Government sources tell the Star that the budget sets in motion a plan to double the pace of housing construction by the end of the decade, slap a ban on foreigners buying Canadian homes, set up tax-free savings accounts for prospective first-time homebuyers and put billions into affordable housing for low-income families.
It’s the single biggest spending item in Thursday’s budget, a carry-over from the Liberals’ election platform which survived despite all the rethinking around the war in Ukraine, rampant inflation and the surprising persistence of the pandemic.
“This is very much a housing budget,” one government source said.
For good reason. Even before the pandemic, home prices were climbing out of reach for young people and newcomers in many urban areas. The pandemic took that trend and set it on fire, with house prices climbing almost 30 per cent nationally in the past year alone.
Now, real estate is the source of many layers of uncomfortable inequality — between rural and urban, between homeowners and renters, between young and old, between newcomers and the established — despite a recent and slight cooling of some housing markets.
“The affordability issue is widespread, and it’s creating very significant wealth and inequality issues that will stay for the long term,” says Jimmy Jean, the chief economist at Desjardins Capital.
Right now, he says, the easiest path to getting into home ownership is to have a rich parent.
That has to change, and the Liberals hope that — after several budgets that nibbled at the edges of the housing market — this time it’s different.
Government sources say the goals of the housing package are to dramatically increase construction activity and the supply of middle-class new homes, to help first-time buyers save for down payments, and to make sure the country’s growing population — fuelled in part by immigration — can be housed near where they work.
The package has a collection of spending, tax incentives, new rules and plans to study prickly problems further.
There will be $4 billion in incentives for municipalities to accelerate their permitting and approvals of home-building, with the goal of building 100,000 more units over the next five years.
On the affordable housing side of the equation, insiders feel they have already put a lot of money into that space, but there will be $1.5 billion for new affordable housing through the Rapid Housing Initiative that was inspired by the pandemic. That’s a key demand of the NDP in return for supporting the Liberals in the House of Commons.
There will be $1.5 billion for construction and renewal of co-operative housing.
The budget will also set up a new refundable tax credit for homeowners to renovate their homes to accommodate several generations. People who want to design a new suite in their homes for their aging parents, for example, would be able to claim 15 per cent of up to $50,000 in renovation costs, for a maximum of $7,500 per project.
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And for first-time home buyers who are having trouble saving for a down payment, the government is creating a tax-free First Home Savings Account that combines the type of tax breaks that we see in RRSPs and TFSAs. In other words, up to $8,000 a year can go into the account, tax-free, and be withdrawn tax-free as well.
Renters will see the Canada Housing Benefit enriched, as required by the pact with the NDP.
But just as important as the $10 billion in spending and tax initiatives here are the new rules.
As highlighted in last year’s election campaign, the federal government will move to ban foreign investment in Canadian housing for the next two years. The aim is to dampen speculation in the markets that may be driving prices up beyond the reach of people who actually live here.
There will a commitment to develop a homebuyers’ “bill of rights” that will prevent blind bidding, so that everyone who bids on a house knows what others are bidding, too. The rules will also seek to ensure the true buyers are known and fully transparent, and not hiding behind a real estate agent or façade.
More importantly, the new rules will also deter property flipping. If you buy and sell a property in under 12 months, you’ll be hit by a tax stiff enough to make you think twice.
And they’ll commit to studying how corporate residential companies are buying up large quantities of housing and lumping them together in speculative investment funds, rather than leaving the real estate market for individuals looking to live somewhere.
Will it all be enough? That depends on politics, the labour market and the broader economy.
Legislation will be required for some of the measures. It will come soon but will still require debate in the House of Commons.
Labour and materials will be required for all those construction plans to actually get off the ground, although the budget will also contain some measures to help with recognition of credentials and labour mobility.
And while we’re waiting for all that construction, permitting, saving and renovating to take off, the Bank of Canada is raising interest rates in the face of overheated inflation, driving up the cost of carrying a mortgage. That will undoubtedly dampen demand for homes well before the federal plans for increasing supply kick in.
Regardless of near-term dynamics, there are major forces at work in the Canadian economy that demand a significant rethink by government authorities and homeowners alike, says Jean. Our population is growing steadily, and the gap between what homes we will need and what we have is large.
“The model with everybody owning a home, it’s probably unsustainable,” he says.
The combination of higher interest rates, a slower economy and the big bundle of budget measures will no doubt take the edge off an overheated housing market. But we need a lot more critical thinking in the years to come about how we save, how we live, and how we make all that work for every generation.
Heather Scoffield is the Star’s Ottawa bureau chief and an economics columnist. Follow her on Twitter: @hscoffield
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