Housing was expected to be a major theme of the 2022 federal budget—and it was. Finance Minister Chrystia Freeland announced 29 new housing-related measures (by our count) worth $10 billion over five years. 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.

There’s a lot for the market to digest at the moment, including recent housing-related announcements in Ontario and Nova Scotia, and more importantly, the prospect of faster-rising interest rates. Given this, we expect the market to adopt a more cautious stance in the wake of Budget 2022.

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. Still efforts to address supply issues go in the right direction even if federal power is limited in that regard, and any benefits will be realized only gradually

Supply-side measures

  • Housing Accelerator Fund ($4 billion over 5 years) managed by the CMHC to help municipalities speed up construction approval times, update zoning and permit issuance systems and increase densification. It targets the creation of 100,000 additional units by 2024-25.
  • Rapid Housing Initiative extended by two years to 2023-24 ($1.5 billion) to create at least 6,000 new affordable housing units.
  • Loans and funding programs for co-op housing projects ($1.5 billion). The government expects this to help create 6,000 co-op housing units.
  • National Housing Co-investment Fund will advance the spending of $2.9 billion by 2025-26, accelerating the creation of up to 4,300 units and the repair of up to 17,800 units for vulnerable Canadians.
  • A new Multigenerational Home Renovation Tax Credit of 15% on the construction of a secondary suite for a senior or adult with disability (up to a maximum cost of $50,000), providing up to $7,500 in support starting in 2023.
  • Bulking up the Affordable Housing Innovation Fund by an additional $200 million, including a dedicated $100 million to develop and scale up rent-to-own projects.
  • Flexibility within federal infrastructure programs to tie access to infrastructure funding to actions by provinces, territories and municipalities to increase housing supply.
  • A variety of programs to foster the ‘greening’ of housing.
  • Speculation curbs

  • Two-year ban on foreign buyers of non-recreational residential properties, with exemptions given to permanent residents, temporary foreign workers and students, and non-residents buying their primary residence in Canada.
  • Anti-flipping tax applying to capital gains made on principal residences bought and sold within less than 12 months. It will become effective January 1, 2023 and contain several exemptions to account for special life circumstances (e.g. death, divorce, new job).
  • All assignment sales of newly constructed homes will become fully taxable for GST/HST purposes, starting May 7, 2022.
  • Support for buyers

  • Introduction of a First Home Savings Account (estimated to provide $725 million in support over five years) in 2023 in which Canadians will be able to invest up to $40,000 tax-free.
  • Doubling the First-Time Home Buyers’ Tax Credit amount from $5,000 to $10,000, representing up to $1,500 in additional support to homebuyers. It will apply retroactively to homes purchased since January 1, 2022.
  • Buyer’s bill of rights: the federal government will engage with provinces and territories over the next year to develop and implement a buyer’s bill of rights and introduce a national plan to end blind bidding.
  • One-time $500 payment in 2022-23 to Canadians facing housing affordability challenges. The measure is estimated to cost $475 million, though details will be revealed at a later date.

  • Something for everyone

    Topping the list of budget measures are: a $4-billion housing accelerator fund to help municipalities speed up project approval processes; accelerated and additional funding for affordable housing projects; a ban on foreign buyers of non-recreational residential properties; an anti-flipping tax; a new first home savings account allowing first-time home buyers to save up to $40,000 tax-free; a one-time $500 payment to Canadians facing affordability challenges; and a doubling of the first-time homebuyer tax credit amount from $5,000 to $10,000.

    The size of package sends a loud message

    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. 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. Individually, many of these measures aren’t likely to move the needle much or will do so only gradually over time. But together, they send a loud message that the government is eager to do what it can to steer the market onto a more sustainable—and affordable—path.

    Three cheers for focusing on supply

    We’re pleased to see a focus on growing the supply of housing. 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. We also welcome the increase in funding to address the lack of affordable housing across the country. Both go in the right direction.

    Buyers get more support

    We’re not surprised by the additional support buyers—especially first-time buyers—get. Housing affordability has deteriorated to the point that it’s now harder to become a homeowner in Canada than at any point since 1990. We’d caution that measures that ultimately boost demand tend to perpetuate the imbalance between demand and supply, and do little to temper price appreciation.

    Foreign-buyer ban not a game-changer

    We suspect the direct market impact of a temporary ban on foreign buyers 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.

    But markets tend to notice big housing packages

    Nevertheless, we think the breadth of measures announced in this budget will make a big impression on the market. Large housing packages introduced by British Columbia in 2016 and Ontario in 2017 caused market participants to pause (briefly) while assessing implications. Minister Freeland’s housing budget has the potential to do the same.

    Bottom line? Federal measures, provincial moves and rising rates add up to a lot

    The suite of federal measures comes a week after Ontario and Nova Scotia announced new or expanded taxes on foreign buyers, and less than a week before 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. 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.

    Robert Hogue is responsible for providing analysis and forecasts on the Canadian housing market and provincial economies. Robert holds a Master’s degree in economics from Queen’s University and a Bachelor’s degree from Université de Montréal. He joined RBC in 2008.

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