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Editor's note: This article originally appeared on The Trillium, a Village Media website devoted exclusively to covering provincial politics at Queen’s Park.
After years of news stories about developers hiking the prices of pre-construction homes that Ontarians have already agreed to buy, the province is consulting on potential new measures to stifle the practice.
In one of the latest, CBC reports on would-be Ottawa homeowners who signed pre-construction contracts between 2017 and 2019, only to find the developer still hasn't begun building the townhomes. They're being offered refunds on their deposits but suspect the developer wants to resell the homes for higher profit.
Back in 2021, Premier Doug Ford promised to "end the practice" of forcing people with contracts for new homes to either walk away with their deposits or pay more to keep them, after a controversy over a new development in Barrie.
On Thursday, the province opened a consultation process on consumer protections related to new home purchase agreements and price escalations. It's open to consumers and industry professionals and asks for feedback on proposed new rules as well for people to share their experiences with these kinds of price escalations and their ideas to fix the issues.
The strongest measure the government is considering is price caps: both on the amount a developer can hike the price of a new home for which there is a purchase agreement and for how much they can sell it for after cancelling a previous agreement.
"After a buyer has signed a purchase agreement for a new home, some builders may try to increase the price of the home in ways that are unrelated to price adjustments ordinarily associated with completing the purchase of a new home," the consultation document says. "In some cases, the additional amount that a builder demands from a buyer may be hundreds of thousands of dollars."
The cap could be a percentage of the original selling price and could apply to all price increases, or be limited in some way — such as to cap only cost increases related to increased construction prices.
The document weighs potential pros and cons.
"If the price cap proposal were implemented, it could provide clarity about whether a builder’s request for an increase in the price is permitted under the agreement," it says. "However, if a price cap is too restrictive, some builders may not have the funds needed to complete the homes they have committed to building. In addition, some builders may see a price cap as authorization to include provisions to increase the price of a home up to the maximum amount permitted. Finally, price caps may encourage builders to either change the design of the home they originally proposed to build, or compromise on its quality, to maintain their profit margins."
The Ministry of Public and Business Service Delivery document also recognized that in some cases, "new home purchase agreements have been terminated and then offered for sale to the original or another buyer at a higher price."
One proposed solution the government could consider, it says, is that the builder could be required to pay the difference in the purchase agreement price to the original buyer, rather than pocketing it.
Other proposals include making it easier for consumers to launch class action lawsuits against builders who attempt to escalate the prices of their new homes and publishing information about the number of purchase agreements for freehold homes a builder has cancelled for a reason unrelated to the fault of the buyer, so that prospective buyers can make better-informed decisions.
The government is also considering instituting a mandatory cooling-off period for buyers of all new freehold homes and instituting a mandatory legal review for consumers, either pre-purchase or post-purchase.
The public consultation is open until Aug. 13, 2023.
