By Lindsay Smith/Real Estate Columnist
We have a serious housing issue here in Oshawa, and in all of Durham Region. The real estate industry is as complex as you choose to make it. There is one economic rule that has remained constant since I entered this business in 1986 – the law of supply and demand. Here is where it gets simple; if you have more buyers than sellers prices increase. In the reverse, if there are more homes for sale than buyers to purchase them, prices adjust downward to attract the few buyers in a sea of homes for sale.
A balanced market is one where there are enough homes for sale to take three to four months to sell everything that is on the market (if there are 300 homes for sale and 100 sell in a month, this is seen as a three month supply of inventory.) Currently in Oshawa, there is less than a two week supply of inventory. This is one of the main reasons that homes have increased over $130,000 since December 31, 2020.
2021 has revealed that this law of economics is currently at play. Again, to reinforce what is happening, we currently do not have enough homes to sell to the number of buyers we are seeing in our marketplace.
How do you add to the crisis? You make it harder for buyers to buy a home, and add to the costs to develop property that will ultimately become homes for buyers or renters.
This past week, in an article by CBC, the headline read, “Bank Regulator Proposes Higher Mortgage Stress Test Levels Making it Harder to Qualify for Home Loans.” The proposed policy will increase the “stress test” for buyers when applying for mortgages. Currently when a buyer applies for a loan, they are required to qualify on a higher rate than they will end up paying. This, in the wisdom of our government, will protect homeowners if the rates rise and they are forced to renew their mortgage at a higher rate. Currently a buyer is required to qualify as if the rate was 4.79 per cent and the new policy will be to increase this to 5.25 per cent. Again, the buyer will still get the reduced rate for their mortgage, they are only required to qualify at the higher rate as the article states, “to ensure the stability of the banks, not for borrowers.” I don’t want to get too deep into the technical aspects of this change other than to share that once this policy is in place, a buyer can afford much less than before this change was implemented. This is pouring gasoline on to a fire already burning out of control.
The bottom line is buyers take the hit, and this policy change has not helped add more homes to the marketplace.
The second change is a little closer to home and is a change implemented by the City of Oshawa. This is a change to something called “development charges.” These are charges that a developer building homes, apartments or an individual building a single home pay to offset the City’s costs of transportation, watercourse improvements, parks and recreation, etc. These are necessary costs that the City needs to grow and build the services we rely upon. However, when these increases are approved at rates up to 50 per cent, what they ultimately do is cause any builders building homes or apartment buildings to increase the prices they need to sell these newly created units to cover for the increased costs. One councillor was quoted, “the City has already increased the Development Charges by 200 per cent five years ago.” This policy does nothing to increase the supply of properties available. In fact, what it will ultimately do is cause homes to be more expensive and tenants to pay more for rent to offset the costs.
What we need is a balanced approach that will cause more homes to enter the market and to help buyers into homes.
Cities need funding to operate. It would appear that both of these policy changes will end up costing buyers more when they buy and renters more when they find rental accommodations. We are in a pandemic and a real estate boom, a positive approach would be to look at ways of creating more inventory to balance the market rather than punitive options.
If you have any questions about the above information, or if you see a real estate emergency on the horizon, I can be reached at email@example.com.