RBC delivers its verdict
The federal government’s budget for 2022 put the spotlight on housing and paved the way for the development of concrete solutions to the affordability crisis, but RBC Economics stressed that any such changes are not likely to be immediate.
Last week, Finance Minister Chrystia Freeland announced as much as 29 new housing-related measures worth $10 billion over five years, RBC estimated.
“Nearly all were taken from last fall’s Liberal election platform and run the gamut from supply-boosting initiatives to speculation curbing measures and new support for buyers,” said Robert Hogue, senior economist at Royal Bank of Canada. “Whether Freeland’s new measures will bring quick relief to Canadians struggling with poor housing affordability is another story. Many of the measures announced won’t be effective for some time.”
The scope of the measures, coupled with the sheer size of the funds allocated for the purpose, send a strong message regarding the Liberals’ commitment to addressing the long-running affordability issue, Hogue said.
“Some measures (e.g. the foreign buyer ban and anti-flipping tax) are clearly designed to shake things up and effect a change in market direction,” Hogue said. “Others tackle the lack of supply (e.g. the accelerator fund, rapid housing initiative, and funding for co-op projects). And still others give additional help to hard-luck buyers (e.g. an increased tax credit, new tax-free savings account, one-time payment) to cope with soaring housing costs.”
Read more: Budget 2022: Mortgage industry on hits and misses
The strengthened focus on improving housing supply was a positive development, Hogue said.
“The last two years have clearly exposed the dangers of regulatory and administrative constraints impeding supply response. We think the Housing Accelerator Fund is a good example of the constructive role the federal government can play to unlock local supply,” Hogue said. “We also welcome the increase in funding to address the lack of affordable housing across the country.”
However, RBC Economics expressed some scepticism towards the ban on foreign home buyers, saying that any direct impact of the measure will be “minimal”.
“Non-residents own less than 2% of the housing stock in most markets – with recreational areas (exempt from the ban) typically seeing the higher rates – so their influence tends to be localized at best,” Hogue explained.
Taken together, the measures outlined in Budget 2022 are likely to mix with provincial-level policies and the central bank’s rate hikes – leading to a welcome respite for the overheated market.
“The Bank of Canada is widely anticipated to hike its policy interest rate by a hefty 50 basis points – and in our opinion a further 100 basis points by year-end. The latter represents a significant shift in a factor that’s been a strong tailwind for housing demand,” Hogue said. “Add upcoming municipal policy action into the mix – Toronto and Ottawa are eying empty-home taxes – and the landscape is looking less favourable for the market. We believe this will cool the high temperature of the market down by several degrees.”
