Housing affordability and liquidity - let's move

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Time, money and stress - moving in Canada takes too much of each. The decision to move is a big one, and there will always be nearly overwhelming social, family, relationship, employment and varied other issues and considerations with impact on moving.

Public policy can’t do much about many of these, but there is much that we can do to make the process faster, cheaper and less risky.

By reducing the transaction costs and risks associated with moving we promote liquidity. We make it easier, cheaper and less risky to move. We make the housing market more efficient which enables the sector to "right size." 

Maybe we can find some of the extra 2 million bedrooms Canadians need within the 12 million that lie empty every night. Let’s also find a way to make the new housing we do build as fuel efficient as possible.

We are locked in a caveat emptor/due diligence conveyancing paradigm. We have the technology to break out of this paradigm but don’t have the will. The following are huge "asks" of residential real estate industry participants, but they could get us moving.

Mortgage Lenders

  1. Allow 30-year Term mortgages. Americans can lock their rate for 30 years – even from Canadian banks. Lenders are better equipped to hedge against interest rate risk than borrowers. Why are our mortgage terms so short? Imagine the certainty of knowing your cost of money to the end of your Amortization period;
  2. Make all mortgages portable and assumable (OAC). Below-market mortgages can be a sales feature;
  3. Make banks "float" bridge financing for 30 days as part of the deal when we commit to sending them money monthly for 30 years. Needing your purchase funds from your sale causes the whole closing and moving process unnecessary stress.  
  4. Make all residential mortgages non-recourse so mortgagors can (as they can in many jurisdictions) “throw their keys at the bank,” promoting foreclosure sales which will aid market entry;
  5. Make banks (not borrowers) pay their mortgage default Insurance premiums. Consider making them monthly until LTV reaches some threshold. Banks pay the premium for portfolio insurance. Borrowers today add the full premium to the principal amount of their mortgage, so pay interest on that premium for 30 years – nuts (unless you’re the bank getting insured against default and a 2% sales boost);
  6. Prohibit mortgage lenders from charging a fee to discharge paid off mortgages – they should pay to get their security off your title once you no longer owe them money;

Home Inspectors

  1. Make a licensed and regulated professional home inspector’s home inspection addressed to the potential purchaser a pre-condition of listing a home. Canadians are today spending $1 million on a "pig in a poke";
  2. Inspection reports should be made available with and provide the basis for more accurate and complete listings;

Realtors

  1. Cap realtor commissions at 1% for the seller and 1% for the buyer. License realtors to act for one side or the other only. Buyer and seller pay their own agent but not “out of the closing” where commissions presently hide – make realtors seek payment directly from their clients;
  2. Make realtors agents of the buyer or the seller with fiduciary obligations attached. Realtors being agents of their brokerage misleads the public.
  3. Cap broker/agent "splits" so the agent actually doing the work keeps most of the commission.
  4. Fewer Realtors. More transactions. More professional, full-time realtors less financially dependent on invisible brokerages and broker franchise models; 
  5. Promote auction, selling later and other novel sales methods;

Lawyers and TitleCos

  1. Make offers to purchase and mortgage commitments conditional on the receipt of independent legal advice. People need legal advice before they enter the most significant contracts of their lives, not after; 
  2. Reform laws to rationalize the eight overlapping types of insurance funded by purchasers in Ontario (where we supposedly have a "world-class" registry system):
  • Land Titles Compensation Fund  
  • Law Society Real Estate Transaction Levy
  • Lawyer mandatory Errors and Omissions Insurance
  • Lawyer mandatory Real Estate Practice Surcharge
  • The Amount the title insurers add to their premium to fund an illegal premium kickback the title insurers rebate to Lawyers
  • The Closing Protection Letter
  • The Title Insurance Policy
  • The Lender’s Title Insurance Policy

3:  Purchasers and lenders have not received legal opinions for 20 years – they get title policies. Lawyers won’t admit it, but title companies can do a more efficient job of closing transactions than can thousands of law firms. Since the 1990s, every HELOC in the country is closed in 24 hours by one of two American title companies with no involvement from a lawyer, none.

On purchases where lawyers are involved, they act as insurance agents. Law societies won’t admit it, but lawyers no longer follow the guidelines of their profession - they do what the title company requires to issue its policy. Move the legal advice component to the pre-contractual stage, then let title companies actually close the deals (shepherd documents, move money, effect registrations);

4:  Recognize it is the title companies that look for fraud (they insure against it), so make them report suspicious transactions to FINTRAC the way they must to FinCEN in the US to combat AML (“snow-washing”);

5: Regulate the title companies – they are completely unregulated in Canada. We don’t even have a standard form of policy;

Builders

  1. Have builders save and store (digitally and dynamically) the set of data points common to every home, then underwrite the accuracy of that data to put an end to “buyer beware.” If the home you buy does not have the municipal sewer connection as insured, you have a claim for your “actual losses”;
  2. Rate the fuel efficiency of homes using a simple metric like TEUI (https://www.teui.ca/). Make the actual TEUI value a mandatory field in every listing;
  3. Extend revenue relationships between builders and the assets they create, reducing dependence on one single sale to the first buyer of a 75-year asset;
  4. Limit land banking. “Use it or lose it” by-laws so that once a site is approved for development, builders have to start construction within 6 months or approval lapses; 
  5. Stop building highways that enable, then foster, long commutes so that people actually move, instead of drive, when they get a new job.

Treasuries

  1. Stop taxing rental income (conditioned on Municipal licensing) so capital flies to purpose-built rental exploding the supply of rental housing and driving down market rents;
  2. Scrap land transfer taxes – or at least impose them equally on buyer and seller so they are a negotiation "saw-off";
  3. Expand the items included in the “moving expenses” deduction in the Income Tax Act to include all “closing costs, appraisal fees, legal fees, transfer taxes, commissions, etc.” Eliminate the distance requirement. Double or triple the deduction if the taxpayer moves from a bigger to a smaller city or town. Double it again if the move is to a transit-rich locale that allows the taxpayer to sell their car.
  4. Increase taxes (transfer taxes and realty taxes) payable by non-residents of Canada. Prohibit Provincial limits on the mobility of Canadians.
  5. End Capital Gain Tax exclusion for "flippers." Make them prove they have other income on which they can live before they qualify for the exemption.
  6. Prohibit foreign ownership of investment property. Want to buy, live in, and make a contribution to our communities? Great, you are very welcome. Want to hide money from your country and make a profit from our communities? Sorry, go somewhere else.

Landlords

  1. Let individual investor landlords fix their borrowing rate for 30 years, alleviating their need to raise rent every time rates go up.
  2. If rental income must be taxed, tax it based on the characteristics of the unit, not the landlord. We base taxation of rental income on whether the landlord is an individual, a corporation or a REIT. We should tax rental income on the basis of whether the unit meets the criteria we want to encourage (family sized, near transit, near schools, Net-Zero, etc.)

Even just some of the above can help fix the problem.

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