HAMILTON, ONT. -- The housing market in Canada, while cooling off over the past few months, has been as hot as an August heatwave for the better part of two years.
All three major parties have come forward with housing proposals, with the Conservatives and NDP largely concentrating on ramping up the building of new homes to ease a supply shortage.
THE CLAIM
The Liberals say their vast housing “bill of rights” will build more housing but also boost consumer protections for home buyers.
It will include making it illegal to enter into so-called blind bidding situations where potential home buyers get one chance to submit a bid without knowing the other offers submitted.
That bid includes the price a buyer is willing to pay, as well as any conditions, such as home inspections, closing dates and financing.
There is no back and forth negotiation. It’s a one-shot deal to come up with an offer that will win a property.
In the over-heated markets that were common last year and earlier this year, that can create situations where buyers are bidding tens of thousands—in some cases hundreds of thousands—more than asking prices, and potentially much more than what was needed to come out on top.
Some in the real estate industry are blasting the Liberal proposal, while others say it’s a much-needed reform. On the against side is the Ontario Real Estate Association.
The Liberal plan “criminalizes the ability of hardworking Canadians to choose how to sell their homes, by regulating home selling practices through the criminal code,” the OREA tweeted after Tuesday’s campaign promise announcement.
“Homeowners deserve choice not house arrest,” it added, alongside a photo of a person in handcuffs.
The Toronto Regional Real Estate Board said the Liberals’ plan is a “substantial overreach of the government” that amounts to “punishing home buyers and sellers for wanting to keep their financial decisions private.”
But some realtors are onboard with the changes, including Hamilton agent Martinus Geleynse, who tweeted Thursday:
“As an agent, I can absolutely confirm the blind bidding gong show is about nothing more than the boards and associations trying to look after agents. It needs to end. Many agents offer little more value to their clients than the data. That’s sad. And no reason to refuse reform.”
Toronto realtor Andrew Harrild warned in 2015 that blind offers could lead to a housing bubble.
“It’s the ultimate form of high stakes poker, but in real estate.”
He suggested auctions would be a better scenario, because all parties know what is on the table. They have become common in Australia and New Zealand, two countries that cracked down on home-sale practices.
But the OREA argues that an auction “creates a three-ring circus,” and buyers are forced to make rushed decisions, which then drives up prices.
BACKGROUND
Housing advocates and some economists say the practice of blind bidding artificially inflates prices and benefits sellers and realtors who reap more cash in sales prices and commissions. Individual bonanzas then have the effect of driving up neighbouring home values.
There is growing concern among first-time homebuyers that owning a home is becoming a pipe dream for many.
And affordability is no longer just a problem in the country’s major cities of Toronto, Vancouver and Montreal. Fuelled by the pandemic, the notion that a virtual work world can mean living anywhere, and historically low interest rates that increase borrowing power, prices have been on the rise all across the country.
At its all-time peak in March, the average national house price hit $716,828. Since then, prices and transactions have fallen in most areas of the country. The average national sales price was $662,000 in July, according to the Canadian Real Estate Association.
But the spike is still real.
Between July 2019 and July 2021, Canada’s average home price climbed 32.6 per cent, according to CREA data. When factoring in the frenzied peak, which industry experts said was unsustainable, average national home prices rose 48.8 per cent between March 2019 and March of this year.
Most experts say tight supply in most markets, along with bottomed-out interest rates, will continue to boost prices, though at a slower rate.
“(W)e are not returning to normal, we are only returning to where we were before COVID, which was a far cry from normal,” said Shaun Cathcart, CREA’s senior economist in an Aug. 16 press release.
“The problem of high housing demand amid low supply has not gone anywhere – it’s arguably worse.”
A National Bank report issued Aug. 3 found that housing affordability in Canada worsened by 3.2 points (calculated by percentage of income for a representative household used to pay a mortgage) in the second quarter, the sharpest deterioration in 27 years. It found that the income growth and low interest rates that had improved overall affordability over the past two years was overcome in 2021 by home price increases.
In the second quarter of 2021, affordability declined in all 10 markets tracked by the National Bank for the second straight quarter.
National Bank calculates how many months it would take first-time buyers to save for a down payment on a representative house (assuming a saving rate of 10 per cent) in various markets. In Vancouver, it’s 411 months, Victoria is 338, Toronto is 318, while Hamilton is 78, Ottawa-Gatineau is 52, and Montreal is 42.
ANALYSIS
Urban planner Andy Yan, director of the City Program at Simon Fraser University, says blind bidding has been common practice across the country, but the bidding wars and sharp price escalations once found only in the big markets of Vancouver and Toronto are now widespread. That is driving up pressure from those who want to see reform.
“This is the biggest purchase in people’s lives but it’s seemingly not as a well-protected as the average eBay purchase. The transparency is just not there,” he said in a phone interview with CTVNews.ca.
“It’s what economists call information asymmetry. When one side in a transaction has more information than another, there is room for bad actors to take advantage. Clear, transparent rules benefit everyone.”
Phil Soper, president and CEO of Royal LePage, says he’s also in favour of more transparency but says it should come through provincial real estate acts, not the Criminal Code.
He says some real estate boards have been sensationalistic in their reaction to the Liberal proposal, but he also says it is unfair to characterize the bidding as blind.
“Buyers do know if others are bidding, how many are bidding, and what houses in the area have sold for and whether that was over list price,” he told CTVNews.ca in a phone interview.
That available data usually leads to the ability to make an informed, logical bid, says Soper, especially with the help of a realtor. In extraordinary times, sometimes the market gets unbalanced.
Knowing the value of what others are bidding is the necessary next step in transparency, he says, but no realtor or brokerage is going to push that onto their sellers – who like the blind system – without industry consensus or regulation that requires it.
Full disclosure of bids will ultimately lead to happier consumers, but it won’t bring lower home prices, Soper says.
The primary driver of sharply increasing home values is scarcity of supply. Canada has to build more housing to meet demand from a large cohort of millennials looking to enter the housing market and from newcomers to the country.
“I’m happy to see that all the major parties are coming out with policy ideas around the creation of more housing for rent and purchase. There appears to be an understanding that’s how we have to fix this problem.”
CONCLUSION
The big question is, does the federal government have the jurisdiction to do what the Liberals are proposing with blind bidding?
Not entirely.
Even though the federal government has jurisdiction over the Criminal Code and financial institutions, it doesn’t entirely oversee the housing sector or consumer protection. So, for the Liberals to implement their proposal, they will need buy-in and cooperation from the provinces, says Yan.
“Consumer protection falls in this grey area between the federal and provincial levels. There are also a lot of players in the housing sector. So, this really is going to have to have cooperation from the provinces.”
Craig Munn, a spokesperson for the Real Estate Board of Greater Vancouver, told CTVNews.ca via email that it’s not clear what authority the federal government would have in the sale of private property, since the real estate industry is regulated provincially.
“The Liberal proposal to ban so-called blind bidding came with scarce details. We haven’t seen evidence that such a government action would improve anything. In fact, we worry that it could limit the options and freedom of home sellers when selling their most important asset while, at the same time, doing nothing to help home buyers.”
Edited by CTVNews.ca producer Phil Hahn
