Gillis Mortgages is getting political! Well not really! I won’t bore you with my political views but I will let you know how this federal election might affect the housing market.
A lot goes into the platforms of our political parties so I went through them and focused on what is important (please see the link at the bottom for more details). I also only focused on the three biggest parties (Liberal, Conservative and NDP) as some parties haven’t released their housing platforms.
There are two main topics I wanted to discuss that the parties have claimed they will focus on if elected; one is increasing housing supply which is the best way to cure this intense housing market to make it competitive for all and the second is the First Time Home Buyer Plan and this relates directly to most of my clients. For this blog I only focused on housing supply and will publish part 2 about the First Time Home Buyer Plans at a later date.
The Liberal Party plans to build 1.4 million homes in 4 years, donate billions to various housing initiatives such as office space conversion, put a 2 year ban on foreign residential investment and impose a “flipper tax”.
The additional housing supply will definitely help make housing more affordable. This is a simple supply and demand economic law that tells us that if supply increases prices will fall if demand remains the same.
The billions that will be donated is going to a wide range of causes that seems promising but are hard to comment on as we won’t know the benefits or challenges until later. For example; investing to convert office space into housing will create some supply but most of the vacant office spaces are in cities where Canadians are moving away from. If people want to move away from the city then will this initiative depreciate the city’s housing markets while surrounding areas become more and more expensive? Also, will this create a shortage of office space causing commercial real estate to appreciate at an unhealthy rate? These are the questions that will be answered years from now.
Putting a 2 year ban on foreign investment in residential real estate is a good idea. For the most part these foreign investors are capable of going firm and paying cash. Less competition in a market place is better for buyers and creates affordability.
The flipper tax is interesting. If you buy a house and own it for less than 12 months you would have to pay 100% capital gains. This means you wouldn’t make any money on the property if owned for less than a year and you would most likely incur some loss due to closing costs. I don’t see the viability of the “flipper” tax in the long run as this would destroy some livelihoods and “flippers” normally purchase homes that the majority of buyers aren’t interested in, however, in the short run I could see this tax limiting competition.
The Conservative Party plans to build 1 million homes in 3 years, incentivize builders and investors with tax programs, release 15% of federally owned properties for bid and put a 2 year ban on foreign residential investment.
Just like the liberals, the conservatives also plan to increase housing supply; just 400,000 less than their left counterparts.
Incentivizing builders and investors with tax programs seems promising just like the Liberal’s donation strategy; however, we don’t know exactly what these tax programs are. What we do know is that builders will be incentivized to build housing that helps the middle class but mostly the renter market. “Those locked out of ownership find themselves trapped within rental markets where rising prices have made it prohibitively expensive to simply put a roof over one’s head (Zivo, 2021)”.
Releasing 15% of federally owned properties would increase supply but from what I’ve read the release of 15% of federal owned properties is included in the plan to build 1 million new homes. “O’Toole called the federal government the largest real estate owner in Canada and vowed to release 15 percent of government-owned buildings and land to be repurposed in a bid to build one million new homes over three years (News Staff, 2021)”. So, they would be reallocating real estate instead of building new it seems. This also begs the question of what real estate will they be privatizing? Will the conservatives be converting social and affordable housing that the lower class needs? Again, these are questions that will be answered years from now.
Conservatives and Liberals both agree that a 2 year ban on foreign residential investment is needed.
The New Democratic Party (NDP) plans to build 500,000 affordable units over the next 10 years and put a 20% foreign buyers tax.
The NDP takes a different strategy from the Liberals and Conservatives and dedicated their housing platform to help those who struggle the most in the current competitive market “Housing is considered affordable if it costs less than 30% of a household’s before-tax income (CMHC, 2018)”. Affordable housing depends on the government to subsidize payments whether it’s a rental or ownership. This will clearly help those who need subsidized housing but will it help with current affordability problems? Do they think the housing market will sort itself out? Only time will tell.
They also take a different approach when it comes to dealing with foreign investment. Instead of a 2 year ban on foreign housing investment that the Liberals and Conservatives agreed upon, the NDP has opted for a 20% foreign tax. It’s possible that they believe foreign investment is too important for the Canadian economy and instead of banning foreign investment completely they can just tax more and thus profit more.
You may be asking “What party has the most comprehensive plan to help make the housing market more affordable?” The answer is… time will tell. Politicians have a funny way of not seeing their plans through; what they plan on doing and what they actually do are two completely different things. It’s possible that political plans can change based on unpredictable future events. Take COVID for example; I’m sure numerous initiatives were put on hold because the government needed to focus on a global pandemic.
There is one big problem with increasing housing supply that has the most influence on housing policy and it’s the same as the biggest benefit. Earlier in this blog I said, “if supply increases prices will fall if demand remains the same”. Prices falling is great for Canadians who find the housing market unaffordable but affects Canadians who already own a home. These homeowners will see either a reduction in their home value or a lack of appreciation that they’ve come to expect. These homeowners also hold great importance in elections! “So while the federal parties want to rein in housing prices for Canadians who’d like to buy, there’s an incentive to keep the gravy train going for homeowners, who are generally older, more affluent, and more likely to vote than renters. They’re also more likely to inflate the country’s GDP, giving the governing party economic bragging rights (Hauen, 2021)”. So, it’s possible that political parties could create less supply than advertised in order to entice homeowner votes.
I like to consider myself an optimistic person, so let’s say that the government lives up to their promises and homeowners vote with the belief that a healthy medium of affordability and appreciation is achievable, we still don’t have a magic number of homes to be built that will find that healthy balance between supply and demand. For example, the liberals want to build the most homes at 1.4 million. This may be too many and cause homeowners to lose equity in their homes or it may still not be enough and barely put a dent in Canada’s affordability problem.
At the end of the day, the best party to vote for based on your own research is the party that supports the issues that you consider important. Liberals seem to have a “put eggs in multiple baskets strategy” that sees the most homes being built and also the most money donated. The conservatives are focusing more on the middle class and the renter market but are doing so by privatizing some public land. The NDP are focused on affordable housing for those that rely on subsidized housing and are going to be less strict on foreign investment.
I hope I helped you summarize the various political approaches regarding housing! Please see link below for more information…
Zivo, Adam. “Adam Zivo: Why the Conservative Housing Plan Really Is Better than the Others.” nationalpost. National Post, August 28, 2021. https://nationalpost.com/news/politics/election-2021/adam-zivo-why-the-conservative-housing-plan-really-is-better-than-the-others.
Staff, News. “O’Toole Vows to Release Government Property to Build More Housing, Ban Some Foreign Investors.” CityNews Montreal, August 19, 2021. https://montreal.citynews.ca/2021/08/19/erin-otoole-housing-election/.
CMHC. “About-Affordable-Housing-in-Canada.” Canada Mortgage and Housing Corporation, March 31, 2018. https://www.cmhc-schl.gc.ca/en/professionals/industry-innovation-and-leadership/industry-expertise/affordable-housing/about-affordable-housing/affordable-housing-in-canada.
Hauen, Jack. “Should Housing Prices Fall? The Parties Are Dodging the Question.” iPolitics, August 30, 2021. https://ipolitics.ca/2021/08/30/should-housing-prices-fall-the-parties-are-dodging-the-question/.