{"id":1544,"date":"2022-04-08T17:51:32","date_gmt":"2022-04-08T17:51:32","guid":{"rendered":"https:\/\/www.rbc.com\/en\/economics\/2022\/04\/08\/budget-2022-is-big-on-housing-but-wont-immediately-relieve-affordability-crisis\/"},"modified":"2022-04-08T17:51:32","modified_gmt":"2022-04-08T17:51:32","slug":"budget-2022-is-big-on-housing-but-wont-immediately-relieve-affordability-crisis","status":"publish","type":"post","link":"https:\/\/www.rbc.com\/en\/economics\/canadian-analysis\/canadian-housing\/special-housing-reports\/budget-2022-is-big-on-housing-but-wont-immediately-relieve-affordability-crisis\/","title":{"rendered":"Budget 2022 is big on housing, but won’t immediately relieve affordability crisis"},"content":{"rendered":"

Housing was expected to be a major theme of the 2022 federal budget\u2014and it was. Finance Minister Chrystia Freeland announced 29 new housing-related measures (by our count) worth $10 billion over five years. Nearly all were taken from last fall\u2019s Liberal election platform and run the gamut from supply-boosting initiatives to speculation curbing measures and new support for buyers.<\/p>\n

There\u2019s a lot for the market to digest at the moment, including recent housing-related announcements in Ontario and Nova Scotia, and more importantly, the prospect of faster-rising interest rates. Given this, we expect the market to adopt a more cautious stance in the wake of Budget 2022. <\/p>\n

Whether Freeland\u2019s new measures will bring quick relief to Canadians struggling with poor housing affordability is another story. Many of the measures announced won\u2019t be effective for some time. Still efforts to address supply issues go in the right direction even if federal power is limited in that regard, and any benefits will be realized only gradually<\/p>\n

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Supply-side measures<\/h4>\n
  • Housing Accelerator Fund<\/b> ($4 billion over 5 years) managed by the CMHC to help municipalities speed up construction approval times, update zoning and permit issuance systems and increase densification. It targets the creation of 100,000 additional units by 2024-25.<\/li>\n
  • Rapid Housing Initiative extended by two years<\/b> to 2023-24 ($1.5 billion) to create at least 6,000 new affordable housing units.<\/li>\n
  • Loans and funding programs for co-op housing projects<\/b> ($1.5 billion). The government expects this to help create 6,000 co-op housing units.<\/li>\n
  • National Housing Co-investment Fund<\/b> will advance the spending of $2.9 billion by 2025-26, accelerating the creation of up to 4,300 units and the repair of up to 17,800 units for vulnerable Canadians.<\/li>\n
  • A new Multigenerational Home Renovation Tax Credit<\/b> of 15% on the construction of a secondary suite for a senior or adult with disability (up to a maximum cost of $50,000), providing up to $7,500 in support starting in 2023.<\/li>\n
  • Bulking up the Affordable Housing Innovation Fund<\/b> by an additional $200 million, including a dedicated $100 million to develop and scale up rent-to-own projects. <\/li>\n
  • Flexibility within federal infrastructure programs<\/b> to tie access to infrastructure funding to actions by provinces, territories and municipalities to increase housing supply.<\/li>\n
  • A variety of programs to foster the \u2018greening\u2019 of housing<\/b>.<\/li>\n

    Speculation curbs<\/h4>\n
  • Two-year ban on foreign buyers<\/b> of non-recreational residential properties, with exemptions given to permanent residents, temporary foreign workers and students, and non-residents buying their primary residence in Canada.<\/li>\n
  • Anti-flipping tax<\/b> applying to capital gains made on principal residences bought and sold within less than 12 months. It will become effective January 1, 2023 and contain several exemptions to account for special life circumstances (e.g. death, divorce, new job). <\/li>\n
  • All assignment sales of newly constructed homes will become fully taxable<\/b> for GST\/HST purposes, starting May 7, 2022.<\/li>\n

    Support for buyers<\/h4>\n
  • Introduction of a First Home Savings Account<\/b> (estimated to provide $725 million in support over five years) in 2023 in which Canadians will be able to invest up to $40,000 tax-free.<\/li>\n
  • Doubling the First-Time Home Buyers\u2019 Tax Credit amount<\/b> from $5,000 to $10,000, representing up to $1,500 in additional support to homebuyers. It will apply retroactively to homes purchased since January 1, 2022.<\/li>\n
  • Buyer\u2019s bill of rights:<\/b> the federal government will engage with provinces and territories over the next year to develop and implement a buyer\u2019s bill of rights and introduce a national plan to end blind bidding.<\/li>\n
  • One-time $500 payment<\/b> in 2022-23 to Canadians facing housing affordability challenges. The measure is estimated to cost $475 million, though details will be revealed at a later date.<\/li>\n<\/div>\n<\/div>\n<\/div>\n
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    Something for everyone <\/h4>\n

    Topping the list of budget measures are: a $4-billion housing accelerator fund to help municipalities speed up project approval processes; accelerated and additional funding for affordable housing projects; a ban on foreign buyers of non-recreational residential properties; an anti-flipping tax; a new first home savings account allowing first-time home buyers to save up to $40,000 tax-free; a one-time $500 payment to Canadians facing affordability challenges; and a doubling of the first-time homebuyer tax credit amount from $5,000 to $10,000.<\/p>\n

    The size of package sends a loud message<\/h4>\n

    Some measures (e.g. the foreign buyer ban and anti-flipping tax) are clearly designed to shake things up and effect a change in market direction. Others tackle the lack of supply (e.g. the accelerator fund, rapid housing initiative, and funding for co-op projects). And still others give additional help to hard-luck buyers (e.g. an increased tax credit, new tax-free savings account, one-time payment) to cope with soaring housing costs. Individually, many of these measures aren\u2019t likely to move the needle much or will do so only gradually over time. But together, they send a loud message that the government is eager to do what it can to steer the market onto a more sustainable\u2014and affordable\u2014path. <\/p>\n

    Three cheers for focusing on supply<\/h4>\n

    We\u2019re pleased to see a focus on growing the supply of housing. The last two years have clearly exposed the dangers of regulatory and administrative constraints impeding supply response. We think the Housing Accelerator Fund is a good example of the constructive role the federal government can play to unlock local supply. We also welcome the increase in funding to address the lack of affordable housing across the country. Both go in the right direction.<\/p>\n

    Buyers get more support <\/h4>\n

    We\u2019re not surprised by the additional support buyers\u2014especially first-time buyers\u2014get. Housing affordability has deteriorated to the point that it\u2019s now harder to become a homeowner in Canada than at any point since 1990. We\u2019d caution that measures that ultimately boost demand tend to perpetuate the imbalance between demand and supply, and do little to temper price appreciation. <\/p>\n

    Foreign-buyer ban not a game-changer<\/h4>\n

    We suspect the direct market impact of a temporary ban on foreign buyers will be minimal. Non-residents own less than 2% of the housing stock in most markets\u2014with recreational areas (exempt from the ban) typically seeing the higher rates\u2014so their influence tends to be localized at best. <\/p>\n

    But markets tend to notice big housing packages <\/h4>\n

    Nevertheless, we think the breadth of measures announced in this budget will make a big impression on the market. Large housing packages introduced by British Columbia in 2016 and Ontario in 2017 caused market participants to pause (briefly) while assessing implications. Minister Freeland\u2019s housing budget has the potential to do the same.<\/p>\n

    Bottom line? Federal measures, provincial moves and rising rates add up to a lot<\/h4>\n

    The suite of federal measures comes a week after Ontario and Nova Scotia announced new or expanded taxes on foreign buyers, and less than a week before the Bank of Canada is widely anticipated to hike its policy interest rate by a hefty 50 basis points\u2014and in our opinion a further 100 basis points by year-end. The latter represents a significant shift in a factor that\u2019s been a strong tailwind for housing demand. Add upcoming municipal policy action into the mix\u2014Toronto and Ottawa are eying empty-home taxes\u2014and the landscape is looking less favourable for the market. We believe this will cool the high temperature of the market down by several degrees.<\/p>\n

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