On July 21^st, 2022, the British Columbia finance minister announced details of new consumer protection measures, in the form of new legal protections for home buyers.

The measures will come into effect on January 1, 2023, so it is possible there may be some changes prior to implementation, but here’s what it looks like as of right now along with what we seeing going very wrong with this approach.

Homebuyer Protection Period Details

• Mandatory, non-waiveable homebuyer protection period of three business days, starting the day after an offer is accepted.
• A rescission, or cancellation, fee of 0.25 per cent of the purchase price would be levied against buyers who choose to back out of a signed deal. The seller of a million-dollar home, for example, would get $2,500 if the buyer decided to back out.
• Buyers can still make offers involving conditions such as home inspections or financing, but the protection period applies even with a clean, condition-free offer.

What could go wrong?

As realtors who have worked with hundreds of clients and met thousands of prospective clients over our years in business, we know first-hand that buying a home can be very stressful and choosing to move forward is a very difficult decision for many buyers.  Every buyer has a unique set of requirements for their home, timing necessary for the purchase, and financial conditions that would make it possible.

The likely outcomes of a homebuyer protection period are as follows:

• It would directly encourage buyers who have not fully prepared or thought through the idea of buying a home to sign deals that would then be cancelled. Every real estate brokerage sees hundreds of purchases per year where buyers get cold feet and do not provide deposit cheques and try to back out of the deal.  There are legal protections in place for such situations and the costs can be extremely high for these indecisive buyers.  This happens with huge financial and legal repercussions and if the cost for such a change of mind is just $250 for every $100,000 of purchase price, you will see a dramatic increase in the number of cancelled deals.  This means additional paperwork, confusion and stress for sellers.
• To be clear, these are deals where the buyer never should have wasted the time of the seller and the realtors involved as they just weren’t ready to buy. There must be consequences for buyers such that they have to be very clear on their decision and be prepared to move forward with the legal contract they sign for the purchase.
• Consider this analogy – if you were hungry and couldn’t quite decide what food you wanted to eat, would you order three different orders equalling $50 each? You likely wouldn’t because you’d be left with two orders you didn’t want once you decided on your preferred dinner option.  If you only had to pay a cancellation fee of $1.25 for each of the two other orders to cancel them after they were made, you might do that while you keep deciding.  It’s great for you as a consumer and terrible for the people on the other side who have to make the order for you, tell other customers it’s sold, see those customers leave for other options, only to have the order cancelled and be available again, where they receive a paltry fee that is nowhere near the full impact of the decision to cancel.
• Some buyers will hedge their bets on one property by bidding on second or third choice properties as well. While there may only be one home they can actually buy, they will be flooding the market with false offers that cannot be closed upon.  If sellers start prioritizing offers where prospective buyers have other offers in play, we have complex offer situations with X number of “sole” offers, Y number of “spread” offers, some of which are clean offers without conditions, some of which have conditions, different closing dates, deposit amounts and any other myriad of offer attributes.
• The current regulations around conditional offers are clear around the circumstances under which a buyer may cancel a deal during the conditional period. The conditions are written in specific language that have legal meaning that has been established through decades of case law.  A buyer who fails to fulfill a home inspection condition when they didn’t actually do a home inspection, or where the home inspection came back with no issues, is not entitled to use the condition as a reason to cancel the deal.  If there is a mandatory protection period of three days, that gives the buyer a catch-all way to cancel a deal even if the specific condition would not have allowed them to terminate the deal.

There are undoubtedly other outcomes apart from the above that will result from this approach.  The intent is admirable, but in our opinion, the planned model will simply encourage uncertain buyers to muddy the waters, with very significant and negative impacts on sellers and the realtors involved in both sides of the transaction.

While the idea of a homebuyer protection period appears positive, it is predicated on the idea that buyers are being pressured into deals they should not have signed by either market conditions or unethical realtors.  The market conditions have shifted since this idea began and in Ontario at least, we have new legislation related to realtors’ code of conduct (the Trust in Real Estate Services Act) with more teeth when it comes to punishing bad agents.

The focus should be on educating buyers and regulating agent actions, not punishing sellers by allowing uncertain buyers to waste everyone’s time.  If you’re a buyer and you want an agent who won’t pressure you to make a decision you’re not ready to make, who will help you work through what matters most and educate you on the best approach, then don’t hesitate to get in touch.  We’d love to show you why a good agent makes all the difference.

In December 2021, the Ontario government appointed nine members to a new Housing Affordability Task Force and gave them a mandate to explore measures to address housing affordability by:

• Increasing the supply of market rate rental and ownership housing;
• Building housing supply in complete communities;
• Reducing red tape and accelerating timelines;
• Encouraging innovation and digital modernization, such as in planning processes;
• Supporting economic recovery and job creation; and
• Balancing housing needs with protecting the environment.

The Task Force, chaired by Jake Lawrence, CEO and Group Head, Global Banking and Markets at Scotiabank, included a diverse range of experts in not-for-profit housing, Indigenous housing, real estate, home builders, financial markets and economics.

On February 8, 2022, the task force released their report, with 55 recommendations.  You can find the full report here.

It’s a lengthy document with some very important and challenging recommendations.  In our work with buyers and sellers, we know what’s important to them and we’ve highlighted three big take-aways that matter to you.

A note that we do believe that more affordable options for real estate is fundamentally a good thing.  Whether it is new builds, resale properties or rental options, encouraging and allowing a range of income levels to live within a community and continue to contribute to the local economy is desirable.  At the same time, change impacts people differently and we think it’s important to identify what is likely coming and how it might impact you.

Your Neighbourhood May Start Changing

There is a hidden layer to every home and neighbourhood that is called zoning.  Zoning defines what we can build and where we can build.  If you’ve ever said you like a neighbourhood because of the type of homes, space between properties and number of residents, you are reacting to the zoning that permits that type of building activity.

Within Toronto, it is estimated that 70% of land zoned for housing is restricted to single-detached or semi-detached homes, with accompanying restrictions for setbacks, building heights and so forth.  This prevalence of low-density zoning is what is responsible for the continued spread of municipalities.  When you cannot build more density due to zoning, you find new land to build more homes.  Anyone who grew up in southern Ontario in the past number of decades is very familiar with seeing farmland and rural land turn into subdivisions and housing developments.

The report recommends a number of changes to zoning that would result in the removal of many zoning restrictions.  The practical result of this is that over-time, your neighbourhood could change.

• The addition of residential housing up to four units and up to four storeys on a single residential lot.
• Modernized building code that removes barriers to affordable construction, meaning that the changing homes will continue to look like homes (single staircase, single egress) rather than mini-commercial properties.
• Conversion of under-utilized commercial properties to residential or mixed commercial and residential.
• Depending on individual properties meeting requirements, more secondary suites, garden suites and laneway housing will be built.

The overall goal is achieving what is known as gentle intensification of density.  It isn’t about building high-rises in the middle of a low-rise community, but it is about more multi-unit properties, slightly taller buildings and a wider range of housing options available within the neighbourhood.

The impact of these changes will be similar to what happens in a new housing development over time.  Such sub-divisions start out looking very similar, with a few different models built by the developer.  Over time, home owners renovate, change and add to individual properties and the look and feel of the street changes with each subsequent update.

Neighbourhoods that have remained largely consistent over a number of decades will likely look somewhat different over the next few years as the impact of some of these proposed zoning changes are felt.  A small home will be torn down and rather than replaced with a large single-family home, it may be replaced with a four unit multiplex that is slightly but not significantly different in scale from the rest of the street.

Neighbourhoods or streets that are close to transit can expect even more density to arrive, with zoning changes allowing higher density buildings to go up.  Buildings of six to 11 storeys on streets with public transit will began to be built and even higher construction will take place in immediate proximity to major transit stations.

Moving forward, an important consideration for homeowners will be whether the street is on a bus route or near a transit hub, as such locations will likely see higher levels of density built over time.

Speed it up!

Canada has, over time, fallen far behind in the rankings for how long it takes to approve building projects.  The UK and the US approve projects three times faster than we do on average, without sacrificing quality or safety.

Within the GTA, it is not unusual for us to see a renovation or new build project take years to complete.  The average approval time in Hamilton, Toronto and Ottawa is between 20 to 24 months, with up to two years longer for building permits for bigger projects.

The task force report has a number of recommendations to increase the speed at which projects take place while reducing the red tape and costs.

• Legislated timelines for provincial and municipal review processes, including site plan and minor variances, with automatic approval if the response time is exceeded.
• Funding for approvals facilitators to resolve conflicts between authorities
• Allow wood construction up to 12 storeys, thereby reducing the cost (but not impacting safety) and timeframe for smaller builds.
• Reduce the ability of other parties to abuse the appeals process to add significant delays and costs to builds.

While a number of these recommendations are focused on larger builds that have larger impacts on the density and housing options for an area, there are also significant benefits to smaller residential projects in our neighbourhoods.

On many streets across the GTA, there is a near constant progression of construction taking place over a lengthy period.  It is quite common to see a home that is sold and lies vacant for months or even years as various approvals wind their way through municipal processes.  Such derelict properties serve no purpose on the street, reduce the appeal of the area and a quicker approval and build process would mean a new home is finished quicker and the neighbourhood returned to its residential character.

Rent May No Longer Be a Four Letter Word

Within Canada, renting is often stigmatized, and renting rather than owning is deemed to be inferior in almost all respects.  As we’ve faced housing supply shortages within the GTA, many people have not been able to afford to buy and are stuck in rental housing that doesn’t make sense for them as their needs change.

The combination of the red tape and government charges on real estate development has resulted in many developers choosing to focus on end-user builds rather than purpose-built rental units.  Two-thirds of the purpose-built rental units in Toronto were built between 1960 and 1979, despite our significant population increase since then.

The task force report recommends a number of changes to make it easier to build rental properties, including property taxes aligned with condo or other ownership properties, provincial and federal loan guarantees for purpose-built rental and waiving development charges for smaller rental projects.

One of the reasons that renting is stigmatized is the housing rental stock that we see in most of the GTA.  With so little modern purpose-built rental units, renting can be synonymous with dated, low-quality housing in high density areas.  Individual landlords have picked up the slack, buying real estate and renting out units or properties to tenants, but as real estate prices have risen, such market rentals have become less common and more expensive.

With more options for modern rentals arriving due to changes that make building purpose-built rental properties, we may see a shift where renting is no longer considered to be a last resort for those who cannot afford to buy.  With rental options beyond small condo units, families will be able to remain in neighbourhoods of their choice rather than being forced to move or remain in apartments that don’t meet their needs.

The Housing Affordability Task Force report has set forth a number of ambitious recommendations to help address the issue of housing affordability in Ontario.  While a change can be intimidating, a number of the recommendations will have an overall positive impact on real estate markets within the GTA.  A gentle increase in the densification in neighbourhoods, speedier completion of projects and more options for rentals are all good ways to ensure that real estate remains valued – and accessible in some fashion – in the years to come.

If you’re looking to buy or sell and want to make sure you’re doing so with an understanding of what changes are coming, we’d love to work with you.  Don’t hesitate to get in touch!