Will Election Promises Improve Housing Affordability
One of the top issues in the 2021 Canadian Federal election is Housing Affordability. Home prices have risen considerably since the beginning of Covid and not just in major cities but across all of Canada.
Each of the Federal parties are proposing different measures to address this but will any of them actually have an effect on housing affordability? I do a deep dive and give you my honest opinion of each of the 4 major platform strategies:
1) Building Homes
The quickest way for the government to affecting housing affordability is by increasing supply, either directly by building homes or by incentivizing the private market to do it.
The federal parties are promising:
LIBERALS: $1.4M homes in years (350k/yr)
CONSERVATIVES: 1M homes in 3 years (333k/yr)
NDP: 500k homes in 10 years (50k/yr)
GREEN: 300,000 homes over 10 years (30k/yr)
Keep in mind that these numbers are for ACROSS Canada. Canada is targeting immigration levels at over 400k per year for at least the next 3 years. Plus the government says that there are over 1.5M households already in core housing need so the number of homes being promised won’t even address the existing backlog, let along the new household formation from immigration, urbanization, demographics and other factors.
IMPACT ON AFFORDABLE HOUSING: MODERATE TO NONE
The affect will all depend on how many homes actually get built. The likely scenario here is that a fraction of the promised homes are actually delivered and it will take longer than expected so there will be virtually no affect to the overall marketplace.
2) Fighting Speculation
All of these proposals proposed attempt to decrease demand by making speculation less profitable
ALL PARTIES: Fight money laundering
Preventing money laundering and proceeds of crime is very important. All parties look to strengthen those protections through increased transparency, reporting of suspicious transactions, etc.
IMPACT ON AFFORDABLE HOUSING: NONE
At a federal level, there already exists anti-money laundering protections. FINTRAC (Financial Transactions and Reports Analysis Centre) requires that for any sale of property, real estate agents must report the identify of their clients, the receipt of funds, suspicious transactions, terrorist property, etc.
NDP: 20% Foreign Buyers Tax
A Foreign Buyers tax would mean that any person who is not a Canadian citizen or permanent resident would have to pay a tax of 20% on the purchase of property in Canada.
IMPACT ON AFFORDABLE HOUSING: NONE
A foreign buyers tax already exists in many of the major Canadian marketplaces (BC: 20%, Ontario, 15%). A federal tax would affect jurisdictions like Alberta that do not a foreign buyers tax but the number of foreign buyers is very small overall. The vast majority of people purchasing real estate are Canadian citizens or permanent residents.
LIBERALS & CONSERVATIVES: Foreign Ownership Ban for 2 Years
A Foreign Ownership Ban would mean that foreigners would not be allowed to buy property for at least 2 years after moving to Canada.
IMPACT ON AFFORDABLE HOUSING: NONE
Immigrants are a huge source of buyers in the GTA and across Canada. Most of them are Canadian citizens or permanent residents or on their path to becoming one of those.
LIBERALS: Anti-flipping tax for properties sold within 12 months of purchase
An anti-flipping tax would be a deterrent to speculating on properties because it would make it less profitable.
IMPACT ON AFFORDABLE HOUSING: NONE
Speculation is not a significant issue because the transaction costs are just too high to be actively buying and selling properties like stocks (land transfer taxes, commissions, etc. must be paid every time a property is sold).
Also, today there is already a tax on flipping properties: if you sell an investment property within a year, the CRA will tax any profits as income instead of capital gains (capital gains are taxed at 50% less than income is). Another tax will not have any greater effect and people can just hold the property for 12 months + 1 day then.
GREEN: Vacant Homes Tax for Foreign and Corporate Owners
A vacant homes tax would introduce a tax if someone is not living in a specific property.
IMPACT ON AFFORDABLE HOUSING: NONE
Every investor wants to rent out their property because they need the cash flow - they have bills to pay and they want to maximize their return on their investment. Not renting out the unit is just bad business.
3) Helping Buyers
Each party is proposing different ways to help buyers (mainly first-time buyers) to buy property
IMPACT ON AFFORDABLE HOUSING: NEGATIVE
Each of these policies will increase demand from the marketplace by allowing more people to be able to afford to purchase a property. Any increase in demand will ultimately lead to higher prices.
4) Protecting the Marketplace
Protecting the market from "irrational exuberance" and external factors that can affect the market is very important regardless of housing affordability.
IMPACT ON AFFORDABLE HOUSING: STABILIZATION
None of these polices are likely to affecting housing affordability but they will act to stabilize the market. This will help to protect the market overall and ensure that there aren't any unanticipated run-off effects.
Summary
There are few novel ideas being proposed by any of the federal parties as part of the 2021 federal election - just more tweaking around the edges and soundbites for the media. Building more homes is the only realistic way to improve housing affordability for Canadians without negatively affecting the market, nationalizing housing, or criminalizing home ownership. None of the political parties are tackling the fundamental reasons why supply is not increasing and are not taking bold steps to improve the situation so I do not expect affordable housing to be affected.
Stay tuned for my thoughts on the best ways to improve housing affordability for Canadians.
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