Ontario’s rent and housing reform: 16 big changes explained

On Thursday, Ontario announced it would widen its rent-control rules and take pages from B.C.’s playbook to bring skyrocketing housing prices down. Here are the highlights

Theglobeandmail.com
April 21, 2017

Non-resident speculation tax

The centrepiece of Ontario’s new housing strategy is a 15-per-cent tax on home purchases by foreign buyers in the Greater Golden Horseshoe, from the Niagara region to Peterborough.

The measure, which resembles Vancouver’s foreign-buyers tax, will apply to most buyers who aren’t citizens or permanent residents, as well as foreign companies. It will take effect as of April 21.

About 8 per cent of home buyers in Greater Toronto are non-residents, according to the province.

The tax was generally well-received by analysts. “The Province is aiming at those effectively parking wealth in the GTA real estate market, and we have been fully in favour of such a move for some time,” wrote Robert Kavcic, senior economist at BMO. He warned the tax could modestly slow sales.

Under the tax, non-residents will need to prove that they have a legitimate reason for buying property in Ontario that goes beyond investing. The tax is not aimed at new Canadians, according to Premier Kathleen Wynne. It will be reimbursed to buyers who become permanent residents within four years of a sale, and won’t apply to international students enrolled full-time for at least two years or someone who has been legally working in Ontario for at least one year. To qualify for a rebate, the property must also be considered someone’s principal residence.

After B.C. introduced a foreign-buyers tax, property sales plunged almost immediately. But another side effect has been a dip in property transfer tax revenue, one of the province’s key sources of income.

Expanding rent control

Among the most controversial moves announced Thursday is a plan to bring all private rental apartments under the province’s rent-control regime, which currently only covers buildings completed before November, 1991. Rent hikes across the board will be held to around inflation, and capped at 2.5 per cent a year, although landlords can still apply for special increases if they do renovations or upgrades. Rents can be raised when a tenant moves out.

Tenant groups welcomed the move, but developers and landlords warned it will quash a recent uptick in the building of much-needed rentals, a segment largely abandoned by the industry over the past three decades in favour of condos.

“If you’re concerned if you can rent them out [at] an economic rent ... they’re not going to get built,” said Brian Johnston, chief operating officer of Mattamy Homes. “It’s going to constrain supply.”

But David Chalmers, vice-president of asset management for Starlight Investments, said his firm has been making its plans with 10-year projections of rental increases at inflation anyway: “Being mandated to do that isn’t going to change our go-forward business.”

New rules for landlords

Landlords and tenants will use a new standard lease agreement. The government is also tightening provisions that allow landlords to kick out tenants when claiming they plan to use an apartment themselves.

A recent Globe analysis of Landlord and Tenant Board data suggested the provision was increasingly being used to evict people. The government now says it will ensure tenants are “adequately compensated” if asked to vacate under this rule.

The changes would also ban landlords with outstanding elevator work orders from obtaining rent increases above the rent-control limit they are normally entitled to in exchange for making renovations or other improvements. The government also pledged to make proceedings before the Landlord and Tenant Board “fairer and easier for renters.”

Development charge rebate

In Toronto, development charges for new apartments can run up to $24,638 a unit. A $125-million, five-year program to rebate a portion of development charges aims to spur the construction of new apartment buildings. The government says it will work with municipalities to target projects where the need is greatest.

While developers welcome the rebate, some question its efficacy. Mr. Chalmers says any rebate helps, but he thinks the funding might be spread too thin. “It doesn’t seem like a ton of money to me over a province the size of Ontario.”

Mr. Johnston found the announcement thin on details, but one stood out to him. “[The rebate is] only meant for rental properties,” he says noting that other projects that could provide new housing would not qualify. “It’s a bit of a red herring.”

Vacant homes tax
The threat of dark condos downtown, or million-dollar-plus homes lying empty in the suburbs, has prompted widespread concern. The province is giving Toronto and certain other municipalities the required taxing power to target vacant homes.

Last year, Vancouver - where 6.5 per cent of the housing stock is vacant, according to a recent study, the city’s highest proportion in 35 years - became Canada’s first city to impose a vacant housing tax.

Creating a housing-supply team and housing-advisory group

While Joe Vaccaro applauded the government’s measures, the head of the Ontario Home Builders’ Association cautioned that it would be a wasted effort unless the province can start building acres of new homes quickly.

Responding to complaints about heavy regulatory burdens and lengthy reviews, the government is creating new teams that will work with municipalities, developers and environmental groups to eliminate obstacles to building.

“Demand has been far outstripping supply and we want to get that new supply to the marketplace.

“If we don’t deal with that half of the equation, the market won’t get better for anyone,” Mr. Vaccaro said.

To keep a finger on the pulse of the housing market, a second new organization made up of economists, academics and developers will give the government quarterly advice about how the housing measures are working and whether more steps are needed.

Working with CRA to tackle tax avoidance and speculation

The government is focusing on buyers who invest in new builds and then sell the properties before the deal closes - this is known as “paper flipping.”

According to Ontario Finance Minister Charles Sousa, it’s an unfair practice in which speculators buy up floors of new condo towers and new housing developments before families can put in bids.

Ontario’s crackdown is focused on people who buy pre-construction homes and sell the contracts on assignment before they’re built. This differs somewhat from what came to be known in B.C. as “shadow flipping,” which involved purchase contracts being used for real-estate speculation existing homes. A a Globe investigation of the practice in B.C. led to legislative changes cracking down on it. Here’s how that practice worked in B.C.

Ontario is going to work with the Canada Revenue Agency to make sure all taxes, especially land transfer taxes, are paid by paper flippers and other speculators.
Federal Finance Minister Bill Morneau said he was ready to work closely with Ontario to catch tax cheats. “We see that there’s an important role for Canada Revenue Agency to assure that people that are engaging in behaviour that’s business behaviour, that might be speculative but is business behaviour, are paying their appropriate share of tax.”

In Vancouver, foreign speculators are already finding loopholes around the new tax. There are reports of foreign buyers creating Canadian corporations with local directors while hiding the foreign shareholder, as well as using local proxies.

Review of real estate rules

Much has changed in the 15 years since Ontario’s act regulating real estate agents and brokers was written. House prices have skyrocketed and deals are closed much more quickly because of online advertising and transactions.

The Ontario Real Estate Association wants the provincial government to revisit the act and the housing strategy commits to doing that. Part of the review will focus on real estate agents themselves.

“The educational standards right now are too low. It may have worked in 2002 but in 2017 it’s a different marketplace, prices are higher, consumers are demanding more, we need an act that will meet those expectations,” said Tim Hudak, OREA’s CEO.

Tax fairness for new apartment buildings

Tenant groups and landlords agree on few things, but one of them is that apartment buildings are taxed unfairly.

In Toronto, they pay a property tax rate around 2.7 times what a taxpayer with a comparable single-family home pays. Landlords pass those costs onto tenants.

Toronto’s tax ratio has come down slowly, but is not scheduled to achieve balance for several years. In some other municipalities, multi-residential buildings are taxed even more steeply. This year, the province froze tax rates on apartment buildings, mandating a zero-per-cent increase.

On Thursday, it said it would ensure that property taxes for new multi-residential apartment buildings are charged at a “similar rate” as other residential properties to encourage builders to construct more rental housing.

The province also says it will provide municipalities with more flexibility to use “property tax tools to help unlock development opportunities,” suggesting that municipalities could be allowed to impose higher taxes on vacant land that has been approved for new housing. This would discourage developers from holding on to land that’s ready for housing.

Education for consumers

The province is committing to informing consumers about their rights, particularly on the issue of a real estate agent representing more than one party in a transaction. Mark Weisleder a senior lawyer at Real Estate Lawyers.ca LLP, says the practice is legitimate if disclosed, but raises suspicion. He says he is unsure of the government’s plans.

“There has to be either a little bit more either education or disclosure for consumers before they choose,” he says. “Or the government just saying ‘we’re not going to allow it.’”

Provincial land for affordable housing

Sitting to the east of Toronto’s downtown core is a chunk of empty provincially owned land in the West Don Lands, near the Don River.

Mayor John Tory has been demanding Queen’s Park make the land, and other surplus government real estate like it, available for affordable housing.

The plot got an explicit mention as part of new program to “leverage” surplus provincial land to develop “a mixed of market housing and new, permanent sustainable and affordable housing supply.” Just how much land would be available, and how quickly and on what terms, wasn’t yet known.

Encourage diverse development

Jillian Dudar is a mother of two who discovered how difficult it was for a family to navigate the Toronto condo market. She says the market is saturated with families like hers, who aren’t able to buy and are forced to rent indefinitely.

“The three-bedroom condo market is almost non-existent.”

The measure would require municipalities to consider the appropriate range of unit sizes in higher-density residential buildings to accommodate a diverse range of household sizes and incomes.