Will a “knee-jerk” taxation solve Toronto’s affordability issue?

In its just-released Global Real Estate Bubble Index, the Swiss bank UBS names Vancouver as the global financial centre with the riskiest housing market; housing prices within its “bubble risk zone” have increased nearly 50% since 2011, notes the release. The report cites strong demand from foreign investors and a “loose” monetary policy as responsible.

“Currently, house prices in Vancouver seem clearly out of step with economic fundamentals,” says the report. London and Stockholm were second and third riskiest, respectively. Except Milan, the report says all the European cities it reviewed are being pushed into bubble territory by low interest rates; bubbles in Geneva and Paris had abated.

The report used prices, of course, but also price-to-income and rents-to-prices ratios in its consideration.

We’re already seeing some decline in prices in Vancouver, with the recent implementation of its 15% tax on foreign ownership. Londoners similarly are facing a chilly fall, according to CNBC, with real estate agency Savills predicting falling or stagnant prices in the UK capital until mid-2019.

Savill predicts a 9% drop this year, with two years of zero growth to follow; it predicts a rebound of 8% in 2019, when investors once again see opportunity in the market.

With Vancouver’s foreign-buyer tax seemingly affecting prices already, the Toronto Real Estate Board (TREB) and Ontario Real Estate Association (OREA) this month issued a letter to the Ontario Finance Minister, which was obtained by the Globe and Mail.

The boards called a similar Toronto tax a “knee-jerk reaction to a problem which we do not fully understand,” asserting it would “do little to address the growing affordability challenges facing many Ontarians and may have negative consequences for our broader economy.”

They suggest relaxing legislation aimed at curbing urban sprawl and reducing or eliminating land transfer taxes as alternatives. During Mayor Ford’s tenure, the tax brought more than $300 million into city coffers each year so let’s assume we’re not going to see the city do away with it anytime soon. Short supply is just about always named as a factor influencing higher prices, and to that end, the letter advocated redesignating urban land for low-rise housing.

Obviously, TREB and OREA have a vested interest in making sure prices don’t fall too far, too fast. This month, TREB went to war for a second time with a website that shares sold data with subscribers. TREB has already been ordered to open its sold data to the public but is appealing the decision. It seems to me that redesignating urban land for low-rise housing could potentially create another layer of elite housing that virtually no one can afford.

In the short term (the next five years or so), owners should be prepared simply to hang on to their land, while those who don’t already own property can take advantage if lower prices ensue. In the long term, we need to get used to the idea that urban centres are simply unsuitable for a vast market of low-rise housing. It’s not unrelated that when we lucky Canadians, with our abundance of land, think about family living, we think about detached homes.

We’re starting to see condo developers cater to families. While it’s been rumoured for the last few years that the city was contemplating amending its official plan to require developers to include a certain percentage (generally about 10) of three-bedroom units in their larger projects, legislation isn’t going to do the job, and availability alone isn’t going to encourage family buyers — only a shift in attitude with do that.

To embrace condo living as a viable option, families need not just more bedrooms, but bigger shared spaces, like dens and family rooms, as well as the necessary infrastructure like schools and daycares.

Some developers, realizing that three-bedroom units often must be sold at lower prices that force the other units in the building to absorb the loss, are building modular units that let buyers combine two- and one-bedroom units into larger, family-friendly suites, but they are few, and the majority of inner-city three-bedrooms are still occupied by roommates.

The truth is we’re just not there yet in our minds, and thoughts always precede actions. Until we’re ready for a high-rise city that embraces residents at all stages of life, perhaps a knee-jerk reaction is what the city needs. What do you think?