Last week’s Federal Election will have ripple effects across every Canadian market, and housing is no different. In fact, home ownership was one of the hottest issues during the campaign, as it featured prominently in nearly every leadership debate. Though it’s difficult (if not impossible) to truly know which campaign talking points will make their way to meaningful legislation over the next few years, we’ve partnered with our friends over at True North Mortgage to look at what Justin Trudeau’s Liberal Party and their minority government might mean for Canada’s home buyers and sellers.
A quick disclaimer: The following article is based on pre-election platforms released by each party during their campaign and some best estimates from political and industry journalists, and should be taken purely as speculation.
Now, on to the speculating!
A Minority Government
To start, it’s worth adding a little context to the whole “minority government” aspect. If we look at the history of minority governments in Canada, we see two things: First, even without a ruling majority, legislation still does get passed by minority governments. Whether the Liberals will look to the NDP as allies or try to reach across party lines to their official opposition remains to be seen, but it’ll likely happen sooner rather than later.
Second, minority governments rarely last their entire five-year term. Most end up somewhere around the two-year mark before another election is called. That’s not to say that a minority government can’t have a major impact on federal issues, but know that the new power dynamic in Canadian politics may change again before too long.
With many Canadians still feeling priced out of home markets across the country, it’s no surprise that home buying affordability was a key election issue. Every party stated that making home-buying easier for Canadians would be one of their top priorities - the difference is in how each group wants to address the problem.
For instance, the NDP planned to create heavier taxes on real estate speculators. The Conservative party wanted to change the mortgage stress test (more on that a bit later). For the Liberal Party, their stated plan was built around leaning harder on one of their newest pieces of legislation: The First-Time Home Buyer Incentive (FTHBI). Whether they’ll be able to pass their desired legislation as a minority remains to be seen, though the next few months should be telling.
Improvements to the First-Time Home Buyer Incentive
Just launched in September, the FTHBI aims to help first-time buyers by providing a credit on homes up to $500,000 for families under a certain household income threshold. You can read more about the FTHBI program here. Speaking on the campaign trail, Justin Trudeau committed to expanding the program, with an initial proposal of making the FTHBI more beneficial to Canadians by raising both the eligible home value to $750,000 and raising the household income cap to $150,000. Such an expansion would undoubtedly make the FTHBI itself more inclusive and more useful, which should lead to more purchasing power for Canadians.
However critics of the program argue that the program, while well intentioned, doesn’t go far enough. Liberals have acknowledged the main criticism of the existing FTHBI - the $500,000 home limit - but even a raise to $750,000 to reflect real market prices may not be enough to help would-be buyers in hotter areas like Vancouver, Victoria and Toronto. The average home cost in Vancouver last year was $986,000. In the Greater Toronto Area it was $806,000.
The Mortgage Stress Test and Amortization
As previously mentioned, the now-official opposition Conservative party focused on two other things as possible balms to housing affordability: Addressing the current “stress test” used by banks and mortgage lenders, and raising the maximum length of mortgages from 25 years to 30 years.
In short, the stress test sets a base financial bar that Canadians looking at different home options must pass in order to get approved for their desired mortgage. Andrew Scheer and his party viewed the test (which is actually set by the private sector, not government) as too restrictive, and a major impediment to home ownership for many buyers. Though to some the stress test may seem over cautious, its proponents generally argue that it benefits consumers by ensuring they don’t overcommit to an unaffordable mortgage or get caught in a financial mess in the event mortgage lending rates rise above their current historically low level. On the other hand, longer mortgages would allow consumers to lower their monthly payment but extend the length of it for an extra five years.
We’re not here to pass judgment on whether the current stress test or mortgage lengths are ultimately good or bad, but these two talking points will remain significant in the next few months. Whether or not the Liberals originally envisioned them as a part of their future housing platform, policy makers may choose to include one or both of these items in their plans in an attempt to build bridges with Conservative members of parliament. Minority governments can lead to strange bedfellows.
Restricting Foreign Buying
One area that saw alignment across parties was on placing limits on foreign property buying. The Liberals and NDP found common ground on limiting speculative housing purchases, as home prices continue to outpace wage growth, and taxing foreign buyers have largely been viewed as a success in Vancouver and Toronto. The Liberals have proposed a 1% federal tax on all vacant properties owned by non-Canadians who live abroad, where the NDP proposed a one-time purchase tax. Whatever form it takes may be up in the air, but all signs point towards some form of new taxation designed to limit foreign buying and, in theory, help more Canadians access the housing market.
Creating More Affordable Housing
When it comes to affordable housing, the Liberals and NDP may again find common legislative ground. The Liberal Party and the NDP both made campaign promises to increase the supply of affordable housing for lower-income Canadians and veterans, with the Liberals pledging 15,000 affordable housing units a year and the NDP 50,000. Both promises centred on creating new tax incentives for builders to help move projects forward, with ideas such as eliminating GST/HST on the construction of new affordable housing.
Green Building Incentives
The climate crisis loomed large over many election issues, including housing. If re-elected, the Liberals promised that they would offer interest-free loans of up to $40,000 to help homeowners and landlords retrofit homes to make them more energy-efficient. This may help move the needle on older properties, as home buyers could view making major renovations as a more palatable option with this kind of lending available.
Other eco-focused items discussed by the Liberals include creating a $5000 Net Zero Waste Homes Grant on qualifying new homes, as well as a $100M investment in skills training for workers relating to energy audits, retrofits, and net-zero home construction.
The Times They Are a-Changin’
We hope this look at what the next few years of a Liberal minority government could mean for the home buying and selling market has been helpful. With so much public pressure on issues surrounding housing and home affordability, Justin Trudeau and his party will undoubtedly feel the need to act sooner rather than later.