Zoning Reform Ideas

[egotrippin]

Yea, I'd agree that investor owned units are more of a negative contributor than positive. By definition "investment" implies it's a moneymaking venture, not an altruistic means of providing housing.

 

[Undead]

what can truly be done to tackle the issue?

It's obvious, but our government won't allow it to be discussed because it benefits businesses.

@wopchop 70% of new build units are investor owned. (source is Hildebrand in the Star a few years back).

But yeah, foreign ownership is a total red herring. As are investors, to be frank. The real issue is Big Gov creating perverse incentives to benefit Big Biz.

 

[MrGoose]

I was just about to say, and I've seen @Northern Light bring it up before too; it sounds like there are quite literally physical limitations to building any faster than we are currently. The problem too, again as has been discussed, is a lot of what's being built is market rate investor boxes that aren't suitable for families.

Short of going with some sort of "authoritarian" or "communist" solution as it would no doubt be called, such as the government mandating all resources be directed towards social/affordable/public housing, what can truly be done to tackle the issue?

Anti-investment measures: Entities owning a home must be an adult, or registered rental corporations or development companies

Rental corporations are subject to rent control on units older than 10 years, must provide data on vacancy rates, vacant units subject to vacancy tax that escalates the longer the unit is empty, escalating fees for home to short term rental conversions etc etc.

Private individuals may own 2 homes tax free per region of the province , 3 homes tax free across whole province, escalating property tax additions for each additional home above that line.

Something along those lines will remove incentive for speculation.

 

[TRONto]

So do you think those investors are helping to make housing affordable? Or what about the thousands of condos that investors hold on to after occupancy, which get rented out. Is that helping too?

People have been buying pre-construction for the last 50+ years. There is nothing magically different now except the cost of housing is enormous (in large part because of investors). In theory it should be easier for a first time buyer, because their deposit structure is stretched over a longer period of time versus lump sum due for a resale.

Yes, let's keep pretending these "investors" are helping make housing affordable. How gracious of them.

I think the focus on investors is a distraction from the source of the problem. There is a strong investment in condos due to the excess demand. Condos are pretty much only built where there is excess demand. Our building booms correspond with majority of condo building. Are preconstruction investors making housing *more* affordable, yes. Are preconstruction investors making housing affordable, no.

If you look to smaller markets you can see this dynamic play out where rentals are not available due to the lack of any new rental buildings and no investor demand for condos.

Most prominently and obvious was the drop in rental demand and prices when COVID hit. Demand hit the floor and rental prices dropped. We have too much demand for our supply. This is going to get worse as preconstruction launches have stopped as financing rates have removed a suitable ROI.

As noted elsewhere, a combination of government action increasing the ROI for rental buildings and more importantly some sort of 'Victory Housing 2.0' by the feds is required to have a chance to make housing affordable. Realistically, I'd say bringing immigration down to 200K/year until housing prices catch up is likely the only solution.

 

[TRONto]

We'll have to disagree here.

Certainly, taking action which would curtail, or eliminate the investor-owned market would change the housing market (I would argue for the better), but it would not stop it.

What you would likely see is more family-friendly units coming forward, but also a shift to more purpose-built rental with a different financing model.

We've been here before. There were close to zero investor-owned units in the 60s and 70s; but tons of purpose-built rental went up!

As I know you are aware, there are important structural differences from the 1960s and 1970s towers vs now. There were much better incentives to build rentals back then.

You right that on the changes to the market if rental investment was banned. There definitely would be more family friendly units. For those of age to buy, waiting 3-4 years from deposit to move in is a very long time and there can be huge changes in life circumstances in the meantime. This is why I don't find it to be the solution either.

Look at our past few years of super high immigration, the people who come here essentially wouldn't have a place to live and can't wait 3 years for a building to go up. Landlords have pretty much existed throughout the history of civilization because housing is an important need.

Again, I feel the investor focus is a distraction. Toronto would be much better off with Vienna style housing; some sort of large government building program is required.

 

[wopchop]

How is it a distraction? You can't tell me that such huge percentages of condos and homes being investor owned is a "distraction". Come on.

It is no more a distraction than any of the other issues. Of course it is not the only issue, and trying to defend it as if critics think it is the only issue is just dishonest. They all play a part in creating the problem.

I agree that some sort of Victory 2.0 is likely the only near term solution.

 

[Northern Light]

As I know you are aware, there are important structural differences from the 1960s and 1970s towers vs now. There were much better incentives to build rentals back then.

The incentives would factor in to how the rentals would be priced, not whether they are built.

Developers will not give up on their industry and go open dental practices.

The industry would shift to rental, or time-share, or post-construction purchase, or some combination of these or a different variation.

Certainly, is possible the market would slow at the margins, but there are clearly no shortage of end users of these units, who are capable of paying to service these units (otherwise investors would all go broke).

Look at our past few years of super high immigration, the people who come here essentially wouldn't have a place to live and can't wait 3 years for a building to go up.

Many people coming into the country don't have a place to live, have you been watching the news? Refugees have been camping on sidewalks and are now on the floors of churches.

Meanwhile, affluent immigrants displace low-income locals by out bidding them for units.

Landlords have pretty much existed throughout the history of civilization because housing is an important need.

No one is arguing against landlords, its the form of tenure that's at issue; and how its used.

Buying pre-construction, then assigning/re-selling artificially spikes prices.

Holding units vacant is not being a landlord either, and results in artificial scarcity to driving up both rents and re-sale prices.

Investors who do become single-unit landlord's are cost in-efficient operators; a single landlord operating an entire, purpose-built rental building produces a better result at better value.

Again, I feel the investor focus is a distraction.

I don't think this is correct. Because investors in the real estate market and developers, have become the market that government serves with artificially and unreasonably large immigration levels; also sustained by tax-loss subsidies through artificially low capital-gains taxes.

The existance of the class of investment, at-scale, is market-distorting and expensive, both in housing and in tax-revenue lost.

Toronto would be much better off with Vienna style housing; some sort of large government building program is required.

On this we can agree. Government built housing is an essential part of the ultimate solution, and I like the Vienna model.

Which, by the way, results in a city where there are very few investor-owned units.

 

[christiesplits]

With so many empty nesters, I'm wondering if there could be tax incentives for seniors to rent out a room or two in their house? Are there models for this elsewhere?

 

[W. K. Lis]

With so many empty nesters, I'm wondering if there could be tax incentives for seniors to rent out a room or two in their house? Are there models for this elsewhere?

I'm sure in the 19th century, there were boarding or rooming houses that offered a bed, breakfast, and sometimes a dinner to boarders. Likely elderly widowers (life expectancy was 55 years back then) as a means to earn money. Little in pensions back then.

 

[TRONto]

How is it a distraction? You can't tell me that such huge percentages of condos and homes being investor owned is a "distraction". Come on.

It is no more a distraction than any of the other issues. Of course it is not the only issue, and trying to defend it as if critics think it is the only issue is just dishonest. They all play a part in creating the problem.

I agree that some sort of Victory 2.0 is likely the only near term solution.

I think I'm not getting my point across. I'm saying it's a structural problem. The system (which incentivizes the investors) needs to be changed.

I know people who bought pre-construction condos pre-2010 and were subsidizing the units back then. A large real estate company needs to cash flow to decide to build. If there was a situation exactly the same as today except buying pre-construction condos was banned, we'd have less units available for rent. If this is true "@wopchop 70% of new build units are investor owned. (source is Hildebrand in the Star a few years back).", that clearly shows without individual investors our current rental situation would be worse.

Why should we be against individuals trying to move up the economic ladder via real estate investment? The opposite end of this in our current setup is for big corporations (the rich) to provide housing which is arguing for higher levels of inequality.

 

[Northern Light]

If there was a situation exactly the same as today except buying pre-construction condos was banned, we'd have less units available for rent. ......that clearly shows without individual investors our current rental situation would be worse.

I do not agree that the conclusion you have drawn logically flows from the evidence you have proffered.

If pre-construction sales were eliminated, the market would shift.

Again, we've done this before.

There were no investor-owned, pre-construction units in the 1950s, 60s or 70s. Yet lots of rental housing, far more of it in fact, was built, and generally built to a higher standard, relative to the times.

Yes, there were other differences (notably CMHC financing) and that too needs reform; but the connection you have drawn between investors in units and financing, I would argue is fundamentally incorrect.

The financing would simply revert to a traditional model.

Why should we be against individuals trying to move up the economic ladder via real estate investment? The opposite end of this in our current setup is for big corporations (the rich) to provide housing which is arguing for higher levels of inequality.

This is not a reasonable argument to my mind.

This reads similarly to "Why don't we abolish the minimum wage as it prevents some small buisiness owners from moving up the economic ladder" A bad idea is not redeemed by the fact that some otherwise worthy people might benefit from it.

Pre-construction sales to investors, result in less purpose-built rental housing, smaller units, less accommodation for families and inferior architecture and finishes. Abolishing them is a clear win.

 

[TRONto]

The incentives would factor in to how the rentals would be priced, not whether they are built.

Developers will not give up on their industry and go open dental practices.

The industry would shift to rental, or time-share, or post-construction purchase, or some combination of these or a different variation.

Or focus on commercial or simply focus on other markets where it makes sense to build. Developers will only move ahead with a project where there is a sufficient ROI. As we know individual investors have been subsidizing rentals for over a decade, big developers need a sufficient ROI to build which directly means less units.

No one is arguing against landlords, its the form of tenure that's at issue; and how its used.

Buying pre-construction, then assigning/re-selling artificially spikes prices.

This is a minority of the sales and a distraction. Why does selling before or after completion matter? Profit will only happen if people are willing to pay.

Holding units vacant is not being a landlord either, and results in artificial scarcity to driving up both rents and re-sale prices.

What motivation does one have to hold a unit vacant? How does one make back the $4000 of two month's lost rent by keeping a unit vacant? How does an individual investor benefit?

Investors who do become single-unit landlord's are cost in-efficient operators; a single landlord operating an entire, purpose-built rental building produces a better result at better value.

I might be misunderstanding but how is this relevant for the tenant? Prices are determined by supply/demand, not investor expenses.

On this we can agree. Government built housing is an essential part of the ultimate solution, and I like the Vienna model.

Which, by the way, results in a city where there are very few investor-owned units.

This is pretty much my point. Our current structure incentivizes real estate investment. I'd rather we had cheap housing and less of our economy was real estate.

 

[Northern Light]

Or focus on commercial or simply focus on other markets where it makes sense to build. Developers will only move ahead with a project where there is a sufficient ROI. As we know individual investors have been subsidizing rentals for over a decade, big developers need a sufficient ROI to build which directly means less units.

I've provided a specific time period showing that the market functioned properly without investors, you have yet to counter that point.

This is a minority of the sales and a distraction. Why does selling before or after completion matter? Profit will only happen if people are willing to pay.

Incorrect, because the developer will make the same profit of an investor, or an end-user owner/renter; but an investor is buying to also make a profit, that's an extra mark-up built in to the pricing scheme.

What motivation does one have to hold a unit vacant? How does one make back the $4000 of two month's lost rent by keeping a unit vacant? How does an individual investor benefit?

Lots of units are being held vacant, and I know this for a fact. I can even name buildings floors.

Some investors, buying strictly for capital appreciation, often with cash, do not see any value in the hassle of renters, and the risk of damage to or depreciation of their unit.

I might be misunderstanding but how is this relevant for the tenant? Prices are determined by supply/demand, not investor expenses.

In a proper market, there is truth to this; however, many owners and renters are under-water and have over-paid for their asset and/or unit.

The improper function of the market is multi-faceted and not related to investors alone.

The government is currently permitting banks to re-set mortgages to 99 years in order to keep the market from collapsing with higher interest rates. That is utterly absurd. The market should crash, it will cause all sorts of pain, but it would also re-set prices at a more appropriate level; and it would also force government to address stagnating wages that are a huge part of the problem as well.

This is pretty much my point. Our current structure incentivizes real estate investment. I'd rather we had cheap housing and less of our economy was real estate.

You can't re-set the market without causing pain. It can't happen soon enough.

We still need to address the demand for housing portion of the equation; and we need to address income stagnation; but de-financializing housing is one key in a broader reset.

 

[just east of the creek]

Taken from the post above: Some investors, buying strictly for capital appreciation, often with cash, do not see any value in the hassle of renters, and the risk of damage to or depreciation of their unit.

I quite agree with this.Add the fact that most have had very discouraging experiences with the mess that is the Rent Review Board at some point and so why risk your operating plan.

The government is currently permitting banks to re-set mortgages to 99 years in order to keep the market from collapsing with higher interest rates. That is utterly absurd. The market should crash, it will cause all sorts of pain, but it would also re-set prices at more appropriate level; and it would also force government to address stagnating wages that a huge part of the problem as well.

The personal & political costs , plus the economics of a ’crash’ surely make a hard landing unpopular amongst policy makers. Is a ‘soft’ landing possible? There are also some diverging views on what effect, if any, we will see over term with an extended mortgage of this type In the economy.

 

[Northern Light]

The personal & political costs , plus the economics of a ’crash’ surely make a hard landing unpopular amongst policy makers. Is a ‘soft’ landing possible? There are also some diverging views on what effect, if any, we will see over term with an extended mortgage of this type In the economy.

I think a soft landing was viable, as recently as 18 months ago.

At this point.....its not impossible, but its highly improbable.

We've (government) has allow this elastic band to stretch so far past not merely wise, but credulity........I fear the pain that is coming will be miserable.

That said, the sooner we get on with it, the more chance we have to keep it relatively short and move on.......