The Greater Toronto Area may have been the focus of federal Finance Minister Bill Morneau’s meeting with his provincial counterpart and Mayor John Tory on Tuesday, but a city more than 4,000 kilometres away was likely also on their minds.
Alex Kenjeev, who also oversees Conservative leadership hopeful Kevin O’Leary’s venture capital business, told CTV’s Your Morning that Vancouver’s abrupt about-face on sales activity and housing prices will be tough for the trio of policymakers to ignore.
The pace of year-over-year home price appreciation in Greater Vancouver has slowed down dramatically from the historic highs witnessed in 2016. Royal LePage’s latest House Price Survey released Wednesday shows home values for the region declined on a quarterly basis for the first time since 2013. The survey also reveals the number of homes changing hands has fallen sharply.
While the real-world impacts of a 15 per cent tax on foreign homebuyers and the levy on so-called absentee landlords in Vancouver have been called into question, Kenjeev says the changes in the housing data have been both “dramatic and immediate.”
“The challenge for Toronto is whether these people think a foreign buyers tax in isolation is a good idea or not. They are now facing a situation where the tax is something that exists in another hot real estate market,” he said. “A couple of years ago, lots of questions were being asked. Will it have an effect? The difference is now we have the data from Vancouver.”
Meanwhile, the cost of a detached home in Toronto roared to a new record high of almost $1.6 million in March, a 33 per cent climb over prices last year, according to the Toronto Real Estate Board (TREB). While new listings have risen over the past 12 months, even stronger sales continued to tighten the market.
Kenjeev said he expected the trilateral meeting on Tuesday to focus mainly on making sure any actions to cool Toronto’s housing market will be coordinated across all levels of government.
“I think what they are trying to do is have a little more coordination. We know these individuals are concerned by the housing market. They have different ideas about it. Up to now, each level of government has been acting on its own,” he said.
A spokesperson for Ontario Premier Kathleen Wynne said before the meeting Tuesday that the province is considering a tax on non-resident speculators.
After the meeting, Ontario Finance Minister Charles Sousa said his government plans to introduce “measures” to cool the market, but did not offer any specifics.
Sousa said last week that the government will target “property scalpers” who “go into new developments, buy up a slew of properties, and then flip them, while avoiding paying their fair share of taxes.” He will table Ontario’s budget on April 27.
Federal Finance Minister Bill Morneau said after the trilateral talk that the governments’ shared goal is “action that can have an impact on the market and ensure that we can try and get rid of the speculative behaviour.”
Morneau said Ottawa will help in a number of ways, including housing data collection and analysis, enforcement of tax compliance through Canada Revenue Agency and anti-money laundering rules.
Mayor Tory vowed measures to curb the behaviour of speculators, although he said he believes “they represent a fairly small number of people in the grand scheme of things.”
Tory has previously proposed levying a tax on vacant homes -- another idea borrowed from Vancouver. He has said he could make a case for that with data collected from Toronto Hydro and Toronto Water.
Concerns about contagion
While both homebuyers nervous about being priced out of Canada’s largest city and economic observers fretting over the contagion effect of an abrupt real estate correction on the broader economy will be anxious for swift policy action, Royal LePage president Phil Soper said he believes a slow and steady approach is the best way forward.
“The hasty introduction of new real estate-related regulations or taxes in Ontario, in the absence of data and analysis to support these policy moves, could lead to a sharp price correction, impacting not only household wealth, but damaging the broader Canadian economy as well,” he said in a release.
So far, data to confirm the undue influence of foreign capital in Toronto, and Vancouver’s, real estate markets has been sparse. Soper told CTV News Channel the amount of foreign dollars flowing into the Toronto real estate market is “a little bit less” than Vancouver. Uncertainty on that front could see Morneau, Sousa and Tory turn to other more quantifiable levers to cool the Toronto real estate market.
Kenjeev said the mere fact that the three men sat down together to compare notes underscores the severity of the situation.
“When the meeting is requested by the federal finance minister as opposed to the reverse, that’s when you know it’s a real crisis of national importance,” he said.
Soper, however, offers a cautionary note for those who may wish to follow Vancouver’s policy path too closely.
“There is now reason to believe that the market correction underway in Vancouver may be short-lived,” he said. “An unfortunate side effect of heavy-handed regulatory intervention is that we risk market whiplash. In the coming weeks, it is possible that six months of pent-up demand will be unleashed on the market, sending prices sharply upward again; this when the pre-intervention 2016 trend was a natural market slowdown based on eroding affordability,” Soper said.
The most sensible policy measure in recent years in his view has been Ottawa’s efforts to tighten mortgage lending rules, a move more akin to a “tap on the breaks,” he says, as opposed to the sudden impact of a new tax.
“The problem with some of the things, like that egregious foreign buyers’ tax in Vancouver, is they tend to frighten people and it’s a hard brake in the market,” Soper said. “That’s when homeowners lose a lot of house value.”
