As Canada and other countries try to deal with their respective affordable housing challenges, a Dutch cabinet minister recently attempted to even the playing field and expand home ownership among the less wealthy.
Housing Minister Hugo de Jonge had proposed a law that would have allowed municipalities to force homeowners, whose homes were worth up to €355,000 (about $517,000 Cdn) to put their property on the market only to low and middle-income earners.
That meant local governments could refuse to grant residency permits to wealthy potential buyers and keep them out of the market for homes up to that value
The problem the policy is trying to fix is one that’s particularly acute in Canada, said Jeremy Withers, the outreach coordinator for the University of Toronto’s School of Cities Affordable Housing Challenge Project.
“And that problem is that prospective first-time buyers are finding it increasingly difficult to compete in the bidding wars for housing,” said Withers, who is also a PHD candidate in the department of Geography & Planning at the University of Toronto.
Housing issues in Canada
Over the past decade, Withers said, a fast-growing share of housing has been bid up and acquired by higher income Canadians who already own their homes but are building up portfolios of investment properties.
For example, 45 per cent of Ontario condo apartments and 18 per cent of Ontario houses are not owner occupied, he said, citing Statistics Canada data.
“I think policies that aim at curtailing demand from kind of wealthy, high income bidders would likely help to mitigate the continuing rise in prices and wealth inequality that’s really come to define Canada’s private housing system.”
De Jonge’s proposal, while initially looking like it might have support in parliament, was ultimately defeated, but not before stirring up controversy and opposition for infringing on the property rights of homeowners.
Still, Dutch proponents of the law echoed Withers’ comments, noting that much cheaper houses are now out of reach for people with an average salary.
“Now house seekers in a village are outbid by people from outside who have a lot of money to spend,” Christian Union party member Pieter Grinwis told the Netherlands’ AD newspaper.
Although Canada faces a similar issue, some housing experts here questioned whether such measures are the right approach.
“For the Canadian context, what we need is more fluidity in the market, not more constraints,” said Mathieu Laberge, a government advisor at KPMG and former chief economist at the Canada Mortgage and Housing Corporation.
‘Unforeseen negative consequences’
“When you look in the literature, coercive approaches, they’re well intentioned, but they tend to bring in unforeseen negative consequences,” Laberge said.
“I thought it would set up a whole lot of disincentives. If you own a house in this spectrum and now you see a large portion of your potential buyers are forbidden to buy, why would new home owners enter this market?
Paul Anglin professor of real estate at the University of Guelph, questioned some of the practical aspects of the Dutch proposal, and whether it would just cause housing prices to rise.
“If I were a seller, I would tend to choose a list price above the limit. Doing so would remove the constraint,” he said in an email.
“If the goal of the proposal is to improve the social goal of fairness, should the law also account for the seller’s income?”
Subsidies, building housing, co-ops
Anglin suggested that the responsibility for housing affordability is being dumped on the home owner.
“A solution which is administratively simpler than this proposal would be to use tax money to directly subsidize purchases by people who are deemed worthy,” he said.
Toronto city councillor Brad Bradford, who is also chair of the Planning & Housing Committee, said the solution to the housing affordability crisis isn’t more bureaucracy, or having the government decide who is allowed to buy someone’s house.
“The solution is to build more homes, so people have more options to rent or buy at different price points,” he said in a statement. “The city needs to streamline approvals and eliminate unnecessary rules and guidelines to get more housing built faster.”
Laberge believes there should be more focus on initiatives like co-ops — rental apartments where a collective of tenants are the owners of the building and where some people pay a higher rent to enable more affordable units for those who need them.
“We used to have a bunch of co-ops,” Laberge said. “Co-ops are successful worldwide in terms of providing affordable housing, but somehow Canada departed from co-ops in the early ’80s. That’s something we could revisit.”
Withers said that while he supported the Dutch idea of addressing the issue of demand and inequality, he was unclear how exactly the mechanics of the proposal would work.
Taxation on investors
He suggested that in Canada, a better way to open the housing market to less wealthy prospective buyers would be through taxation on investors.
That could include increasing the capital gains tax on money made when investors sell residences, or requiring an additional land transfer tax for buyers who already own multiple properties, he said.
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As well, Withers suggested that local investors who don’t plan to live in the homes they buy could be made to pay the same taxes that foreign investors face when purchasing units.
“And this would discourage them from outbidding prospective homeowners,” he said.