The Price of Housing (3)
The cost of housing has become one of the major concerns of Canadians following the dizzying gains in real estate prices over the last several years.
In terms of the supply, measures are being taken at various levels of government to ensure more homes are built. Gatineau has seen a large surge in multi-family buildings, but the question becomes whether another aspect of the market is being neglected. Although condos are appropriate for young professionals and those looking to retire, families with young children often want more space and a yard. Without finding ways to increase the supply of single family homes as well, such houses will continue to command a significant premium as demand far outstrips supply. Moreover, both the city and developers have incentives to encourage condo construction over single family homes - higher tax revenues for the city and profits for developers per square kilometre. If, however, the market becomes unbalanced everyone suffers. With too few detached and semi-detached homes available, young families will move farther from the downtown core, resulting in long commutes and corresponding environmental damage. At the same time, if there are too many condos it becomes hard to sell or rent them for current owners. It seems like a lifetime ago given the current mania in the real estate market, but just a few years back it was extremely difficult for owners of condos on the Plateau to sell and break even, let alone make a profit. And this was entirely due to oversupply. This sort of situation could well repeat itself as interest rates rise and mortgage payments become too high for many families.
A solid approach would be concentrating condos in very central locations like Old Hull, and setting aside more space in more suburban locations like the Plateau for single family homes. This would avoid those looking for more space from having excessively long commutes such as if they move farther away to the Pontiac region.
The other side of the problem is demand. Addressing speculation in the housing market from those engaging in “house flipping” is a good start. Previously, selling property aside from your primary residence meant that half was tax free via something called the capital gains inclusion rate. Wages don’t enjoy this benefit, as we’re taxed on the full amount of our salaries. The incentive to make money by buying and selling houses was quite high. Now, however, to enjoy this tax benefit you have to hold on to the home for at least a year. This can reduce the worst of the frenzy in areas like Vancouver and Toronto, but many people looking to the housing market for short term financial gain are perfectly willing to wait for a year before selling, as they often do some renovations to the house while they wait for prices to rise. Increasing the holding period for homes from a year to three in order to enjoy half of your profits being tax free would do more to discourage people from treating real estate like the stock market.