In the early days of the pandemic, the modus operandi of policy makers on Ottawa's Parliament Hill was to act with "speed over perfection" in setting the recovery programs. The federal government now needs to pivot and act with "speed and precision" to make the most out of the new investments announced in the federal budget to deal with Canada's housing crisis. While the budget's $10.2 billion in housing initiatives to accelerate the construction of new homes and help first-time homebuyers pulled the right triggers, implementation will be key in securing early successes in providing Canadians with much needed housing relief. As a politico and a civil servant, including time spent as a director of policy for a federal cabinet minister, I've spent much of my career working on these issues, and here's what I think needs to happen next.
On the supply side, federal, provincial, and municipal housing authorities need to ensure the construction of new housing units are diversified across the entire continuum to respond to the varied needs of Canadians. The budget sets the stage for this, with a mix of approaches to increase housing supply. Municipalities are at the forefront of generating this supply yet a lack of tools and resources often constrains them. The government's $4 billion investment in the Housing Accelerator Fund to help to reduce delays in zoning, approvals and permitting processes is good news.
As well, housing co-ops offer an effective business model for a truly mixed-income approach, with varied rent levels for the same project and the ability to maximize the socioeconomic benefits of diversified communities. Traditionally, however, both housing co-ops and municipalities have focused their interventions on the so-called "deep subsidy" end of the housing continuum, which means renters pay below 80 per cent of the market rental rates. The federal government should use its significant powers of moral suasion to ensure that non-subsidized and modestly subsidized renters are also well supplied.
On the housing demand side, the government's approach is more incremental. The new "no tax in, no tax out" home savings account and rent-to-own budget initiatives offer some innovative features and will help Canadians save more to purchase a first home. Starting next year, the new savings account will enable Canadians under 40 to contribute up to $8,000 annually to the account in the most tax-advantageous way, for a lifetime maximum of $40,000. For couples, these savings can be up to $80,000. This initiative may incentivize some first-time home buyers to delay their purchase in the short-term in order to make the most of the program. The rent-to-own program is specifically targeted to provide renters who want to buy a home but need more time and support. The way I see it, these programs may actually reduce immediate demand for home ownership in some markets.
Similarly, the two-year ban on foreign investors from purchasing non-recreational, residential property aims to reduce the pressures these market players often create. The extent of foreign investment in the Canadian housing market remains largely unknown, and the budget measures offer a number of legitimate exemptions. The budget also announced a $500 one-time payment for low-income households to help cover rental increases. Because this is a one-time payment, it's not expected to have a material impact on inflating rental costs. The net impact of these measures may seem modest; however, any contribution to slow market demand may help more Canadians find a home.
While some may see the demand-side measures as more limited, this incrementalism is warranted. Mortgage rates, the main driver of housing demand, are now rising. The Bank of Canada's latest increase of its benchmark interest rate by 50 basis points to one per cent—the largest one-time increase in the bank's rate since 2000—may contribute to cooling down Canada's red-hot housing market.
All inclusive, just in time
Clearly, there is no quick fix to soaring house prices. Targeted demand-side measures, combined with swift measures on the supply side, strike the right balance and are a prudent approach. What I'll be looking for now is to see how all these moving pieces fall into place. Implementation and attention to serving all market segments will be critical to the success of this new round of housing initiatives. While the government has been very active in enabling low-income Canadians to access subsidized housing, it's now time to also facilitate the supply of homes for middle-class Canadians, including rental housing at market rates and affordable home ownership. Only then will we achieve the National Housing Strategy's goal to "create a new generation of housing, giving more Canadians a place to call home."
What's your view? Reach out and keep the discussion going.
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