Canada’s New Housing Plan Won’t Help, But Slowing Immigration Will: BMO

Canada’s New Housing Plan Won’t Help, But Slowing Immigration Will: BMO

Canada just announced billions in new measures to correct the housing issues it created. Last night the Government of Canada (GoC) released its latest budget, including billions in spending on new housing stimulus. BMO provided a list of the recent changes, noting they’ll have a limited impact, given most of the measures are demand stimulus. However, they do see affordability improving soon—due to new limits on immigration. They reiterated that Canada doesn’t have a problem building, it has a problem with policy stimulating demand. 

New Measures Mostly Fluff, Immigration To Do Most of The Work

In the days leading up the budget, measures trickle out in the preceding days. This one was no different, just revealing more details on some of the programs. Those programs were largely already broken down by the bank. They believe “… the market impact should be minimal,” explained Douglas Porter, Chief Economist at BMO. 

Adding, “At the same time, caps on nonpermanent residents should carve population growth down to 1% or lower in the years ahead, which will likely have the biggest impact at the end of the day. After all, housing has been hit by massive demand shocks, not a lack of building.” 

The only surprise was not directly related to housing, but will impact quite a few investors/recreational users. The capital gains inclusion rate will rise from 50% to 75% after the first $250k. 

“…[The increased inclusion rate] will impact those planning to sell valuable properties with much lower cost bases,” he explains. 

Recently Announced Housing Policy Measures In The Latest Budget

30-Year Amortizations For First-Time Buyers

As previously discussed, lenders will be able to offer 30-year amortizations on mortgages to first-time buyers when purchasing new construction. This is primarily a policy to preserve prices by helping first-time buyer budgets rise to absorb stagnant inventory, preventing the need for developers/investors to cut prices on the units. Porter feels this will have a limited impact due to the small size of the market. 

“In general though, this is a measure that stokes demand at a time of excess demand, and ultimately does little to improve affordability once prices adjust,” he explains. 

Home Buyers’ Plan RRSP Limit 

First-time home buyers will be able to borrow a lot more money from their RRSPs. The limit that can be borrowed for a downpayment was increased from $35,000 to $60,000. The repayment period has also been extended by 3 years.  

Renters Bill of Rights and Tenant Protection Fund 

This is a group of new measures, the more interesting being a National standard lease agreement. The bank points to this as an odd decision, since it’s a provincially regulated issue. 

A new Tenant Protection Fund will also seek to provide legal assistance.  

He sees the measures potentially acting as a “deck stacked against landlords,” helping to prevent more quality rental supply. He cites increasing incentives such as taxes, landlord-tenant board backlogs, non-payment risk, and market conditions.” 

Accelerated CCA  

Developers of new purpose-built rentals will be able to accelerate the period for writing off CCA. In addition, student rentals—often considered the most profitable segment, will no longer be subject to HST.  

More Mortgage Bonds

The mortgage bond limit is being raised a whopping 50% to $60 billion annually. This is a disaster waiting to happen but requires a deep dive. 

Low Interest Loans For Secondary Suites

The government will be borrowing to provide homeowners with subsidized loans to add secondary suites to their homes. More details are being added this fall.

Housing Accelerator Fund 

Canada’s recently announced Housing Accelerator Fund will get more funding. They’ll also be tying transit funding to densification along transit corridors.  

Standardized Low-Rise Catalog 

Releasing standard housing designs to speed up permitting for low rise housing. Unclear how this would work, since it would largely override provincial and municipal policies.   

Income Verification For Mortgages 

The CRA will be providing lenders with a verification portal, helping to reduce fraud. 

Ban Corporate Ownership of Single-Family Homes 

Large institutions will be banned from purchasing single-family homes, though they provided no real details. It’s hard to see how this would be executed considering how the development process works in major cities. 

We’ll be taking more detailed dives into these measures over the next few weeks.