We are in the middle of a housing affordability crisis. If price growth continues to outpace income growth, younger generations will have an extremely difficult time buying a home.
Real estate professional, R. Scott Davie, recently wrote an ebook called “The GTA Affordable Home Ownership Crisis,” which addresses reasons for the high prices and offers some solutions.
We read through his new ebook and had the opportunity to ask him a few questions! See below for our Q&A.
Newinhomes (NIH): Is it fair to say renting over the mid and long term "is not financially smart" when there must be people who choose to rent and are happy doing so and are financially sound?
R. Scott Davie (RSD): There are many great reasons to rent in the short term or while saving a down payment to buy in the midterm, however, in the book I explain that after any ten to fifteen year period in recent history, it has been more expensive on a monthly basis to rent than own, and generally speaking an owner of a property would have built a significant amount of personal wealth during that ten to fifteen year period while a tenant would accumulate nothing from their rental payments. If a tenant is paying more for their home monthly than an owner, that tenant would have less available income to invest in other things.
NIH: You mention that the next Ontario Budget should eliminate Section 37 charges, HST on new real estate purchases, carbon taxes, and the City of Toronto Land Transfer Tax - if this happened, do you think public services and infrastructure development would be affected?
RSD: Ontario’s debt of $311.7 billion is larger than the GDP of 75% of the world’s countries. Our politicians have had a serious spending problem for some time. We, the public, must wake up and realize that our politicians need to dramatically reduce government spending through finding efficiencies. By reducing spending by finding efficiencies, necessary public services and infrastructure development would not be affected.
NIH: You make a great point about how the OSFI stress test decreases competition between banks because homeowners switching banks are subject to the stress test and those who don't switch at the time of renewal are not. This decreases options for homeowners and isn't fair. What is the solution in this case - make all renewals subject to the stress test or make all renewals exempt from the stress test?
RSD: There was no catalyst to implement the stress test. According to the OSFI website in January of 2018 when the stress test was implemented, interest rates were just as likely to go down as they were to go up. Interest rates went down. Mortgage defaults were at a rate of 1/3 of 1% so there was no catalyst due to foreclosures either. The solution is simply to eliminate the stress test entirely.
NIH: Why do you think "back-to-back singles" and "convertibles" aren't being built in the Greater Toronto Area?
RSD: The number one consideration for real estate buyers today is price point, within their target location. Developers need to market new "value based designs" in order to offer a more saleable price point to consumers. There are challenges with municipalities when bringing in newer, more dense property types and there is financial risk in undertaking an appropriate marketing campaign and introducing new, untested products. It takes insight and courage.
NIH: You make another good point about investors with multiple properties potentially having an easier time owning a four- or six-plex so they can still have multiple units and only have to manage one property and qualify for one mortgage. Where do you think freehold four- and six-plexes would be most successful in the GTA?
RSD: Four-plexes and six-plexes that look like large single detached homes could generally be built anywhere that new single detached homes were being built. Downtown infill locations and suburban locations both work. Proximity to public transportation and local amenities would be an asset.
We extend a big thank you to R. Scott Davie for taking the time to answer our questions about his ebook. To read the entire ebook yourself, download it here!