Ontario’s new housing affordability measures: A gamechanger for buyers and builders?

Ontario’s provincial government has rolled out a slew of new measures to tackle the housing crisis over the past week, expanding a HST rebate to all purchases of new homes and slashing development charges in conjunction with the federal government.

But those changes are unlikely to turn around the fortunes of the sagging preconstruction market, according to a Toronto-based mortgage broker who said pricing problems will persist even with the removal of the 13% tax on new homes.

“The problem with pre-con pricing is that even after this new rebate, it’s still priced way higher than resale,” Matthew O’Neil (pictured top) of Connolly Capital told Canadian Mortgage Professional. “If you’re a first-time buyer and you want to buy a condo downtown, why would you buy preconstruction? It makes no sense.

“You’re looking at $1,300, $1,400, $1,500 a square foot – but you can go buy a resale condo for under $1,000 a square foot. Even with the 13% knocked off, it still doesn’t make sense from a pricing standpoint. If you’re an end user, why would you buy pre-con right now?”

The change could be helpful for buyers in a specific circumstance, O’Neil added: if builders are trying to sell off unsold inventory and the deal is going to close in the short term. But for end-user buyers purchasing a condo that’s closing in 2030, he said the price will still be hundreds of dollars higher than what it would cost to buy a resale.

Development charges: Governments bid to slash building costs

The announcement on development charges saw Prime Minister Carney and Premier Ford unveil a cost-match pledge of $8.8 billion over the next decade to reduce those fees by up to 50%, an effort to boost builder confidence and spur faster construction across the province.

Municipalities are also expected to support lower charges, a press release said, to allow all three levels of government to improve supply and affordability.

“Development charges are a major upfront cost that can delay or prevent new housing projects,” the government release said. “Lowering these upfront costs will help accelerate construction and build more homes.”

That marks a new step in Carney’s pledge to increase the pace of homebuilding to half a million units a year, an election promise that resulted in the creation of the Build Canada Homes program.

The end result might make homes more affordable for the buyer – but that’s not a guarantee, according to O’Neil.

“In theory, if the builders are paying less in development charges, they should pass on those savings to the consumer,” he said, “but builders could decide to say, ‘We’re saving on development fees, but we’re not passing those savings off.’ They have every right to do so, but then they’re not going to sell any homes because it’s still too expensive.”

He’s sceptical whether prices in the newbuild space will fall low enough under that new program to make the sector an appealing option compared to the resale market.

“Is it going to drop the price per square foot down to $1,000 for condos specifically in Toronto? I don’t think it will,” he said. “Right now, you can go to King and Spadina and buy a resale condo for $900 per square foot.

“So why would you buy something for $1,350? It’s brand new, which is good, but is brand new worth a 30% price premium? Definitely not.”

Homebuilders’ association gives cautious thumbs up to government moves

The Canadian Home Builders’ Association (CHBA) has welcomed steps by the federal and provincial governments to address the housing supply and affordability issues, and said it was “encouraged” to see feds support construction of market-rate housing for ownership.

But the association says more work is needed to move the needle on housing, “including changes to the mortgage stress test for both insured and uninsured borrowers that would enable more well-qualified buyers to purchase a home.

“These measures can be implemented quickly and at little to no cost, while having an immediate meaningful impact on housing supply and affordability in communities across the country," a CHBA statement said.

CMP

We hope you are finding our Blog informative and enjoyable to read while keeping you up to date with the ever changing real estate market. 

Please feel free to contact me via Direct/Text or e-mail at any time and my team will be pleased to assist you, family members and friends with all your real estate needs. Referrals are always welcome and rewarded!