I’ll start by congratulating the Liberal party, Justin Trudeau, and all the MPs elected across the country - but what does a Liberal minority government mean for Canada’s housing market?
Before I jump into the Liberal housing promises, I want to point out that this win is kind of miraculous. Trudeau faced controversies that almost no other politician would have survived. What does this tell me? There was a real fear on the left that Canada would have a Conservative government. So much so that it seems like NDP voters may have voted red just to prevent a Conservative government.
But, I’m no political pundit. Let’s get into the Liberals’ promises to improve housing in Canada.
The First-Time Home Buyer Incentive
Earlier this year, the Liberals announced the FTHBI, and there was a lot of controversy surrounding it because it didn’t really help first-time buyers in Canada’s most expensive markets. During his campaign, Trudeau announced that if they won, the FTHBI’s maximum value of the mortgage would increase to $798,000 from $480,000, but only in the Greater Toronto Area, Vancouver, and Victoria, British Columbia.
The FTHBI is a shared equity mortgage through a partnership with the Canada Mortgage and Housing Corporation. The first-timer comes up with 5% to put down, then the CMHC will loan them 5% of the purchase price for a resale home, and 10% for a new construction home.
The CMHC says 2,000 buyers in Toronto
would have qualified under the current criteria if the incentive were available in 2018. Whether the FTHBI is actually a good deal for first-timers is yet to be determined.
When you pay back your loan, it’s interest-free, but you pay back 5% or 10% of the value of the home when it sells. That means if you spent money on home renovations and it increased the value of your home, then the CMHC will benefit from that, even though they didn’t help you with the renovations. But, that said, without the FTHBI, you may not have had the money to buy in the first place. Is it a fix-all? No. Will it help some people buy their first home? Yes. I don’t know any first-time buyers taking on over $700,000 in mortgage debt...but that’s another blog post.
In an effort to taper off foreign speculation, the Liberals have promised to implement a national vacancy tax for non-residents and non-Canadians. Vacancy tax is a scary term for some investors, but don’t worry, if you are a resident of Canada, it won’t apply to you. Though a vacancy tax has been a topic of discussion in Toronto, and it seems to be working in Vancouver. If the Liberals introduce their vacancy tax and it’s successful, perhaps municipalities will adopt the concept for local investors. I don’t like seeing homes sitting empty, so I think I would be okay with it.
Retrofitting 1.5 million homes
Over the next five years, the Liberals hope to retrofit 1.5 million homes by offering free energy audits and interest-free loans of up to $40,000 to make home upgrades based on the energy audits. I like the idea, but I’d prefer if these were grants.
Net Zero Homes Grant
The Liberals want to create a Net Zero Homes Grant, which would pay out up to $5,000 for newly built homes that meet Net Zero standards. I like this idea too because I’m a fan of Net Zero homes, but this isn’t quite as ambitious as the NDP and Green Party Net Zero goals, which aimed for all new buildings to be Net Zero by 2030. I’d prefer if there was something in the middle, like the Grant is a good start, but I’d like to see a plan to move towards standardizing more energy efficient residential development.
Another thing to keep in mind is that the Liberals will likely be collaborating with the NDP on some initiatives, so perhaps some of the NDP’s housing ideas
will come to fruition.
From what I can tell, none of these housing promises will help create more supply. The vacancy tax might bring some properties to the resale and rental markets, but it won’t be a significant amount. The FTHBI has the 10% interest-free loan for new construction homes, higher than the resale loan amount, but this doesn’t help more homes get built, it just pushes more buyers to the new home market. This isn’t helpful if builders
can’t get through the approval process quick enough and have to deal with all sorts of construction delays.
If anything, these housing programs fuel demand and keep people in their homes longer, restricting supply. Unless a detailed plan is unveiled to help build more homes faster and on a national scale, then I predict home prices will continue to rise over the next few years.