High housing prices in Toronto are affecting homebuyer’s pockets and effectively preventing them from investing money in building sustainably instead.
The real estate market has skyrocketed, with expensive homes and low availability for people looking to buy. A detached single-family home in the GTA costing between $2 million and $4 million rose 77 per cent compared to 2015. Single detached homes in the GTA between $1 million and $2 million rose 64 per cent compared to the prior year. Homes have become unaffordable and are causing homebuyers to pool all of their available funds into buying a house at an extremely inflated price.
When homebuyers use every penny to invest in their home and begin paying their mortgage, much needed sustainable building practices such as solar panels or geothermal energy are cast by the wayside. Homebuyers often view sustainable practices as expensive and not worthy in the long-term. Though sustainable energy can be expensive initially, the long term investment is actually less expensive. However, many people aren’t even considering green energy investment because of current astronomical costs of housing.
Solutions are being discussed though to remedy the inflated real estate market and assuage the housing issues at hand. The federal government is discussing a speculative tax targeted at foreign investors. Many properties in Toronto and Vancouver — the two Canadian housing markets that have increased — are owned by absentee owners. The Canadian government has made it fairly easy for foreign investors to purchase property without paying taxes as a local citizen and it has helped inflate the market significantly.
One idea that has been presented to help Vancouver’s housing market is the B.C Housing Affordability fund. House owners would be charged a 1.5 per cent property surcharge on residential real estate, which would amount to $15,000 on a $1 million property. If the homeowner paid over $15,000 in income taxes though, they would be exempt from the surcharge.
Another issue that is driving housing prices upwards is a loophole in the real estate board that allows investors to flip properties without being taxed, which drives up the property value at a fast rate without repercussions. In Vancouver, the provincial government has promised to intervene in the real estate board to ensure they are following fair practices, but Toronto has not moved forward with any commitments of their own.
The federal government is also discussing forcibly cooling the housing market by increasing the mandatory down payment for houses under $1 million to 10 per cent. This would dissuade most first-time buyers from purchasing a house and decrease competition in the Toronto and Vancouver markets. At the same time, measures need to be taken to ensure that the rental market doesn’t accidentally drive prices up. There is also a fear that cooling the market would harm Calgary and Montreal’s housing markets, which aren’t doing as well as Toronto and Vancouver.
Preventing first-time buyers from purchasing homes to cool the market has been criticized as an unfair practice, and another option might be more profitable for everyone. Creating affordable housing in key areas would allow first-time buyers to purchase homes and wouldn’t continue to increase current house prices. Calgary launched a program called “Attainable Homes” that allowed buyers to purchase a home for $2000 as long as they could manage the mortgage. These homeowners were required to take financial training to properly understand the market and to pay the organization a certain amount of the property value increase when they sold the house. People are also prevented from flipping their house because if they try to sell too quickly, they would owe “Attainable Homes” a higher percentage of their property value increase.
The housing market has been a popular topic of conversation at the dinner table and the chosen solutions don’t seems to be working. It will be interesting to see how government intervention will cool the market, and if affordable housing becomes a priority. No matter what, cheaper housing prices will allow people to focus on sustainable building practices and invest in the future of green living.