Housing, income and making Ontario communities livable

Cooling Ontario’s blistering housing market and providing a basic income to everyone in the province – what social-economic impacts will these moves by the Wynne government have on real estate?

Housing image.Let’s start with the housing market.

The Ontario Liberals have announced a 15 per cent foreign buyers tax on anyone who purchases residential property and is not a resident of the province. The idea is to curb the activities of this supposed faceless legion of foreign buyers who are helping to fuel the Golden Horseshoe’s housing bubble.

The press was all over it, but for the most part, they were empty vessels making a lot of noise because they don’t really understand what is fundamentally happening in the housing market.

What we need, and what I haven’t seen, is an analysis of how many foreign buyers are in fact looking to park money and buying housing that is left empty.

On the condo front, there is discussion certain investor/speculators buy up plenty of units in a proposed project and then sell them for higher prices later.  But this begs the question: “Why doesn’t the developer hold on to these units and take the profit themselves?”

Are there pirates at work?

I think the real question needs to revolve around whether there is a form of piracy going on, or are there actually enough consumers behaving in an exuberant manner to drive the market, motivated by cheap credit.

Clearly from time to time piracy by various speculators and financial institutions is at play – just look at the mortgage-backed securities scheme that led to the financial crash of 2008. 

So we have to ask – is the current housing market a repeat of the bubbles we’ve seen throughout history?

Take Holland in the 1600s, when rampant market speculation drove the prices for the most sought-after tulip bulbs to six times the average annual salary until, of course, profit taking and common sense punctured that bubble with a big fat garden stake.

Then there was the crash of the South Sea Company in the 1700s, the Panama Canal Bubble, the stock market crash of 1929, the dot-com bust of 2000. All these were fuelled by speculators after quick profits.

Or . . .

Is this just the outcome of the very broad quantitative easing central banks undertook to salvage the economies from the 2008 crash, and this increase in money supply is now appearing as inflation, narrowly focused on housing prices?

If you don’t have a firm handle on the root cause of the trend, it’s difficult to effectively manage it with the blunt instrument that is government policy.

More effective than minimum wage hikes?

While it remains to be seen if the efforts of the Wynne government on housing will bear the desired fruit, I see clearer and more positive outcomes from what it is doing for low-income individuals.

The CBC published an excellent long-form economic analysis of guaranteed income versus the current welfare system last week.

It quoted, (among others), Matt Zwolinski, founder and director of the University of San Diego’s Center for Ethics, Economics and Public Policy: “If you want to help the poor, then giving them cash is simply a much more direct and effective way of doing that than forcing employers to pay people more than the market value of their labour.”

In other words, guaranteed income is much more effective than imposing minimum wage hikes.

What does this have to do with real estate?

Well, everybody occupies real estate, don’t they? That includes service-based industries like food and hospitality that depend on low-wage employees.

The current welfare system requires people to be actively trying to find work to qualify for their benefits. But once you find work, any income over $200 per month is deducted from your welfare cheque.

Some argue that working is better for the soul than not, but if you are in the same impoverished state by taking a low-income job, what is the motivation to get off the welfare roll? 

This argument is akin to the old expression of having to “sing for your supper.”  I think we can do a lot better and at the same time encourage people to work and profit from it.

A guaranteed income makes it much more appealing, and livable, to work for a minimum or low wage. We need people to work in the service industries. How else can we make it desirable to do so without putting an undue burden on employers by continuing to hike the minimum wage? 

Eventually, the outcome of minimum wage increases is to make certain jobs uneconomical and people with limited skills unemployable.

A hand up for smaller communities

The combination of a guaranteed income with low-paying work income means more people can afford to live and work in pricey urban markets like Toronto (especially with the new rent control policies the Ontario Liberals also plan). This is good for business.

Perhaps of even greater significance, it just might give a new lease on life to the struggling smaller communities I discussed in my last column. Too many communities across Ontario and Canada have lost anchor employers, suffered a mass exodus of young people to the Big City and struggle with growing social problems among the unemployed/underemployed.

But guaranteed income might create more opportunity for jobs that will raise quality of life and even serve to attract and retain residents.

There are, of course, those freeloader types who will always try to take advantage of any government handout to lounge at home all day. But I sincerely believe this is a minority. Most people want to earn their way.

Let’s just hope the Ontario Liberals get it right when it comes to proper management and oversight of this program.

To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.


John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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John Clark is Vice President with The Regional Group of Companies Inc. He has more than 33 years of experience in the real estate appraisal field, is a fully accredited…

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