TorontoRealtyBlog

“It will never happen.”

That’s what I told myself on Friday night as I went to bed, thinking about this promise by mayoral favourite, Olivia Chow.

“It can’t happen,” I told myself.

Politicians make promises all the time and don’t fulfill them.  That’s actually become part of the job description for any politician on the campaign trail.

Whether you’re Jeryd Mencken, promising Roman Roy and Kendall Roy that you’ll block the merger between GoJo & Waystar in exchange for calling the federal election on ATN, or whether you’re Justin Trudeau promising to run two budget deficits of $10 Billion per year before balancing the budget, only to rack up over a trillion dollars in national debt, I mean, hey, if you want to make an omelet, you’ve got to break a few eggs…

Politics has never been dirtier.  But more importantly, it’s never been more dangerous.

In order to get elected, whether you’re a career nobody looking to become a city councilor, or whether you’re running for the highest office on the planet, you have no choice but to make a lot of promises.

Many of these promises, unfortunately, can cause more harm than good.

Whether it’s stances on social issues that can cause massive civil unrest, or whether it’s economic and financial decisions and promises that can be massively counter-productive, politicians have to make a lot of promises in order to buy voters.

Er, I mean, earn votes.

No, wait, sorry, I was right the first time: buy votes.

That’s what happens in every election, especially in social democracies such as ours.  It’s why I have mockingly described every campaign as “the great give-away” in recent years, as politicians from all parties stand in front of podiums and promise to give more, to more people, for more things, more often.

Many of these pieces of delicious voter candy are never ingested by constituents, however.  It’s anybody’s guess which promises will be fulfilled and which will simply fall by the wayside with the countless others.

In Toronto, we have a surprising mayoral by-election on June 26th which has some one-hundred and two candidates on the ballot.

Over the last few months, we’ve all listened to the mouthpieces stand in front of their literal podiums atop their metaphoric soap boxes and make all kinds of promises.

Plans, platforms, promises.  Call them what you want, but understand that some of these, er, suggestions will be acted on, and some won’t be.

Personally, I do not like any of the 102 candidates.  I am an “undecided voter,” and while I’m more likely than not to write-in John Tory‘s name on my ballot, I do know, for absolute certain, who are the candidates that I don’t like.

It’s times like this when I’m reminded of that old saying:

Three things you don’t discuss at a dinner party: money, religion, and politics.

Well, in case you haven’t noticed, this is Toronto Realty Blog, so away we go…

The favourite in the race is Olivia Chow who, I think most of us are fairly certain, is going to be the next mayor of Toronto.

I’ve lamented for the past decade that the mayor of Toronto doesn’t actually have any power, which is why John Tory was able to sit on the fence for so long and avoid making any impactful decisions during his tenure, but suddenly these “strong mayor powers” that Doug Ford has given the City could mean that Ms. Chow, or whoever ends up as mayor, will be far more likely to enact real, meaningful change at the municipal level.

But there is one part of Ms. Chow’s platform that I want to discuss today.

This was brought up by the readers in Friday’s blog and it’s something I actually wasn’t aware of.

That scares me.

With 102 candidates on the ballot, even though most are “fringe candidates,” there are still to many for us to know all the points of their platforms.

After the readers noted what I will dub “the vote for chaos” in the comments section on Friday, I read through every page on Ms. Chow’s site.

Here is Olivia Chow’s website: https://www.oliviachow.ca/

There are obviously many pages on the site, but one, in particular, stands out.

This one: OLIVIA CHOW ANNOUNCES SECURE AFFORDABLE HOMES PLAN FOR RENTERS

Protecting affordable housing, yep, great.

Building affordable housing, of course that’s great too.

Every politician bangs this drum, although very few ever follow through.  And that’s fine.  We know they typically don’t enact change in reality after making many promises to do so, but it’s nice to hear them talk about it.

But about halfway down the page, we see something that is, without exaggeration here, one of the craziest things I have seen in real estate politics and legislation in a long time:

Olivia will explore securing the right of refusal for the City of Toronto –  the pre-emptive right for the city to acquire properties that are already listed for sale in order to secure them as affordable units. This is not the same as expropriation since it only applies to properties already on the market. 

The City of Montreal has this right – it has 60 days to match an offer from a buyer for any properties on the market. Montreal is actively using this power to both save and build affordable rental housing. Olivia Chow will advocate for Toronto to have this tool so that we can use it to address our affordable rental housing shortage.

Folks, I’m not overreacting here.

This has the potential to turn the housing market into absolute chaos.

If you’re an Olivia Chow supporter or one of those people who just really, really hates anything real estate related, that’s fine – but please listen.

Please.

Because this idea makes absolutely zero sense and, if implemented, it would result in chaos.

Hard stop.  No exaggeration.  Just chaos.

To illustrate this, let me walk through an example of a typical residential housing transaction and ask questions where needed.  These questions will serve to not only demonstrate how and where this could go wrong, but also to show that this idea has clearly not been vetted.

Alright…

Nick and Amanda own a downtown condominium and are looking to purchase a new house.

They eventually find a home owned by Lukas and Ebba and purchase the house for $1,300,000.

Nick and Amanda then put their downtown Toronto condo up for sale and sell it for $600,000.

The City of Toronto has 60 days to match an offer for any property on the market.

 When and how does the City of Toronto step in?

Are we creating a new wing of government here?  Is there a department to comb through real estate transactions?

Do Ebba and Lukas report the sale to the City, or does the City get in contact with Ebba and Lukas?

More importantly:

How quickly does the City get in touch?

Does that 60 days start from the date of the sale?  Or the date the City is notified?

If the City is the one getting in touch, and not Ebba and Lukas, then Ebba and Lukas are just waiting around on pins and needles.

That’s no way to live, is it?

So let’s assume that the City won’t be in touch right away.  How could they be?  They wouldn’t know if they wanted to buy a certain house, or not.

  So then what if they matched that offer on Day #58?

It certainly could happen, based on what we know so far, which is next to nothing.

But Lukas and Ebba purchased a house for $2,500,000 which is scheduled to close on July 28th, 2023.

That’s why Lukas and Ebba insisted that Nick and Amanda close the purchase of their $1,300,000 home on July 31st, 2023.

What happens if the sales are scheduled to close in 60 days?

Hmmm…. did Ms. Chow’s team think of that?

What happens if there’s a sale for a property that closes in 15 days?

I’m sure there are political answers, such as:

1) “We have a fantastic plan to roll out and all these details will be explained when the time is right.”

2) “Consultations with experts in multiple fields associated with real estate are being consulted, ’round the clock, and there’s a solution to any and all question or concern here, we assure you.”

3) “We will continue to support Torontonians in all walks of life and fight for every person and increase their quality of living!”

That last one was a classic cop-out.

Ask a politician what day it is and they might just tell you they’re working hard for you, and they appreciate your support.

So if a property is scheduled to close in 15 days, does the City’s new legislation override that?

Chaos.

No matter how this thing rounds into form.

Let’s say that the City of Toronto decides to match the offer for Lukas and Ebba’s house, but they do so two weeks before the scheduled closing on July 28th, and they simply can’t close the transaction on time.

What happens to the purchase of the $2,500,000 house now that Lukas and Ebba haven’t closed on their sale?

Interesting!

Will the City of Toronto pay any additional costs associated with the extended closing?

Or how about:

Will the lender, be it TD Bank, RBC, BMO, et al continue to work with Lukas and Ebba?

But look at the fallout from here.

What happens to Nick and Amanda as a result?

Just consider what happens in the United Kingdom with gazumping.

Their contracts are non-guaranteed meaning that, in some cases, a person selling for $3,000,000 can accept an offer of $3,100,000 two months later, and the person who bought for $3,000,000 has been gazumped.  But that person sold his house, so now he pulls out of the sale of his own house, meaning a third buyer is affected.  This goes on and on.

It’s called a “chain.”

Properties in the UK that aren’t part of a “chain” are far more attractive to buyers and are often marketed as such.

If Olivia Chow were to implement this insane legislation, then every single property sale in Toronto could be part of a dreaded “chain.”

If the City of Toronto buys Lukas and Ebba’s house, then Nick and Amanda are out of luck.

What if the closing date was four months and the average home price rose 9% in that time?

Now Nick and Amanda are really out of luck.

Oh, and they’re also homeless, since they sold their condo.  But the city didn’t buy that condo, so there’s a happy new couple living in the condo while Nick and Amanda are paying for an AirBnB.

Wait….how is this making housing more affordable?

So now, let’s assume that there are horror stories, like the one above, that are making the rounds.

Now, let’s assume that people stop buying first and selling second, and instead, they sell first and wait sixty days to see if the city is going to buy their house.

Wouldn’t this result in far less inventory on the market?

Absolutely.

Wouldn’t this result in fewer transactions?

Undoubtedly.

Wouldn’t fewer transactions result in less land transfer tax revenue for the City of Toronto?

Yes, but nobody has thought that far ahead.  And they can always invent a new tax, so big whoop!

We can continue playing this game for another hour, but I think you get the point.

There are hundreds of questions we could ask that demonstrate just how full of holes this “plan” really is, but I think it would get old, fast.

Not only that, I have a question that I want to ask:

What gives any government the right to match an offer to purchase a residential property, and take the purchase/sale process into their own hands?  In what democratic system?  In what style of government?  In what society?  In what world?

You might reply, “The municipal government of Montreal, it would seem,” and you’d totally fair.

But my question is meant to be rhetorical.

What world are we living in here, folks?  Who among us thinks the government should be able to impulsively, arbitrarily, and punitively enact such a measure?

I didn’t believe the blog commenter, Ace Goodheart, when he wrote this on Friday.  It sounded insane to me.

And yet, it’s on Ms. Chow’s website, clear as day.

Then in the next section, appropriately called, “HOW WE’LL PAY FOR IT,” we’re given an obvious answer:

Olivia will use Toronto’s Vacant Home Tax to stand up for renters. The City’s Vacant Home Tax is meant to increase the supply of housing by creating an incentive for owners to ensure their unit is occupied and not sitting empty. Homeowners who choose to keep their properties empty for six months or more (exemptions exist) pay the vacant homes tax and this funding is used to secure affordable housing for all Torontonians.

By increasing the Vacant Homes Tax by two percentage points to 3%, the City can generate millions more. The amount collected by the Vacant Homes Tax is meant to decline each year as the number of vacant homes is reduced because of the tax. 

Who’s good at math?

Better yet: who’s good at making numbers say one thing versus another?

“Two percentage points” is a small number, right?

“3%” is another small number, whether it’s written as “three percent” or as 3%.

All of those numbers are very small, relative to, say one hundred percent or 100%.

But here’s where the math comes in: if you have one apple and then you have three apples, you’ve increased the number of apples by two hundred percent or 200%.

So if there’s a tax that’s 1% and it’s raised to 3%, then the increase is…………wait for it………….two hundred percent.

Olivia Chow’s plan is to TRIPLE the tax.

Have you ever seen a tax tripled?

I mean, it’s only increasing, per the above, “two percentage points to 3%,” which sounds insignificant.  But it’s TRIPLING!

This must be where consultants make their money.

I meant what I said at the onset: politics has never been more dangerous.

Perhaps my clamouring over a municipal government interfering in free-market real estate transactions is tone-deaf when compared to “real” dangerous politics, like the civil war happening in south of the border.  But what I mean is that politics has really become about extremes.  There’s no moderation anymore.

Politicians, as a result, have become extremists.

Left or right, blue or red, young or old, whatever you want to call it – politicians are becoming far more bold, as are their ideas.

Something as innocuous to a politician or political advisor as “having the right of first refusal on a real estate transaction” has dire consequences if and when it’s played out in the real world.

And my fear here is that this idea was hatched over a proverbial beer or in a focus group with like-minded strategists.

If implemented, this idea could literally bring the real estate market to a standstill, create mass chaos, and complicate an already complicated market and process.

As a result, “housing affordability” would suffer.

Wouldn’t that completely defeat the purpose of the legislation in the first place?

Or have we completely lost sight of what we’re doing?

The post Monday Morning Quarterback: A Vote For Absolute Chaos appeared first on Toronto Realty Blog.