After all of his thinking out loud about slowing down the housing market, federal Finance Minister Jim Flaherty took action on Feb. 16, making mostly minor changes with one notable exception affecting condo investors.
Where Flaherty had openly talked about increasing the minimum five-per-cent down-payment or shortening the maximum 35-year mortgage amortization period, he did neither. Where Flaherty had never talked about restricting condo investors, he instituted a new rule requiring 20 per cent down.
I’m delighted the finance minister did not increase the minimum down payment because it’s hard enough to get into the market in the GTA in the first place. He did tweak the rules for mortgage qualification so you have to be able to make the payments based on a five-year rate even if you take a shorter-term or variable mortgage, but that’s prudent and not particularly harmful.
The big surprise was Flaherty’s move to require a minimum down-payment of 20 per cent on investor condos to curb “speculation.” The government’s choice of the word “speculation” was cleverly designed to garner public support because nobody likes speculators, myself included.
The fact of the matter, though, is there is little to no speculation in the GTA condo market because prices are not rising that fast and because the significant transaction costs, which include GST, HST, land transfer tax (times two in Toronto) plus commissions, preclude the quick flipping of condo units.
While we don’t have speculation in the Toronto condo market, we do have significant numbers of small investors who are purchasing units to put on the rental housing market.
It sure would have been nice to know that Flaherty was thinking of moving in this area so we could have explained to him that condo investors play a significant role in helping builders to get to the pre-sale thresholds required for bank financing and CMHC insurance of condo construction loans.
We would also have taken the opportunity to explain to the Finance Minister the important role that condo investors have played in filling the rental housing vacuum created by rent controls and federal tax disincentives. The bottom line is that without investors, our already low rental vacancy rates in the GTA would be even worse.
Stephen Dupuis is president and CEO of the Building Industry and Land Development Association (BILD). He can be reached at firstname.lastname@example.org.