What Effect Might Rob Ford’s Firing Have on the Toronto Real Estate Market?

Posted by: Elise Stern, Created date: December 5, 2012

 




Photo by Joey DeVilla. Used under a Creative Commons attribution license.



If you live in Toronto or the GTA, or you follow the news here at all, you’ll know that last week, Mayor Rob Ford was ordered removed from office within 14 days for a conflict-of-interest violation in council over $3,150 of donations that he voted to allow his own charitable organization to keep. It was an offense that carried with it a penalty of mandatory removal from office.


Although Ford has vowed to appeal the verdict, and he has been legally cleared to run in a by-election to recapture his seat, the sudden power vaccuum in City Hall has led to some political scrambling – and some uncertainty as to who is in charge, and who will be in charge in the coming months. And with many Toronto real estate issues on the table, those of us in the industry are watching closely to see what will happen.


This post isn’t about whether Ford’s firing is “good or bad” for the Toronto real estate market. Rather, we’re going to look at two different aspects of the market that may be affected by the power shift in City Hall: the land transfer tax, and the relationship between the city and developers.


The Fate of the Land Transfer Tax


Rob Ford made a campaign promise in 2010 to phase out Toronto’s unpopular and onerous land transfer tax, a move that would increase affordability and spur the housing market at the same time. One report, by the C.D. Howe institute, suggests that the tax affects first-time buyers and purchasers of less expensive homes the most, and that home sales in Toronto have been “dented” by 16 percent in the past four years due to this onerous tax. Similarly, a recent Toronto Real Estate Board poll suggests that 75% of Toronto residents are likely to purchase their next home outside of Toronto in order to avoid this tax.


In June, Ford reaffirmed his intention to phase out the Toronto land transfer tax in order to benefit homebuyers and increase the affordability of homes, particularly to first-time buyers. It looks like he won’t get the chance to do that.


Now that Ford has been, at least temporarily, booted from office, it will be interesting to see what happens with the Toronto land transfer tax. Ford was City Hall’s most vociferous opponent of the tax, and many of Toronto’s city councillors support the tax, which brings revenue to their ridings. We’ll be watching closely to see what happens here.


Shifting of Stance towards Real-Estate Development


Recently, Rob Ford and his brother Doug, a City councillor, were involved in a shouting match in council with Councillor Adam Vaughan, after Ford accused Vaughan of a “shakedown” in regards to a proposal, originally recommended for rejection by City staff, that Vaughan proposed putting through council if the developer provided $1 million in “community benefits”. As the Globe and Mail reports:


Negotiations for the $1-million, as well as other concessions such as changes to the building design, were done under Section 37, a piece of provincial legislation that allows for the city to negotiate community benefits in exchange for more height or density in a development than would otherwise not be allowed. Both Mr. Ford and his brother, councillor Doug Ford, have criticized the process in the past, characterizing it as an unfair way to exact cash from developers.


This conflict suggests a wider split in council over the way that the city deals with housing developers that wish to build in Toronto. The Ford brothers object to Section 37 because they believe it has the potential for abuse – and that it, like the city’s land transfer tax, has the effect of dampening real estate-related economic activity in the city. As housing starts are down this fall, and condo prices are seeing some instability, this is a logical concern. Proponents of the policy disagree, on the other hand, seeing it as a mutually beneficial arrangement: developers are able to take steps to maximize their own profit while at the same time benefiting the community in which they’re proposing to build.


With Rob Ford gone, the balance of power may shift towards those who support Vaughan’s stance rather than those who support the Fords’ – or, of course, it may not.


Ultimately, at this point, everything really is up in the air; it’s too soon to tell what will happen. But we will be watching the news closely to see who, if anyone else, takes over from Ford… and what their stance on Toronto’s real estate market, and the policies that affect it, will be.

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