How will Trump affect the Canadian housing market?

If there’s one thing we can agree on now that the US election is behind us, surely it’s that it’s been as divisive as any we’ve ever seen. For our purposes, let’s just leave the politics at that. I’m now curious about how Trump will affect the Canadian housing market.

As with any major US administrative change, there are bound to be repercussions we can feel up here. In a spring report, CIBC World Markets said the Canadian economy is inextricably tied to the US, and that Democratic administrations have historically proven more beneficial to us.

It’s an enormous undertaking to grasp it all and sift through the information coming at us these days, but those who specialize in such things have been busy doing their analysing and here are some things we may need to prepare for:

Although it certainly has its critics, NAFTA has not been, at least for Canada, “the worst trade deal maybe ever signed, anywhere,” as Trump asserted on the campaign trail. Canada-US relations analyst and Johns Hopkins University professor Chris Sands told Global News that the uncertainty of whether the new administration will scrap NAFTA and stop pursuing the TPP is going to be “terrible” for us. It will “lead a lot of investors to believe the need to move their plants to the U.S. side of the border just to avoid potential trade shock.”

We tend to be pro-trade, which certainly makes sense given our small population, but Trump is a protectionist, and new duties and tariffs could drive up prices on all manner of goods, including construction materials. Trade deals are much more important to us than to the US.

When it comes to climate change, I’m of the mind that it doesn’t really matter who’s responsible — when your house is on fire, you try to put it out. But if Trump does reverse many of the green initiatives of the current administration, Catherine Potvin, a biology professor and climate change expert at McGill University, says it could be costly for any business to continue to drive towards a low-carbon economy.

A Trump administration could also put on the pressure to increase defence funding, as Canada currently doesn’t meet NATO’s standard of two percent of GDP. (Equal pressure could have come from a Clinton administration – the goal is supposed to be met by 2020.)

The common thread — whether changes to trade deals or failure to pursue new ones, scrapping climate-change policies or increasing defense spending — is that all these things cost money that has to come from somewhere, whether it’s new taxes or increased prices for consumers.

Specific to the housing industry, it may be Trump’s promises to deport unpapered workers that hits the hardest. Although analysts have been predicting a gradual hike in US interest rates, a Trump win may mean all bets are off. US unemployment is at near-historic lows, less than 5% in June, and removing so many people from their labour pool could create a catastrophic shortage.

“The country is entering what economist call full employment,” said Phil Soper, CEO of Royal LePage in MoneySense. “By taking that many workers out of the labour force, Trump could bring business to a grinding halt.” It would mean rapidly rising costs of wages, which in turn makes businesses contract and slow down.

Keeping rates low encourages businesses to continue to expand thanks to cheap credit, but many have said that after six years of near-zero rates, it’s time for them to inch up; continued low interest rates in the US likely mean the Bank of Canada would follow suit. If we aren’t looking to interest rates to cool housing prices, we’re going to have to look elsewhere.

Sellers could see a further surge in demand if even some of the Americans who threatened to move here in the event of a Trump win do so, especially as the US dollar still has about 30% more buying power than ours. Since Vancouver introduced its foreign buyers’ tax, some of that renewed interest could be focussed on the GTA.

We’ll just have to watch and see how it plays out, but for now, all indicators point to higher prices and the potential for further sluggishness in our current slow-growing economy.

In the meantime, although the excitement of the US election has kept us occupied, the wheels keep turning in Ontario’s housing industry. This week, Finance Minister Charles Sousa announced that the provincial government is moving to double the maximum tax rebate offered to first-time buyers and hike the land transfer tax to 2.5% from 2% on home purchases over $2 million, an increase that could bring in $105 million annually.

First-time buyers won’t pay land transfer tax on the first $368,000 of purchase price. As the average price for all types of properties jumped 21% last month year-over-year, bringing it to $763,000, there’s no question that something had to be done to help first-time buyers, and this is at least a first step. The province expects to bring in $2.36 billion in land transfer tax this fiscal year, $314 million more than predicted in their February budget forecast. The changes will take effect Jan. 1, 2017.

If nothing else, these are interesting times.

Feature image: By Gage Skidmore from Peoria, AZ, United States of America - Donald Trump, CC BY-SA 2.0.