies on growing Toronto Housing bubble



## carverman (Nov 8, 2010)

Well it had to come soon or later...



> "There isn't any one single thing a government can do to change a market dynamic," Premier Kathleen Wynne told reporters last week, promising a package of reforms, potentially before the April 27 provincial budget.





> *Tax measures targeting investors*
> 
> There's a growing sense home prices are being driven higher not by people who want to own a home to live in themselves, but by those buying property as a profit-making venture.


Foreign buyers tax:
Flipping tax:
Capital gains tax rate
Taxing vacant homes: 
Real estate bidding wars
http://www.cbc.ca/news/canada/toron...-housing-morneau-sousa-tory-meeting-1.4071284


and lets not forget increased MPAC assessments.


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## DollaWine (Aug 4, 2015)

As a near-future first-time home buyer, I'm interested and somewhat optimistic about the changes they come up with. As a Canadian who wants the best for everyone, not just myself, and as someone who is weary of government intervention in free markets... I'm nervous.


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## Mortgage u/w (Feb 6, 2014)

carverman said:


> Tax measures targeting investors
> 
> There's a growing sense home prices are being driven higher not by people who want to own a home to live in themselves, but by those buying property as a profit-making venture.


I've assisted at least 2 economist presentations this year and according to their 'stats', the foreign investor represents less than 1% of total sales. Unless they are lying about these stats, I don't see how the foreign investors can have such a heavy impact on housing prices.


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## nathan79 (Feb 21, 2011)

Mortgage u/w said:


> I've assisted at least 2 economist presentations this year and *according to their 'stats', the foreign investor represents less than 1% of total sales*. Unless they are lying about these stats, I don't see how the foreign investors can have such a heavy impact on housing prices.


Yeah, they said the same thing in BC. They said it was 1.3%, but once the government actually analzyed the data they discovered it was 6.6%, and as much as 18.2% in Richmond.


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## Mortgage u/w (Feb 6, 2014)

nathan79 said:


> Yeah, they said the same thing in BC. They said it was 1.3%, but once the government actually analzyed the data they discovered it was 6.6%, and as much as 18.2% in Richmond.


Even with those figures, is it really enough to drive prices that much?
Also, there may be conflicting information because the study must show that the foreign investor is not occupying the property and purchasing purely on speculation - not to be confused by immigrants who have residency with intent to occupy.


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## sags (May 15, 2010)

The first thing the government should do is mandate that a home seller cannot refuse an offer of the "asking" price.

If there are multiple offers, the seller can sort through the offers with conditions and decide which one they will accept.

We don't go into Walmart and pick up a toaster for $9.99 and then go to the cashier and have them say......someone else offered $10.99 so sorry about your luck.

That..........is called "bait and switch" and is illegal.


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## sags (May 15, 2010)

All the sudden interest by government may be too late. The housing market in the GTA may already have turned over.

Garth Turner has reported on home sales that people are trying desperately to cancel. News media are reporting that sales listings have exploded and realtors are saying the phones stopped ringing from buyers and are now sellers wanting to "cash out."

I remember when the US housing market came to a stop, and Canadian agricultural land sales slowed down.

The realtors said the same thing....it was like the housing market hit a wall.


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## mark0f0 (Oct 1, 2016)

Toronto prices haven't risen since 2013, so I fail to see how 'government policies' have anything to do with this. The allegedely huge price increases in Toronto are caused by the sampling distribution of sales going from being a more normal distribution (ie: transactions in all quartiles), to transactions mostly only taking place in the upper quartiles of the overall housing stock. The median is rising dramatically faster than the mean, which is a dead-give-away that what is being seen is mix related, not appreciation of the underlying.

Government policy really can't do anything about this. There is no foreign money to shut off. The CMHC isn't really expanding itself much at all. Boomers and the elderly trading a few housing units amongst themselves is not really a problem. Of course, house prices, today, and as in 2013, are systemically too high, but that's certainly not a more recent phenomena.

The OSFI could fix this problem by increasing the risk weight applicable to Canadian residential mortgages, as the bubble is entirely one of credit, not foreign money, not population, etc. Cooperation would be needed from provincial banking regulators as well as the credit union sector is now a heavy participant in the mortgage finance marketplace.


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## sags (May 15, 2010)

Some of those foreign buyers are "students" who own 5 or 6 multi-million dollar homes.

Do they intend to sell them and pay capital gains taxes, or do they even file Canadian income taxes as foreign students with no income ?


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## sags (May 15, 2010)

The Bank of Montreal plans to offer non uninsured mortgages to investors as mortgage backed securities.

They will be rated as AAA, but will contain lower rated mortgages and some that aren't rated at all.

(Begs the question of how those lower and non rated mortgages ended up on the bank's books)

This sounds similar to what happened in the US, with their ratings tranches and all that involved. 

BMO present this as an opportunity for investors. One wonders if they aren't trying to dump mortgages that aren't insured by CMHC.

These bonds are touted as "first of a kind in Canada" and are worth about $2 Billion dollars in total.

http://www.theglobeandmail.com/repo...nada-shrinks-housing-support/article34722883/


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## DollaWine (Aug 4, 2015)

sags said:


> The Bank of Montreal plans to offer non uninsured mortgages to investors as mortgage backed securities.
> 
> They will be rated as AAA, but will contain lower rated mortgages and some that aren't rated at all.
> 
> ...


Mortgages in Ontario (based on new house prices) are costing an average of 60% of household incomes. Now those mortgages are being sold in the public market. GREAT idea!! Seems like nobody remembers America 10 years ago. Fascinating. At least it's only $2b...


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## carverman (Nov 8, 2010)

sags said:


> The first thing the government should do is mandate that a home seller cannot refuse an offer of the "asking" price.
> 
> If there are multiple offers, the seller can sort through the offers with conditions and decide which one they will accept.
> 
> ...


Exactly! And the real estate industry has allowed this to go on for years and years. This is nothing new and can happen in any city.

Here is my opinion on who benefits from this practice:

1.The seller..more money for the seller when there is a buyer competition.
2. The real estate companies (their commission based on selling price)
3. The banks and mortgage companies make more money on the higher selling price
as the financed portion of the selling price will be higher
4. The city/municipality in assessed property taxes. The assessment will be based on the last selling price, failing that the
particulars of the property in the area....and how much those houses are assessed at.
5. The province (land transfer taxes)

So there are winners (above) and losers, potential future buyers that can no longer afford those
properties.
it's just greed and inflation playing it's part


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## AltaRed (Jun 8, 2009)

Except market assessments are a zero sum game overall. Whether or not RE prices go up, taxes actually collected are related to city budgets. Just means in an era of sky rocketing prices, mill rates go down. To me, there are two main hammers that could be used. Disallow or heavily penalize flipping (within a set period of say, one year), and a very heavy vacant tax.


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## carverman (Nov 8, 2010)

AltaRed said:


> Except market assessments are a zero sum game overall. Whether or not RE prices go up, taxes actually collected are related to city budgets.


Taxes are collected based on the current assessment + the mill rate for property taxes that the city sets.

As the city needs more money and the assessment is higher due to property values increasing due to MPAC, and no other influencing factors then both are used to set the current years taxes. 

( I checked mine against my tax statement that the city sends me every year..in my case for residential, it is the current assessment x the mil rate set by the annual city budget PLus any Local improvement/garbage
collection charges. 

Commercial property may be different...I don't know anything about that.


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## AltaRed (Jun 8, 2009)

And indeed the mill rate comes down IF revenue requirements increase less percentage wise than the increase pecentage wise increase in aggregate market assessment. It is quite possible for one's annual taxes to go down even with a market assessment increase of 30% (since all other MAs go up too and perhaps more than 30%). The process is the same across the country best I can tell.


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## Newby1983 (Apr 9, 2015)

Why not go after the real estate system too? At least foreign buyers and flippers add to our economy. Wasn't the head of OREA once Wynne's opposition leader?


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## mark0f0 (Oct 1, 2016)

sags said:


> The Bank of Montreal plans to offer non uninsured mortgages to investors as mortgage backed securities.
> 
> They will be rated as AAA, but will contain lower rated mortgages and some that aren't rated at all.
> 
> ...



There's lots of paper on the banks' books that is of perfect pristine quality, but doesn't have CMHC subprime mortgage insurance.

For instance, a $200k loan to 45-year-old dentist, on a $1M Toronto house. Wouldn't be CMHC subprime insured. The banks could easily offload such a loan into a MBS, and find buyers for it. So why not? There's no reason why the Canadian MBS market was entirely underwritten by the CMHC. In fact, if there is a liquid market created for non-CMHC MBS, this will aid the mortgage sector in price discovery. I've personally felt for a long time that the pristine quality borrowers are not getting a particularly good deal from the Canadian banks, as the subprime borrowers were able to borrow for basically very little extra incrementally.

Its the subprime stuff that needs the CMHC insurance, and gets put into the CMHC MBS packages. These are the loans that aren't likely to perform very well as the housing market falls after its period of stagnation we've seen 2013-present.


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## RCB (Jan 11, 2014)

The government needs to stay the hell out of direct attempts to control the housing market in this manner. They don't do well in other areas, they are bound to screw up anything they touch.

There are many areas where housing is quite affordable. My kid and her boyfriend just bought a monster house (60s with an 80s addition) for just over $200,000, on a 200'+ x 600' lot in a rural part of the city. Less than twice their income, payments cheaper than rent on a two bedroom apartment. We bought and renovated in 2015, just under 1.5 x one blue collar income. Lakefront, 3 bed bungalow, 1.25 acre lot. Taxes about $500 a year.

If people aren't happy with the cost of housing, they should move. Toronto (and even southern Ontario) is not the end all. Driving anywhere is just crazy. Our neighbour sold her Hamilton area house, bought one up here on the lake for less than $200,000, and had her position transferred here. She was commuting into downtown Toronto daily, minimum 3 hours in a car. Here it's 20 minutes, on a road with barely any traffic, for the same pay.


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## carverman (Nov 8, 2010)

Looks like Sousa will be coming up with some "new improved methods" to cool the hot Toronto market.



> What they mean by that is up for debate,” he said. “A break for first-time home buyers would stimulate demand, but maybe they’ll couch it in terms of affordability.”





> While Ontario has studied ideas for new taxes on foreign buyers and speculators as a way of cooling demand, there was no mention of any agreement on such measures from Tuesday’s meeting. However, Mr. Sousa said afterward he still intends to unveil a package of various reforms in the next week.
> 
> “We’ve made it very clear we will be coming out with a suite of options, a number of measures that are intended to stabilize market activity without unintended consequences,” he said.
> 
> Asked whether they would include new taxes, he simply replied: “Stay tuned.”


http://www.theglobeandmail.com/news...se-prices-in-toronto-morneau/article34737694/

So basically it's a case of "either or"
either create gov't incentives to create demand for first time home buyers,possibly fueling the bubble
or create some new taxes which will fill Ontario's coffers and possibly reduce the demand bursting the bubble


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## Mortgage u/w (Feb 6, 2014)

I say tax everyone! That will definitely cool down the market or at least make the speculators think twice.

It could be as low as a 1% tax (similar to the mutation tax in QC). 

Or a scheme like a much higher percentage that gets reimbursed later on if you meet certain criteria, such as proof that the property is owner-occupied for at least 2-3 years (to discourage the foreigners and speculators).


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## Beaver101 (Nov 14, 2011)

carverman said:


> Well it had to come soon or later...
> 
> Foreign buyers tax:
> Flipping tax:
> ...


 ... seems like you're missing another component - cheap mortgage interest rates which allow easy access to monies to speculate on housing.


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## carverman (Nov 8, 2010)

Beaver101 said:


> ... seems like you're missing another component - cheap mortgage interest rates which allow easy access to monies to speculate on housing.


yes cheap mortage interests make that million dollar mortgage more affordable and I forgot to add the SPECULATION into the mix

It's not just foreign buyers..Canadian families are getting in on the action too...



> One of her biggest sales was a $2-million listing that went $*575,000 over asking in February*. The sellers moved to the commuter city of Burlington, Ont


That is just nuts...if the buyers are willing to pay that kind of price..they are not just looking at a principle residence for themselves..
buy it at under a million, live it iin long enough to do some reno upgrades and sell it for over a million TAXFREE
Who wants to keep money in the banks at the piddly interest that is below the current rate of inflation when there is "real money" to be made out there in Toronto real estate!



> ...shelled out more than $300,000 for a modest 1 1/2-storey house in a less-desirable part of Toronto.
> 
> They recently sold that renovated three-bedroom for *more than $1 million* and now expect to live m*ortgage-free in a four-bedroom purchase in their hometown of Ottawa.*


Nice work if you can do it. Now Ottawa hasn't seen these crazy spirially out of control sellers markets YET..but maybe if enough former Toronto residents move to Ottawa, the prices will go up here too.
http://news.nationalpost.com/toront...f-the-toronto-housing-bubble-ahead-of-meeting


My modest semi here is valued around $290K. Bought it 20 years ago for $`121K....but I would be willing to take more..anybody offering MORE?,....


Do I hear a million?:greedy_dollars:
Thank you..now do i hear a million+100,000..?
Get them while they are hot..not making the larger yards anymore you know...


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## Beaver101 (Nov 14, 2011)

carverman said:


> Do I hear a million?
> Thank you..now do i hear a million+100,000..?
> Get them while they are hot..not making the larger yards anymore you know...


 ... right with plenty of space for the kids to play in and lawns to mow for the parents. :wink-new: Sorry in your case, I'll take at least $10K off the asking price (if not more) as a start for the flat roof. Hmmm... let's see what else can I find ... cul du sac location might add back the $10K.


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## sags (May 15, 2010)

The lowest mortgage interest rate we ever paid in 30 years of home ownership was 7.9%

I compared that to a rate today of 3% and the monthly payment increased by 50%.

If current prices and interest rates consume 60% of incomes, imagine if interest rates returned to historic levels.

The next generation might be digging a big financial hole for themselves..........or maybe not.

We shall see, but I do believe they are rolling the dice on interest rates staying low for decades into the future.

Who would believe that mortgage interest rates were 19-21% in the 1980s.

Only those who lived through it, I expect.


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## carverman (Nov 8, 2010)

Beaver101 said:


> ... right with plenty of space for the kids to play in and lawns to mow for the parents. :wink-new: Sorry in your case, I'll take at least $10K off the asking price (if not more) as a start for the flat roof. Hmmm... let's see what else can I find ... cul du sac location might add back the $10K.


Nothing wrong with a flat roof if you shovel the snow off it before it starts to melt. I haven't any leaks this year. 

Had hire to shovel off the roof this year in February. 
Move in condition..a few upgrades in the last 5 years, roofing shingles, insulation, 3 energy efficient windows just installed ($5000), and planning on new hi-eff furnace for next year. Nice corner lot...on a clear day, you can see the hills of the
Gatineau parkway from my window.

I'm not on a cul de sac, but I do have a corner lot, so I'll see your $10k discount on the flat roof and raise you $50k for the spacious back yard with additional 8 ft gate to park yer landcruiser or boat. 

Don't take too long now :friendly_wink:...DND is moving into my neighbourhood this spring in the old Nortel campus (where I used to work) and interest in real estate in my area *2.5km to DND, all kinds of nature trails, and other stuff of interest..is within scooter or ebike distance.


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## nobleea (Oct 11, 2013)

carverman said:


> Don't take too long now :friendly_wink:...DND is moving into my neighbourhood this spring in the old Nortel campus (where I used to work) and interest in real estate in my area *2.5km to DND, all kinds of nature trails, and other stuff of interest..is within scooter or ebike distance.


Hmm, my parents, until a couple years ago, used to live in Crystal beach/lakeview park area, which sounds like the same area you are in.


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## Jaberwock (Aug 22, 2012)

Raise interest rates, a quarter point will not damage the economy but will send a message to people who think housing prices will never go down.

Then stop the speculators and flippers by taxing gains at full marginal rate if the property is owned for less than a year, 75% inclusion rate after two years, 50% after 3 years, 25% after 4 years and only allow tax free capital gains for people who have owned for more than five years. Give notice that this is going to happen and watch the speculators rush to dump their properties and cash in their gains before the new taxes kick-in. There will be lots of new supply and prices will drop.


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## Nelley (Aug 14, 2016)

Jaberwock said:


> Raise interest rates, a quarter point will not damage the economy but will send a message to people who think housing prices will never go down.
> 
> Then stop the speculators and flippers by taxing gains at full marginal rate if the property is owned for less than a year, 75% inclusion rate after two years, 50% after 3 years, 25% after 4 years and only allow tax free capital gains for people who have owned for more than five years. Give notice that this is going to happen and watch the speculators rush to dump their properties and cash in their gains before the new taxes kick-in. There will be lots of new supply and prices will drop.


You are aware that without the gigantic taxpayer support (CMHC) these prices would implode.


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## nobleea (Oct 11, 2013)

Nelley said:


> You are aware that without the gigantic taxpayer support (CMHC) these prices would implode.


Would they? Most homes are selling for over 1Mil in the hottest markets, and those are not CMHC-insurable.


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## lifeliver (Aug 30, 2010)

So the 15% foreign speculator tax is in and so is universal rent controls.


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## Nelley (Aug 14, 2016)

Wynne has a tapeworm and will do anything to feed it-if this wasn't the case they could easily estimate how much tax revenue this 15% fee would bring in to the Ontario guv and offset income tax (say an increased personal exemption) by the same amount. Make it theoretically revenue neutral-will never happen.


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## redsgomarching (Mar 6, 2016)

Jaberwock said:


> Raise interest rates, a quarter point will not damage the economy but will send a message to people who think housing prices will never go down.
> 
> Then stop the speculators and flippers by taxing gains at full marginal rate if the property is owned for less than a year, 75% inclusion rate after two years, 50% after 3 years, 25% after 4 years and only allow tax free capital gains for people who have owned for more than five years. Give notice that this is going to happen and watch the speculators rush to dump their properties and cash in their gains before the new taxes kick-in. There will be lots of new supply and prices will drop.


the thing is the CRA should be cracking down o nthis, there are already rules for speculators that would classify the flipping as business income if it is done year over year.

i dont think anything should be altered to the principal residence exemption or taxation of housing - the crack down on speculators and flippers taking advantage of the 1 yr principal residence is what needs to be focused on by CRA.

in other news, i definitely agree with foreign buyers tax. foreign buyers should be taxed to use canada as a safe haven for their money as we don't know if it is clean or just a source of AML, furthermore, they are taking homes from canadians who pay taxes here. this is such a great source of revenue that should have been implemented long time ago.


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## lifeliver (Aug 30, 2010)

I find it crazy that they are exempting foreign students from the 15% tax. What is stopping someone from enrolling in a university or college for a few months while they buy up real estate?


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## carverman (Nov 8, 2010)

lifeliver said:


> So the 15% foreign speculator tax is in and so is universal rent controls.


Seems to be the plan.

http://www.citynews.ca/2017/04/20/o...yers-expand-rent-control-cool-housing-market/



> The tax is not about targeting immigrants, Wynne said, and a *rebate would be available to people who subsequently get citizenship or permanent resident status*, as well as foreign nationals working in Ontario and international students.
> 
> 
> The province’s housing package will also expand rent control, which currently only applies to units built before November 1991, after tenants in newer units complained of dramatic spikes in rent. *New rules would see all private rental units fall under annual rent increase guidelines.* Those have averaged two per cent in the last 10 years and this year it is 1.5 per cent.


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## carverman (Nov 8, 2010)

lifeliver said:


> I find it crazy that they are exempting foreign students from the 15% tax. What is stopping someone from enrolling in a university or college for a few months while they buy up real estate?


read my quoted post below on that


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## sags (May 15, 2010)

_“If median-income people borrowed hundreds of thousands of dollars to speculate on the price 30 years hence of a single, highly illiquid asset that wasn’t a house, they would be called financially insane.”_

http://news.nationalpost.com/full-comment/bruce-yaccato-youd-have-to-be-crazy-to-buy-real-estate

That is a quote from 2015. 

People who bought in 2015 and sold recently made out like bandits..........no doubt about it.

The question is how big the balloon can expand before it bursts and who gets left holding a deflating balloon.

Fairfax Financial CEO says that Toronto real estate is going to collapse and there is going to be a lot of pain.

Prem Watsa, head of Canadian investment firm Fairfax Financial Holdings Inc., said the Toronto property market is in a bubble that will end with pain for banks that financed the growth.

_“Most banks can’t survive a 50 percent drop in real estate values,” Watsa said Thursday during Fairfax’s annual general meeting in Toronto. *“It’s going to come down, and a lot of people are going to get hurt.”*_

http://www.theglobeandmail.com/real...eal-estate-bubble-will-burst/article34759033/


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## mordko (Jan 23, 2016)

Stunning incompetence:

1. Rent control will dramatically cut the investment in construction of condos and other rental units. We know this for a fact because the removal of rent controls resulted in a surge of construction. Right now rents in GTA are effectively subsidized by landlords which is the result of rent controls removal in the 90s.

2. Banning "paper flipping" is possibly even worse. Yes, these people are "speculators". They do what speculators do - provide liquidity to the market. Builders won't start construction until a certain number of units is pre-sold. That's were people who take the risk and provide the funds come in. 

3. Tax on foreigners seems rather pointless, particularly so that it excludes "students" and other "residents". If the concern is hot money, all our Chinese nouveau riche has to do is send a child to Canada. Or a wife. Hey, that's exactly what they are doing now anyway. The money comes from the exact same source; certainly not from the student. 

The net outcome of these populist measures will be negative but the effects won't be felt until after the election so all is good.


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## carverman (Nov 8, 2010)

mordko said:


> Stunning incompetence:
> 
> The net outcome of these populist measures will be negative but the effects won't be felt until after the election so all is good.


Watched Sousa and Wynne bafflegab infront of the media. They really don't have a solution. 
Experts say that that 15% tax is only a temporary stopgap. After a few months, it will be business as usual with prices still going up. 

Happened in Vancouver, Sydney Australia, Honkong. 
Reporters asked them "How do you know it's just the foreign buyers? Sousa shuffled and came up with a lame answer that they really don't have the data right now on how many real estate deals are made by foreign buyers...so much for that.
Does the Wynne gov't plan to put a %1 tax on empty housing?


> An empty homes tax introduced in *Vancouver this year charges 1 per cent or $10,000* on a $1 million property that isn’t occupied by the owner or family or, rented to a tenant, at least six months of the year.


How do they know that the the condo or house is empty? Someone can buy the house and have their mail forwarded to that address. heating/water/electricity usage will be minimum, but the property taxes will remain the same. Buyers will be able to get around that new tax quite easily.

www.thestar.com/business/2017/03/30/city-province-eye-tax-on-unoccupied-homes.htm


> That’s the number of dwelling that Statistics Canada defines as “unoccupied by usual residents.”
> 
> But it doesn’t mean those homes are vacant. The 65,000 could include homes occupied by foreign or temporary residents — students, for example, living off campus, who, nevertheless, still count their parents’ home as their primary address.


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## mordko (Jan 23, 2016)

Right... But it will please the bureaucrats - lots and lots of new rules and regulations; hey, I need 20 more people to help me out with these new useless tasks and a bigger salary to boot! Meanwhile, the measure is sure to put fear of god into potential landlords. What if they can't find a client; how many forms will they have to fill in to prove it to our bureaucrat and his team? 

I mean... Are there plenty of empty properties in Toronto? Can anyone seriously think that is the reason for the bubble?


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## lifeliver (Aug 30, 2010)

mordko said:


> Right... But it will please the bureaucrats - lots and lots of new rules and regulations; hey, I need 20 more people to help me out with these new useless tasks and a bigger salary to boot! Meanwhile, the measure is sure to put fear of god into potential landlords. What if they can't find a client; how many forms will they have to fill in to prove it to our bureaucrat and his team?
> 
> I mean... Are there plenty of empty properties in Toronto? Can anyone seriously think that is the reason for the bubble?


I dont know how accurate this data is but in this article they are estimating 99k empty properties in GTA.

http://www.huffingtonpost.ca/2017/02/11/empty-homes-canada-vancouver-toronto_n_14691034.html


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## mordko (Jan 23, 2016)

lifeliver said:


> I dont know how accurate this data is but in this article they are estimating 99k empty properties in GTA.
> 
> http://www.huffingtonpost.ca/2017/02/11/empty-homes-canada-vancouver-toronto_n_14691034.html


They are not actually "empty". They are listing properties which don't have a permanent occupier. At 4.4% the inventory is low in Toronto. I am grateful this inventory exists; my family and the dog needed a place in Toronto for a month and got one thanks to Air B&B. No idea what we would have done without it - Toronto hotels don't accept dogs; nor are they really suitable.


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