Thinktank calls for fewer measures aimed at driving up demand
Healthcare and the transition to green energy are expected to be the centrepieces of finance minister Chrystia Freeland’s upcoming federal budget – but that’s not to say housing will be sidelined entirely.
The governing Liberals have introduced a litany of proposals and measures in recent years aimed at improving affordability for Canadians in the housing market, not least a tax credit and shared equity scheme for first-time homebuyers.
Still, a leading thinktank is calling, in its newly released shadow budget, for the government to exercise restraint and avoid fuelling demand for housing in its fiscal approach.
William Robson (pictured top), president and CEO of the C.D. Howe Institute, told Canadian Mortgage Professional that federal policies aimed at stimulating demand in recent years had served to shine a light on the chronic supply shortages facing Canada’s housing market.
“The problem that we have with much federal policy or potential policy towards homeownership is that it’s stoking demand, and the supply isn’t there,” he said. “So that’s one of the reasons why we think housing prices in general have been so high, and that’s helping to price people out of the market.”
Is it time to get rid of the tax credit for new buyers?
The Institute’s shadow budget, published last week, proposes to phase out the tax credit for first-time homebuyers and keep Canada Mortgage and Housing Corporation (CMHC) mortgage insurance premiums at their current level.
Increasing the latter subsidy, it argues, would “further distort credit markets towards housing rather than business lending,” with the overextension of household debt identified as a particular issue.
“This is just not the right time to be encouraging people to take on new debts,” Robson said. “Especially if you’re a first-time homebuyer, the chances are that you’ve not experienced a cycle of inflation and interest rate increases like the one that we’re now into.
“The problem is the federal government does very little to add to housing supply, but they’re pretty good at stoking demand. And so that has given us a lot of housing market vulnerability. I don’t think the financial institutions are in trouble… if there’s a recession that could become a more general problem, but certainly for many of the people who might have gotten overextended, this is a dangerous period.”
NEW: The @CDHoweInstitute’s Federal Shadow Budget is now out.
— C.D. Howe Institute (@CDHoweInstitute) February 24, 2023
Read the full report from William B.P. Robson, Don Drummond & Alexandre Laurin here → https://t.co/QBph1PzDw5 #cdnpoli #cdnecon pic.twitter.com/WU8U05CUpy
Immigration targets need to be amended, Institute argues
The document also calls for a recalibration of the federal government’s immigration policy, which will see the arrival of nearly 1.5 million new Canadians before 2025.
Rapid short-term increases in the number of new arrival will further expose the housing inventory shortfall, the Institute said, calling for a more comprehensive selection criteria “to ensure people with the appropriate skills and experience are coming to Canada.”
Robson said the current government’s approach to immigration had been incoherent, and that changing and relaxing admission criteria to bring in more unskilled labour – for instance, to help build more homes – ran the risk of harming Canada’s traditionally strong immigration system.
“We’ve had quite a successful immigration policy over decades in Canada using the point system to evaluate principal applicants in the economic stream,” he said.
“And if the bar changes a lot in the interest of getting more people in faster, or you end up with more people who are coming in under other categories, the immigrants that are coming in now are going to be less successful economically than their predecessors were – and that’s not good for anybody.”
The Institute’s overall aspiration for future government policy, Robson said, is ultimately “less consumption, less stoking demand, and the need to make sure that long-term growth improves.”
Rather than so-called “gimmicks” such as special tax credits and inducements for people to borrow more, he said the pathway to affordable housing was “good jobs that pay high wages and that have the prospect of advancement over time.”
That’s especially relevant considering the harm that can be done by a tightening cycle in monetary policy such as the present one: while increases in borrowing costs and mortgage payments are usually navigable, the longer-term impact on employment prospects and wages can be harder to recover from.
When people start losing their jobs and getting laid off, Robson said, “that’s when you get into the really painful part because the debt that might have been possible to service at a slightly higher interest rate suddenly becomes impossible to service at any interest rate when you don’t have the income.”
What are your hopes and concerns ahead of the next federal budget? Let us know in the comments section below.
