In today’s Konfidis Insights, we profile a recent CBC article: Critics call out a lack of measures in the federal budget to push down the high cost of housing
What's in the budget on housing?
The budget acknowledges that a lack of affordable housing in Canada is having a negative effect on the Canadian economy. "For too many Canadians, including young people and new Canadians, the dream of owning a home is increasingly out of reach, and paying rent has become more expensive across the country," the budget document says. "This is undermining the financial stability of an entire generation of Canadians."
But the budget mostly highlights previously announced measures on housing and housing affordability. The most notable among them is the new tax-free First Home Savings Account (FHSA), which the budget said would launch on April 1, 2023. The account works like a Tax Free Savings Account (TFSA) and allows first-time home buyers — or those who have not purchased a home in the previous four years — to make tax-deductible contributions and tax-free withdrawals to purchase a home. Those eligible can save up to $40,000 toward a home purchase, with a maximum annual contribution of $8,000 over five years.
The budget did announce one housing measure: an additional $4 billion over seven years, starting in 2024-25, for the development of an Urban, Rural and Northern Indigenous Housing Strategy.
The government also made a number of changes the day before the budget to new rules that restrict and penalize foreign ownership of real estate in Canada. Certain non-Canadians in the country on work visas can now purchase residential property. The changes also allow foreigners and foreign companies to buy vacant land and buy properties zoned for residential and mixed use if they intend to develop them.
Nemoy Lewis, an assistant professor at Toronto Metropolitan University's School of Urban and Regional Planning, called the budget's approach to affordable housing "lackluster." He said he'd like to see all levels of government work more closely with each other to build more housing — especially for society's most vulnerable.
RE/MAX Canada president Christopher Alexander agreed that the federal government needs to work with provinces and municipalities on boosting supply. He said he's seen no indication a plan to do so is coming. "We've been saying for several years now that it has to be a concerted effort ... I just don't think anybody understands the gravity of our inventory challenges," Alexander said. The government has announced it wants to welcome a record 465,000 new immigrants to Canada this year, in part to address labour shortages. But experts have raised concerns about the effect of accelerated immigration on housing demand and supply. Alexander said many building trades are still looking at shortfalls despite an increase in skilled immigrants. "With everybody coming to the country, and a projected labour shortage, I just think we need a better, three-level of government plan," he said. "We really need building capacity to increase."
"In a broader public policy sense, Ottawa's housing strategy remains confusing," David Holt, Scotiabank's vice president and head of capital markets economics, wrote in a budget reaction report. "The feds have thrown open the immigration doors into a market with no supply while another tax subsidy to housing starts up on Saturday in the form of the first-time homebuyers tax-free home savings account."
On Friday, Prime Minister Justin Trudeau defending his government's approach to housing. He pointed to his government's development of a National Housing Strategy to address housing issues in the country. "The reality is that no government has done more on housing than us," Trudeau told a news conference. “We’ve ensured that millions of Canadians have access to new homes over the past years. We have moved forward last year with $10 billion dollars in investments in housing that are being rolled out right now across the country.”
Opposition critics slam government on housing.
Earlier this week, the City of Mississauga rejected two proposed residential tower developments. Conservative housing critic Scott Aitchison has said that if his party forms the next government, cities that block housing projects will be excluded from federal infrastructure funding. He said it's an idea the Liberal government should adopt. "We're calling on this government to take a full operation approach. Pull out every stop. In a crisis, you pull out every stop. We need to tie federal infrastructure dollars to getting things done faster in cities," Aitchison said Wednesday. Aitchison accused the government of not taking the housing problem seriously. "I think the problem with the government is they don't understand the situation that we're in in this country," he said. "It is, in fact, a crisis. The minister doesn't get that."
In his remarks Friday, Trudeau criticized the Conservatives' approach to municipalities and housing. He mentioned the government's Housing Accelerator Fund, which aims at providing incentives for municipalities to build and approve more housing. It's set to launch later this year. "The Conservatives, on the other hand, have continued to pick fights with municipalities, continue to threaten them when everybody knows that solving housing challenges means working together to be there for Canadians," Trudeau said.
Konfidis Conclusion
With roughly 500,000 newcomers expected to immigrate to Canada each year, and with the majority landing in Ontario, Ontario needs to build no less than 1.5 million homes over the next decade; but as detailed above, critics continue to believe that the Canadian Federal government is not doing enough to address the alarming shortage of new construction. The trend of reduced residential construction is in stark contrast to the accelerating demand for housing brought on by sustained immigration levels, especially when considering the market for single-family homes in Ontario’s secondary markets.
With this backdrop, Konfidis continues to see a very compelling landscape for single-family rental ownership in Ontario’s secondary markets as the long-term supply and demand fundamentals that support strong home price appreciation and inflation protection.