Prime Minister Justin Trudeau unveiled the Liberal party's aggressive three-part housing plan Tuesday, which includes building more homes, helping renters become homeowners through $1 billion in loans and grants, but also involves a temporary ban on new foreign buyers, and banning blind bidding -- a campaign promise that's part of a larger new Homebuyers' Bill of Rights.
If re-elected, the Liberals say they will "build, preserve, or repair" 1.4 million affordable homes in four years, in addition to a Housing Accelerator Fund, which would make $4 billion available for large cities to speed up their housing plans, in hopes of building 100,000 new middle-class homes by 2024-25.
The Liberals also plan to introduce a rent-to-own program, double the Home Buyers Tax Credit and create a tax-free First Home Savings Account that would allow Canadians under 40 to save up to $40,000 toward their first home and withdraw it tax-free to put toward their purchase, with no requirement to repay it.
However, easily one of the biggest, and to some, most controversial policies announced, includes creating a new Home Buyers’ Bill of Rights -- a policy the party says will make the process of buying a home "fairer, more open, and transparent."
As part of the Buyers’ Bill of Rights, blind bidding -- a long-established practice governed by clear rules that occurs when multiple buyers trying to purchase the same property aren’t aware of what others are offering -- would be banned.
Here’s how it works: Each party submits their best offer with no information other than the number of competing bidders. The only tricky part can come when bidders can “improve” their bids with no additional insight. Not surprisingly, that data vacuum can lead to buyers’ concern that they may be bidding against themselves.
While blind bidding is often criticized because of its secrecy and is often blamed, in part, for skyrocketing house prices that are making economists and policymakers nervous, it's been the norm in real estate markets across Canada for decades.
As explained by real estate journalist Kerry Gold, "it operates on the premise that a home is worth whatever the market is willing to pay for it, no matter how crazy the price may be. But it also gives the seller a distinct advantage over the buyer. When a home goes on the market, and the offers come in, the buyers are almost always in the dark about the other offers. The seller’s agent may hint in realtor-speak that buyers face competition on the property, but they’re not allowed to say any actual numbers."
And while the aforementioned policies may sound great in theory to some, and the Liberals might think putting a stop to the process might help curb escalating prices, Toronto-area real estate broker and President of Toronto brokerage Realosophy Realty, John Psalis, says "they will have little to no impact on housing affordability."
Issues around the growing lack of supply and housing affordability are and will continue to be one of the most critical issues Canadian homebuyers face, as they make owning property seem like a distant dream for many Canadians -- especially young people.
Throughout the course of the pandemic, a surge in demand fuelled by residents looking for homes with more space amid a dwindling pool of inventory and the lowest interest rates in decades drove housing prices to unthinkable heights. However, for the fourth-straight month in a row, national home sales moderated in July -- falling 3.5% from June to a still-strong 584,200 units -- after reaching volatile levels earlier this year.
While headlines tend to focus on the moderation of sales right now, the record low inventory levels should be the focus, as the number of newly listed homes last month dropped by 8.8% compared with June. With new inventory down, prices continued to rise, and the actual national average sale price reached $662,000 in July, up 15.6% year-over-year.
Following Trudeau's announcement, many real estate industry members said while they were pleased to see housing affordability as a forefront election issue, they are displeased that the Liberals are trying to put an end to blind bidding.
Toronto-based realtor James Strathy Warren told STOREYS he believes the Liberal government should keep their hands out of the real estate bidding process and continue with the current “free market economy.”
"There is a huge spin-off in construction and other sectors from real estate, which creates employment for all. No more state intervention," said Warren.
David Oikle, President of the Ontario Real Estate Association (OREA), went as far as to say one aspect of the Liberal's housing plan would "criminalize the ability for hardworking Canadians to choose how to sell their homes, by regulating real estate practices through the criminal code."
"You cannot fix Canada’s housing crisis by denying millions of hardworking families the choice of how to sell their home and by pitting homeowners against buyers. In fact, this plan would have the opposite effect -- negatively impacting Canada’s housing market and making homeownership even more unaffordable," said Oikle.
Oikle said that people are "rightly concerned" about rising home prices and the shortage of new listings and new homes, especially in Ontario. However, the current bidding war landscape across Canada’s housing market is emblematic of a much larger issue.
The reality is, there is simply not enough supply to keep up with the frenetic demand, leading to multiple offer situations and higher home prices.
"That is why it is so concerning that the Liberal Party of Canada believes that buying and selling homes -- already one of the most stressful experiences in life -- should be done entirely through auctions. If a senior or a family used the traditional offer process, they would be a criminal under the Liberal plan," said Oikle.
Open auctions are the norm in Australia and New Zealand, where an agent stands outside the house with a crowd of buyers and holds an auction. But rather than making homes more affordable, they can also drive prices higher and push buyers to make rushed purchase decisions involving tens of thousands of dollars in a matter of minutes.
Toronto Regional Real Estate Board (TRREB) President Kevin Crigger echoed a similar tune and emphasized that government actions need to be carefully considered to ensure that they aid in solving housing challenges directly and do not create a host of additional challenges.
"Consumer choice and consumer privacy should be paramount in shaping government policy. Federal public policy should recognize the right that consumers have to privacy and should allow them to consent to the disclosure of personal information, instead of penalizing home buyers and sellers. Punishing home buyers and sellers for wanting to keep their financial decisions private for the largest transaction of their lives is a substantial overreach of the government," said Crigger.
But in addition to failing to not adequately address supply issues that are ultimately leading to heightened housing affordability, Alex Obradovich, a sales representative for Chestnut Park, told STOREYS there's another "more complex" issue at hand.
"The Liberal government again is proposing a lazy, short-sighted solution to a much more complex issue. At the end of the day, it is the homeowner that bears the risk of making, what is for many, the largest investment of their lives. It should be up to them as to how they liquidate that asset within the confines of the law," said Obradovich.
"If the Liberals or any political party in Canada want to improve housing affordability, they should first concentrate on the route of the problem. That being the dismal average wage growth over the past 20 years and the government's inability to enact quality policy over the same amount of time."
In the Greater Toronto Area alone, housing prices have already increased at four times the pace of incomes over a 10-year period -- a complex issue, indeed.
According to a recent Workforce Housing report from the Toronto Region Board of Trade and Woodgreen, average housing prices have increased by roughly 115% in the Toronto region. In comparison, median income only increased by 25% during the 10-year period between 2008 and 2018.
In the three years since housing prices in the GTA have only moved faster. In July 2018, the average cost of a home -- across all housing types -- in the GTA was $782,129. In July 2021, that average price reached $1,062,256. That’s a further 35.8% increase for anyone out there interested in trying to keep up with The Joneses.
However, this rising cost in housing isn’t just limited to the price of detached homes in wealthy neighbourhoods or any other outlier; in fact, during that same 10-year period between 2008 and 2018, average “rent increases doubled wage increases.”
And while market activity continues to cool from its “extreme” and “unstable” levels in March of this year, prices have yet to make a serious correction. Furthermore, the rental market is again on the up-and-up and has already become intense enough to cause bidding wars.
All that to say, with the federal election under a month away, housing affordability will continue to be at the forefront of each party’s campaign.