For our second Q&A regarding different cooling strategies for the GTA housing market, we caught up with Bob Finnigan, President, Canadian Home Builders Association (CHBA) and COO, Acquisitions & Housing, Herity, to see what he thinks about some of the proposed solutions.
Newinhomes.com (NIH): Is a foreign buyers tax a good idea? Why or why not?
Bob Finnigan (BF): Quite Simply – no. There is no supporting statistical evidence to support the idea that foreign buyers (true offshore investors) make up enough of a significant percentage of the overall housing market to affect the numbers in a large way. While the number of foreign buyers is higher for high-rise condominiums – than ground-oriented housing – enacting legislation without sound factual evidence simply does not make sense. It simply becomes a tax grab – at whatever percentage of sales foreign buyers are.
NIH: How about a capital gains tax hike?
BF: Again – no. We already have a high capital gains tax that dramatically reduces the returns on any non-principal residence. Increasing the percentage of that tax will surely be an additional cost of ownership for any investor, foreign or domestic. Also tax policies like this, that get applied universally tend to do the most damage in areas where the returns are already quite thin. Adding any additional costs in those markets will simply chase investment dollars away, and those markets, and the buildings and homes in them will become less desirable than they are today.
NIH: What do you think a larger required down payment would do to the market?
BF: Down payments vary dramatically across the province, country and by housing type. The deposits we are getting for new homes are substantially more than in the resale market and have NO correlation whatsoever to what the banks or financing companies require from individuals. For example, on a $1 million house purchased from a builder, you may get a 10% deposit, but when it comes to financing – most people are not going to get approved for their mortgage unless they have 20% to 25% as a minimum for a down payment. This also in high-rise.
Also, as we have seen recently, with the tightening of the mortgage rules – and effectively increasing the qualification rate for a mortgage, the end result was that to qualify, you most likely had to have a larger down payment. This hurts the first-time buyers the most, the ones who need help, not another roadblock. And, it’s not affecting the upper end of the market where the concern seems to be.
NIH: Do you have any recommendations for first-time buyers?
BF: Buying that first house has always been a big and in many cases unnerving step. The key is to look carefully at what is available in your market, and clearly understand what you can afford based on your income. If you have to compromise location or house type and size – think about what that means to you in terms of commuting and its costs (both time and money) and what it means to how long that first house will meet your needs as your family grows.
NIH: So, is it time to give up the dream of owning a detached home?
BF: I certainly hope not, but that dream has certainly become harder to achieve because of government intervention.
NIH: How involved should the government (all levels) be when it comes to cooling the market?
BF: Unfortunately, the situation in the market has been caused by government intervention and policies that have unduly restricted the land supply in certain markets, and made land development and homebuilding much more complex and time consuming all across the country. What they should do is let the industry find its own level in terms of supply – within the parameters set in the Growth Plan (for the GTA).
Bottom line – develop policies that allow the industry to access the already designated residential lands in the GGH at a pace that is needed to meet demand. Remember, demand has been fairly constant over the past 20 years – it has only been the marked drop in ground orientated ready to go lands (the type of housing that consumers overwhelmingly want) that has caused the imbalance.
NIH: Is the rapid price growth driven primarily by a supply and demand issue or is there more at play?
BF: Absolutely- plain and simple.
NIH: If it was your call, what would you do to gently cool the market?
BF: If it was my call, I would go back to the government – and their policies and procedures that have caused the supply issues – and try and work with them to expedite the lands that are already designated to be, but have just been too slow to get to the market.
Big thanks goes out to Bob Finnigan for taking the time to share his thoughts and ideas on how the GTA and the industry should work together to gently cool the housing market.