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OPINION: Good on paper, but can the 2024 federal budget really break ground on Canada’s housing crisis?

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On April 16, Canada’s federal government presented Budget 2024. Leading up to the official unveiling, we knew its contents would be heavily focused on tackling Canada’s housing crisis as several pre-budget announcements revealed billions of dollars in proposed spending to support infrastructure and housing construction — with a focus on purpose-built rental units — in addition to new mortgage amortization rules and renter protection policies.

While the federal government has stepped up its efforts to tackle Canada’s housing crisis, it’s vital that all levels of government across the political spectrum continue to work together to relieve pressure on the country’s over-stressed housing market. 

 

‘Financial carrots’ risk pouring fuel on the fire of demand-supply imbalance 

 

Supply and demand are two sides of the same complicated coin that is the country’s housing crisis. Both deserve attention.

We should, however, approach demand-side policies and financial incentives for buyers with caution. We mustn’t lose focus on the fundamental underlying issue: the country’s dire inventory shortage. 

Initiatives aimed at making it easier for young Canadians to enter the market are welcome, such as increasing the RRSP penalty-free withdrawal limit through the Home Buyers’ Plan, or the new (and impressive) tax-free First Home Savings Account, which can accelerate down payment savings for buyer hopefuls.

These financial carrots do tend to encourage more buyers into the market, however, and can have an inflationary impact on home prices. Put simply, a young buyer may find themselves no farther ahead if home prices leap by an amount equal to or greater than the value of the incentive.  

Policies focused on artificially diminishing buyer demand with a new tax are even more economically troublesome. These attempts to stabilize home prices create a buyer backlog bubble — pent-up demand that is inevitably released into the marketplace in a lumpy fashion, the equivalent of two or more years of demand all at once — causing home prices to spike. 

Without addressing the acute shortage of homes in our country, traditional demand management policies are doomed to fail. 

 

A balanced rental market benefits Canada’s overall housing economy

 

It’s essential to the overall health of Canada’s real estate economy that we create a sustainable, well-oiled rental market system that encourages respect and cooperation between tenants and landlords, as this is often the first step in a young person’s path to home ownership.

The government’s new Renters’ Bill of Rights, which proposes such measures as requiring landlords to disclose a clear history of a unit’s pricing and allowing tenants’ monthly rent payments to count towards their credit score, is a promising advancement in increasing transparency and protecting renters.

Monthly rent costs have gone up materially in recent years, and vacancy rates in Canada’s major cities are near zero. Tax incentives for builders of purpose-built rental buildings aimed at low-income Canadians are an important step. These programs should be extended to builders of middle-priced rental housing as well. Policymakers need to recognize that housing is an ecosystem and to free up properties for low-income Canadians, there must be more move-up options for the people currently living in those units.

Finally, we cannot forget that the most important providers of rental housing in the country are the millions of individual property investors. These entrepreneurial landlords, who are the foundation of affordable housing stock for the roughly one-third of Canadians who are tenants, are a vital piece of the puzzle.

We should be encouraging more small-scale landlords to contribute to Canada’s rental housing inventory in an effort to alleviate some pressure from the highly competitive market. The proposed low-cost loans for homeowners to add a secondary suite to their properties could be a positive step in the right direction.

 

Canada still needs more ‘missing middle’ housing inventory

 

Focus recently has shifted to incenting the rapid construction of more homes, which is the solution needed to address our housing affordability challenges. With more than two-thirds of Canadians already homeowners, and many more who desire to own their own property, it’s encouraging to see the federal government committed to helping get more shovels in the ground. If Canada’s population continues to grow at a robust pace, we’ll have to significantly increase the number of homes we’re building to keep up.

While offering incentives for the development of purpose-built rental buildings addresses one issue, it highlights another: Canada’s desperate need for housing stock for middle-income, move-up buyers. There’s a severe lack of inventory available for young Canadians looking to trade in their condominiums for a home suitable for a growing family.

Though much of the 2024 budget focuses on creating much-needed rental accommodations, we cannot overlook the importance of building a variety of housing options that serve the growing cohort of Canadians who require single-family housing.

 

While the policies proposed in the 2024 federal budget present some encouraging solutions on paper, the real test will be whether or not policymakers can execute these promises. Making significant strides toward resolving Canada’s housing crisis will require concrete action from all levels of government.

 


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