By ARNOLD A. AUGUSTE, Publisher/Senior Editor
In its recently tabled budget, the federal Liberal government committed some $8 billion towards new housing in its attempt to “restore fairness” to the housing market. That is a lot better than its earlier inclination which was to blame others for the crisis in housing, one of its early targets being foreign investors who remain banned from purchasing Canadian real estate.
While foreigners have found our real estate to be a good investment, it is a stretch to imagine that they could have played a major role in the dramatic increase in the cost of housing in this country or the lack of affordable housing over the past few years.
Fingers were also pointed at real estate developers who were blamed for not doing enough. But they are in the business to make money by providing housing, not to provide housing as some altruistic endeavour. Let’s be real.
The role of government is to provide for its people and that includes providing access to affordable housing. The fact that we are having a crisis in housing is evident that our governments, on all levels, have failed us. And their efforts at distraction are just that, to point us away from their failures.
This new federal money is expected to provide 250,000 homes – just a fraction of the 1.3 million homes projected to be built by 2031. Is that going to make a serious impact with our growing population and the addition of some half million immigrants expected in each of the next few years?
The government’s efforts to reduce inflation, much of it caused by the meteoric rise in the cost of real estate, served also either by design or happenstance to reduce the demand for housing by significantly increasing the cost of borrowing through higher interest rates.
With money more expensive, a lot of would-be purchasers retreated from the market but that didn’t seriously affect home prices which are still out of reach for many. What it did was make home ownership much more expensive especially for those who already owned their homes and had mortgages coming up for renewal.
Those looking for a new mortgage or to renew were faced not only with a higher rate but also had to meet the requirements of a stress test. Which means that even if they could afford the current increased mortgage rate, they would need to be approved for a rate that was two or three points higher just to make sure that if their rate goes up they could afford it.
Homeowners failing to meet the stress test were denied and either had to sell their homes, in many cases at a loss, turn the keys over to the banks or go to a predatory lender who charged much higher interest rates, some as high as 15 per cent.
The government’s messing with this hurt a lot of people. The only beneficiaries of these policies seem to have been the big banks and other mortgage providers who have been making out like bandits.
Most people who couldn’t buy before still can’t buy and for those who could buy, home ownership just got a lot more expensive thanks to the government’s intervention.
According to a recent article in the Toronto Star, the Crown agency responsible for housing stated that a total of 3.5 million homes will be needed by 2030 to “restore affordability” to 2004 levels.
Two thousand and four levels? Is that being realistic?
Every few years, the provincial government reassesses the value of all properties for tax purposes. Whether or not one has added value to their property through upgrades chances are that the government’s reassessment would always show an increase in value. That’s why when the local politicians boast that they are not raising property taxes, one still can end up paying more as the rate, although unchanged, is based on the new assessment.
Back in 2000 a small three-bedroom detached house could have been purchased for less than $200,000. That house would now be assessed at closer to $600,000 with market forces increasing the price closer to $900,000. If the government had left the assessed value as it was, it is doubtful that market forces alone would have had such a dramatic impact on prices.
But that is not practical. The government has to raise money to provide the services we need. And a significant portion of that is through property taxes. I get that. Roads need to be repaired; water and sewerage systems need to be upgraded and maintained; snow need to be cleared; transit and other systems need to be funded. And the cost of labour increases every year.
Periodically increasing the assessed value of each property provides a huge injection of needed capital to help maintain our infrastructure. But that results in an overall increase in the basic cost of housing.
In their scramble to address the lack of affordable housing, either through ignorance or an effort at deception, politicians especially at the municipal level and advocates for the unhoused and underhoused, tend to focus attention (and ire) in the wrong direction.
The recently instituted Vacant Home Tax is a case in point.
Launched in Vancouver some years ago at one per cent of the assessed value of a residential property, it is now at five per cent. Toronto followed two years ago also at one per cent but increased to three per cent this year.
So, a property that was declared vacant for at least six months of the year and assessed at $400,000 was fined $4,000. This year, that fine will be increased to $12,000 with politicians and officials gleefully boasting about how much more money the city will rake in.
There was an assumption that some people purchased real estate as an investment and were just holding them until the price increased so that they could sell them and make a huge profit. While that might be true in a few cases, especially for people with deep pockets, it doesn’t make sense for the average small investor who would rent out the property and have the rent cover their expenses rather than eat the expenses themselves.
What is more likely is that some people purchased a second property when prices were much more affordable either as a vacation home (instead of a cottage, for example), a pied-à-terre or for their retirement when they are no longer able to care for a larger property. That would make sense for those who are thinking and planning ahead.
However, with the housing market being what it is now, some have been questioning the fairness of one person having two properties when others have none.
Actually, one fellow said as much in a social media response on the subject.
“Why should someone have two houses when I don’t have one?” he said.
The right response should have been: “Why don’t you have one?”
But he was just reflecting the government’s position: If you have two residences you either rent one out or sell it. That’s harsh!
Everyone who needs it should have a right to affordable housing. The question is: who should be responsible for providing it? And the answer has to be the government. At all levels. But that would take courage. Instead of scapegoating individuals by turning us against each other, the goal of the municipalities should be to house everyone through fair tax increases across the board supplemented by willing support from the higher levels of government.
If we are O.K. with the government ordering people to rent or sell their properties, what happens when someone in government decides that a large house is too much house for a couple and orders them to rent out part of it?
What happens when a widow is forced to move into a smaller home or into retirement living so that a large family could take ownership of her larger home?
Where would it end?
Real estate has always been presented as a great investment, mostly by those trying to sell real estate and others who made money on such sales. But they were not wrong.
Most people who were not born into money have few opportunities to lift themselves out of poverty. Owning real estate is one of the few available options.
To get into the stock market, for example, one has to have money to invest. To purchase real estate, one only has to come up with a portion of the cost with the bank providing the rest through mortgage(s).
Of course, there are challenges. This is not for the weak of heart. But those who are willing to make the sacrifice and take on the challenge could find themselves richly rewarded later on in life and be better able to provide for their loved ones.
There are those who make a conscious decision to rent finding it less challenging without all the headaches of ownership such as mortgages, taxes, maintenance etc. To each his own. The downside of that is that they would have missed out on one fairly secure way of acquiring wealth.
But then you don’t blame and penalize those who made different choices. And people in positions of authority shouldn’t use this to turn us against each other to mask their failures or for political gain.
Over the years, a lot of money has been spent by the various levels of government (and individual politicians) on vanity or other pet projects while the basic need for affordable housing was ignored. So, we end up with a problem.
Hopefully, the newly rediscovered passion for housing will result in easing the crisis. But, be warned, it will take time.
