Toronto Mayor John Tory, Federal Finance Minister Bill Morneau and his Ontario counterpart, Charles Sousa, are meeting today to discuss ways of cooling Toronto’s hot housing market.
A Royal LePage housing survey released Tuesday indicated that the average price of a two storey home in the GTA is $894,919, up 22 per cent over last year, while average condo prices are up 11 per cent to $408,908 – putting home ownership out of reach for many Torontonians.
But there isn’t a quick fix to Toronto’s housing woes, says Sunil Johal, policy director at U of T's Mowat Centre, located at the School of Public Policy and Governance. He spoke with U of T News reporter Romi Levine about what the municipal, provincial and federal leaders can accomplish today.
Are any housing solutions set to come out of today’s meeting?
Housing prices are a really vexing challenge for governments. There's no real consensus on what's actually causing price increases. People have different opinions on whether it's inadequate supply, heightened demand or the role of foreign speculation. Without knowing what the actual problem is, it's really tough for governments to design a solution that they'll have confidence will actually work.
What we're seeing now is more of a political conversation. Due to the intense media focus on affordability issues, there's now a need to be seen to be doing something, but there are huge risks to taking the wrong type of action here. It's likely we'll see more tinkering around the margins than any kind of substantive measure. The only exception to that would be something that targets foreign buyers as was done in Vancouver because there's less of a political risk with that type of initiative than if governments were to take action against residents of Ontario or Toronto more specifically.
Who is – or should be – trying to find the causes of Toronto’s rising house prices?
All levels of government – the federal government, province and the city – are studying this issue. But in terms of what the experts that are looking at this say, many of them have vested interests because they're bank economists or otherwise have skin in the game.
I don't think anybody has an exact handle on what's going on, and that makes it a risky area to design policy intervention because you might over-correct or under-correct. And, that's a problem.
The other issue for governments is the real estate market boom sustaining the economy when you have 500,000 Ontarians working in the construction industry and almost 600,000 that work in finance, real estate and the insurance sectors combined. If you were to over-correct or deflate the housing market too suddenly, you have the risk of layoffs in those sectors, and you also have significant risks around current homeowners who are actually happy with the fact that home prices are very high. You don't want to over-correct to the point where people are seeing paper losses on their property.
Is playing it safe the best approach?
I think any action this year should be incremental, rather than come in with a “Big Bang” solution that might actually have unintended consequences.
Is there any way of knowing if we're in a housing bubble before it bursts?
It's always obvious after the fact that there was a bubble. But in the midst of a bubble, psychology takes over, and I think that's where things get risky for individuals who are trying to get into the housing market. The issue is timing it to when prices go down. Those who can do that are those who will make a lot of money. Those who can't are going to be left taking significant losses on properties they purchased.
The provincial government is planning on addressing the housing market in its budget at the end of April – what's the best way for them to take on the issue?
The challenge for the province is designing interventions that don't affect areas outside of Toronto unnecessarily because Toronto is in its own unique situation. Right now, the province can certainly look at province-wide taxes or measures to curb speculation from either residents or non-residents depending on how they design that kind of a tax. That's probably the main measure in the short-term.