First National Financial LP

Market Memo: The politics of housing – Sep. ‘23

  • First National Financial LP

Housing has become a top political priority in Canada.  Both the governing Liberals and the opposition Conservatives have had it high on their agendas at recent policy sessions in Charlottetown, Quebec City and London, Ontario.

The Need for More Homes

Canada Mortgage and Housing Corporation sounded the alarm on Canada’s housing problems 15 months ago with a report that said Canada needs to build 5.8 million new homes by 2030 to tackle housing affordability issues.  That number includes 2.3 million units that are already expected to be built, plus 3.5 million more that will need to be added to truly bring affordability back to the market. 

CMHC recently released an update of that report.  Some of the numbers have been adjusted, but it is fundamentally unchanged.  Canada needs to build nearly 6 million homes in the next 7 years to bring affordability back to 2004 levels.

The agency uses 2004 as its base year because it predates the latest cycle of home price increases.  At that time the average Canadian household would have to dedicate 40% to 45% of its disposable income to a home purchase.  Now the proportion is more than 60%.

Ottawa’s Role

Prime Minister Justin Trudeau has taken some heat for saying “housing isn’t a primarily federal responsibility”.  The provinces and municipalities have the most say when it comes to getting homes built.  But Ottawa does have a role to play. 

After the end of the Second World War, with the creation of the Canada Mortgage and Housing Corporation, the federal government got homes built to house returning veterans and workers.  During the 1970s and early ‘80s a series of recessions saw pressure for Ottawa to intervene.

Renewed Involvement

Through the 1990s, though, both Progressive Conservative and Liberal governments pulled back from building affordable housing and, eventually, left the business completely.

Now, 30 years later, housing is back at the top of the political agenda.  Both Prime Minister Trudeau and Opposition Leader Pierre Poilievre have laid out steps they will take to get more homes built faster.  The programs target municipalities and builders.

Battling Policies

Ottawa’s Housing Accelerator Fund now requires local governments to eliminate exclusionary zoning policies.  It calls for faster approvals and higher densities.  It promotes affordability, accessibility and construction near transit.  And it applies to homes across the spectrum, not just “affordable” housing.

Policy proposals introduced by the Conservatives would see federal infrastructure funding tied to, at least, a 15% increase in new units and building permits.  Pierre Poilievre says municipalities would get bonuses for faster permitting, but they would face tax penalties for blocking construction near transit stations.

In an effort to get more rentals built faster the Liberals have

resurrected a 2015 election promise to remove the GST from the construction of new rental apartments.  The Conservative plan is a variation on that theme that would see the GST dropped on the construction of rentals priced below the local market average.

Rental Relief

Building more rental housing is seen as a way to ease demand for home ownership.  That, in turn, should cool price increases, improve affordability and bring more stability to the market.