Ontario’s Housing Revamp Bill 108

The Ford PC government has unveiled a major piece of omnibus legislation designed to promote the construction of new housing and to reform planning in Ontario.

The bill is being passed swiftly by the government, as is the case with most legislation the PCs have introduced. The bill has received a fair bit of media attention and both praise and criticism. One of the key elements of the bill is that it eliminates the two stage appeal process of broad planning reform legislation brought in by the previous Liberal government – returning to a single hearing system. Marking a return with the bill is some of the old powers of the Ontario Municipal Board; namely the return to a single hearing. 

108 also reforms the section 37 system. Section 37 received a considerable amount of attention under former Toronto Mayor Rob Ford. The system allows municipalities to arrange special contributions and payments from developers in exchange for variances and changes to zoning and planning rules. The late Mayor Ford believed the system allowed City Councillors to amass pork barrel spending accounts to spend on parks and other amenities while accommodating powerful and wealthy developers and saw it as a corrupt and inefficient system. Most Section 37 money is accrued in the development heavy downtown core and benefits largely left-wing Councillors and politicians. 108 replaces certain provisions of Section 37 with a new community benefits charge and allows the province to exempt certain types of development from the charge. This reform will intensify provincial activity and interest in municipal and local development matters.

Bill 108 also cuts down on timelines for municipal processing of applications from 180 days to 120 days. It also limits witness activity in an appeal and restricts third party appeals to sub division planning and proposals. All of these changes will speed up development, benefit developers, and restrict the capacity of individuals to challenge construction. These are but a few of the changes Bill 108 makes to the system. The province has also expressed its desire to work with a wide variety of stakeholders and partners to get more housing to market. 

On an Interest Rate Cut

For almost a year, Tembo has repeated a consistent and simple message. Our view was that the Canadian economy relies massively on low interest rates. Higher rates would cripple our nation’s real estate sector, its financial industry, and would raise borrowing costs on strained small and medium sized businesses. Higher rates would also force government across the country at all levels to cut spending and rein in their large deficits. But we also acknowledged that too much easy money for too long a time would weaken the economy, overload it with debt, and incentivize speculative economic activity.

We foresaw that rates would rise rapidly given recent trends as central banks wanted a healthy interest rate cushion in case of a recession. They did. 

And then, just as Tembo predicted, the BOC backed off. Weakening post-Christmas spending activity and a stagnant real estate rebound in early Spring unleashed a torrent of sub-par economic data. That, coupled with a topsy-turvy global macroeconomic and political situation, spooked not just the BOC, but Central Banks around the world. In the U.S., Trump and his Chief Economic Advisor Larry Kudlow berated the Fed for its higher interest rates and its wind down of monetary stimulus. Their sharp criticism forced Fed Chair Jerome Powell to participate in a rare interview where he ex
pressed the view that he could not be fired.

Now, media reports and rumours are spreading outlining the growing possibility of the Fed cutting interest rates by half a percent and intensifying asset purchasing and macroeconomic stimulus. If such a move would occur, the BOC would effectively be boxed in to cut rates here at home as well. A rate cut in Washington would likely raise the value of the Canadian dollar to the benefit of Canadian consumers. But, the growing rumours, if materialized, would mark a potent change of course and policy. How quickly times change. 

On the Return of Low(er) Interest Rates

It’s back to the future time in Canada. The steadily higher interest rate trajectory that was to be the new normal now appears to be officially dead and buried. With the U.S. Fed signalling an end to higher interest rates and trumpeting its newfound zeal and preparedness to accommodate markets, the BOC had no choice but to emulate.

The BOC’s head body, the Governing Council, made the point that an “accommodative policy interest rate continues to be warranted.” The BOC made its point about the need to keep rates stimulative at the same time as it cut its GDP growth forecast for the national economy to 1.2% from 1.7%. Canadian bond yields and the dollar both fell in response to the news. The clarity of the BOC’s words are striking and diametrically opposite from its firm and disciplined messaging when it repeatedly made the point that it needed to raise rates not long ago. It also suggests that there is an anxiety with monetary policy heads and a perception that the economy increasingly requires propping up. 

 

In Tembo’s opinion, the BOC’s announcement is extremely important for all Canadians and particularly for mortgage holders and prospective home buyers. This announcement from the BOC is strong positioning for stimulus, lower rates, and potential buying of stocks or securities to boost prices, reinforce demand, and service the financial sector. 

 

The implication of this announcement outlines the incoming reality of lower rates, cheaper mortgages, and the BOC reinflating the housing bubble back to more dynamic levels. Canadians should prepare for tighter finances to be safe but should also expect money to become cheaper in the months to come. 

Big Housing Projects and the Benefits of Rapid Transit

In the last four decades, major infrastructure projects in Toronto and the GTA have been few and far between. We have fallen behind. The last two major subway lines that were built benefited low density inner suburbs in North York and Vaughan.While these areas are undergoing building booms and seeing density rise, the lack of a completed downtown relief line is overwhelming Toronto’s subway system. Nonetheless, the Eglinton Crosstown is a project nearing completion that is looked upon more favourably by transit and infrastructure experts. 

 

The Crosstown will provide top notch transit service to the city’s dense and heavily populated midtown area. One major benefit of this massive project is the development and rejuvenation of housing where it is needed most. One such project has received favourable attention; the Crosstown planned community by Aspen Ridge on the corner of Eglinton and Don Mills Rd., just north of the Ontario Science Centre. Right on the Crosstown subway line, this housing project will feature almost a dozen high-rises, townhomes, and low rise buildings. It will also feature considerable green space, restaurants, and rec facilities. This kind of broad, dense, and all-in-one is made possible by the construction of major public transit projects.

 

With recent transit announcements showcasing the desire to pour tens of billions of added dollars into public transit lines in Toronto, projects like the Crosstown community will become more frequent. The 60 acres of the Crosstown community previously consisted of low rise office and warehouse buildings, largely owned by the international tech company Celestica. 

The First Conservative Ontario Budget in 15 years

This week, the new Ford PC government released its first budget. The document outlines a new vision for the province and sets of the government’s fiscal strategy for the next few years. Contrary to the views of many, the budget did not implement massive cuts. Healthcare and education spending will be increasingly modestly, spending for most other areas will either rise extremely modestly and will be effectively frozen over the next few years. When adjusted for inflation, most departments and Ministries will see their budgets cut.

 

The province’s headline announcement is transit related. Premier Ford wants to see a number of new public transit lines built, including a 3-stop Scarborough subway, a subway to Richmond Hill, a downtown relief line from the Science Centre to Queen St .East westward to Ontario Place, a transit line along Sheppard Ave. East, and a subway across central Etobicoke. The province is setting aside over $11 billion to the construction of these lines and expects the federal government and the regional municipalities involved to foot the rest of the project $28 billion cost of these projects. If completed, these lines will have enormous implications for densification, land values, traffic, and economic growth. But massive public transit plans have been announced by provincial governments of all political stripes repeatedly over the last 40 years, and few projects have actually been completed.

There were few mentions of housing, housing affordability, or real estate; these announcements are likely to come later given recent reviews of the industry. There will be a new child tax credit for parents which is quite substantive. Overall, the budget is transit focused and seeks to maintain spending at levels where they are presently.

Bully Bids and Bans

Ontario’s powerful realtors and their respective lobbying vehicle, the Ontario Real Estate Association (OREA) have asked Doug Ford’s provincial government to outlaw the practice of ‘bully offers.’

A bully bid is an offer submitted by a prospective buyer ahead of a seller’s established offer time. These bids are largely designed to aggressively pre-empt purchasing activity from other potential buyers and to place pressure on the seller to accept. This aggressive bid is submitted before the designated offer day. Sellers accept the bully bid if they believe that it will exceed what they will get conventionally. 

The practice can occasionally result in one buyer out-muscling potential counterparts and entices a seller to close a deal quickly without reviewing and considering other potential bids. The move is seen as unfair and limiting to realtors, who have little room to bid up prices if only one bid is submitted and ultimately accepted. Realtors also feel banning bully bids would enhance fairness in the market and allow all prospective buyers, or at the very least a greater number of them than present, will be allowed to participate in bids. OREA submitted 28 recommendations on reforms to their profession to the government which is currently reviewing the Real Estate and Business Brokers Act; the landmark legislation governing real estate professionals.

OREA is headed by Tim Hudak, the former Leader of the now governing PC Party of Ontario. The organization is heavily staffed with politically minded employees and is close with the present administration and enjoyed reasonable ties with the former Liberal Government. Several PC lawmakers and government staffers are former realtors and the government is keen to develop and maintain strong ties with realtors, developers, and the construction industry. These groups have heavily bankrolled the PC Party in the past. 

 

The Fed Rate Freeze

It’s over folks, the Federal Reserve has given up on raising rates to historical levels. The announcement was preceded by rumours and media opinions suggesting the old hike schedule was dead and buried. The Fed’s new schedule outlines no further increases in interest rates for the year of 2019. The next expected rate hike will occur sometime in 2020, if not in 2021. The extent of the Fed’s ‘retreat’ surprised many, given the central bank’s previous dedication to rebuilding its rate cushion to historical norms. The implication of this change will be massive. 

 

The Fed’s decision will pressure the Bank of Canada to maintain a similar trajectory of rate pauses. This will be a boon to the present Canadian status-quo of high debt, ease of credit access, and real estate orthodoxy. There will be positives and negatives to this monetary policy shift. Several factors have pushed the Fed into this corner. For one, economic statistics in the U.S. are worrying policymakers. Home foreclosures are rising and real estate demand is slowing, GDP growth is beginning to falter, and fiscal and trade deficits are on the up. Employment gains have also slowed, in February, the U.S. generated only 20,000 jobs – less than Ontario alone.

 

Political pressure from the White House is also having an impact. Freed from the strains of the ‘Russian collusion’ narrative, Trump is free to enhance his harping on economic and trade issues. This was seen several days ago when he urged OPEC to increase oil production to buttress see-sawing U.S. stock markets. He has repeatedly criticized the Fed publicly and abrasively in a way that no President has since LBJ in the mid 1960s. These attacks and pressures on the Fed prompted a rare 60 Minutes interview where Fed Chair Jerome Powell outlined his views that he cannot be legally fired and that the Fed is concerned over the state of the U.S. economy.

 

The sudden dovishness of the Fed suggests that the underlying state of the U.S. economy is not as healthy as President Trump believes. If the economy is better now ‘then ever before’, than why is the Fed incapable of raising rates to historical averages of 3-5%? The BOC is unlikely to raise rates while they are being frozen in Washington, as this would soften up the Canadian economy and strengthen the dollar at the expense of Canadian manufacturers and exporters. Tembo’s prediction of an end to rate hikes from a slowing economy have come true.

This Year’s Federal Budget

Budget 2019 is the final Liberal budget before this year’s election. It outlined billions of dollars in new spending to please key Constituencies across the country. The Federal government has seen its revenues rise by over $10 billion from a strong and growing economy and wasted no time in maintaining its deficit figures and boosting outlays.

The budget does, however, deliver major initiatives designed to address housing anxieties, this blog post will discuss those measures.

 

First time home-buyer incentive program

The Feds have announced a $1.25 billion first time home buyer incentive program. Households with less than $120,000 in income will be able to receive up to 10% of a home’s down payment interest free from the CMHC (Canada Mortgage and Housing Corporation). This amount of money is expected to be repaid on the eventual sale of the home. For a $400K condo, this equates to $40K in government money for a down payment. In other words, the government will provide you with tens of thousands of dollars which will be taken away from the overall equity of the home. This will also lower monthly mortgage payments by roughly $200 a month.

 

RRSP usage

The budget also boost the amount of money a first-time buyer can withdraw from his or her RRSP for a home purchase. Individuals can withdraw up to $35,000, and a couple can withdraw $70,000 for their home purchase. This was the first time this amount was amended in over 10 years. The Feds are aiming to get both the RRSP increase and incentive program initiated and out the door by September.

 

New housing builds

The Feds also announced the construction of over 40,000 new housing units in low-supply areas to be built over the next decade. These units will be rental. This announcement builds on past promises to build more housing and honours the government’s election promise of adding housing stock.

 

On Real Estate Predictions for Spring 2019

It’s hard to predict real estate trends and long term changes. Experts, economists, and real estate watchers will all have their views. Southern Ontario and GTA residents are generally positive about the long term fundamentals.

 

They believe that immigration, a stable economy, and a sound financial system will all facilitate long term growth and general real estate stability. This positivity comes from the fact that since the early 1990s, the real estate market has been on a positive upswing. Only two brief periods saw prices and demand ease, in the early 2000s with the popping of the dot-com bubble, and in 08-09, with the Great Recession.

 

Overall, given the data we now have and the trends we’re aware of, there is little that suggests there will be drastic changes to the real estate market. Expectations suggest that the price growth we saw in the last few years are unlikely to return. Interest rates will remain stable. While the BOC will want to raise rates when necessary, there is the dual pressure of not overwhelming consumers with higher borrowing costs and managing economic expectations.

 

Demand will continue to be strong. Experts are predicting stable or increased demand for luxurious apartment and detached home units as international money shifts out of Australia, the UK, and New Zealand in favour of Canada and the U.S. Condo prices and demand are likely going to trend higher, as detached home prices are still too high for first time buyers. As for prices and sales, both are expected to trend upwards in the Spring. A 30 year fixed rate mortgage is trending at 4.375%.

 

 

Mixed Real Estate Conditions and a Potential BOC Rate Cut

 

The Greater Vancouver Real Estate Board released rough real estate stats earlier this week. Reports showed that year-over-year Feb. residential home sales fell over 30%. This represents the worst Feb. sales total since 1985, over 40% below the last decade’s average.

Detached homes lasted roughly 55 days on the market before sale, while townhouses averaged 39 days and apartments and condos at 40. Prices also fell by over 6% year-over-year, while at the same time, inventories are piling up. Total listings rose by over 48% year-over-year to almost 11,600.

In Toronto, prices rose by 1.6% while listings fell 6.2%, sales fell by 2.4%. Canada’s banks are also feeling the heat of an inconsistent real estate market. Credit losses rose by double digits at the big 5. The same credit losses were seen in the Australian banking and real estate markets as well and in other countries dependent on real estate.

Economic stats have dipped into such negative territory so quickly that news is spreading of the possibility that the BOC may cut rates soon. Tembo has consistently made the point that the BOC will stick to an aggressive and consistent rate hike trajectory until economic conditions change. While most experts believe that rates will stay put, the potential for a cut will grow if economic conditions continue to worsen. As we previously reported, the economic recently contracted by a very narrow margin.

On an additional note, the City of Toronto will convene on Thursday, March 7th to pass its 2019 budget. The budget outlines a massive drop in land transfer tax revenues because of stalling real estate conditions. The City has become addicted to the previously perpetually rising land transfer tax which financed large increases in city spending. That era has come to a close.