Budget 2024 focused heavily on housing. Budgets are as much about communication as they are about action. This one is a broad-based program that attempts to cover a range of housing initiatives. Notably, the budget drew attention to the supply challenges stemming from rapid immigration growth. While highlighting all federal measures that are planned, it also clearly noted the responsibilities of other levels of government. Given that changes in affordability will require years to materialize, a cynic might argue that the groundwork is being laid to justify why these plans could not be met. Below, we outline some of the key initiatives.
Increasing Housing Supply
Prior to the budget, the government laid out a new housing strategy: Solving the Housing Crisis: Canada’s Housing Plan. The three-part plan focuses on increasing construction of both-owner occupied and rental housing, supporting efforts to build and protect non-market housing for vulnerable Canadians, and addressing specific challenges in renting and home ownership. The government is projecting that its strategy will result in 3.87 million new homes by 2031.
Even running at the current level of 240,000 completions a year, we are still nearly 2 million below target. The plan will be limited without a significant expansion of building capacity. The budget introduces measures to simplify building through innovation (in factory home building, for example), invest in trades training, recognize foreign trades credentials, and facilitate internal labour mobility. On balance, these measures are positive but insufficient to address the capacity required.
The biggest challenge is the shortage of skilled tradespeople, which has been developing for years. About 700,000 of the four million Canadians who work in the trades are set to retire by the end of the decade, according to Employment and Social Development Canada. Factory home building could be a potential solution, but currently, there’s no specific plan in place; it’s just an idea at this stage.
The appeal of modular housing lies in its promise to address several pressing issues facing today’s housing market: affordability, scalability, and sustainability. The benefit of modular buildings stems from the industrialization of key construction tasks. Modular companies aim to standardize, streamline, and automate big parts of the value chain, allowing buildings to be treated like products rather than projects. Modular players need best-in-class manufacturing capabilities, including sophisticated digital design platforms and lean, efficient production lines. There has been no thought on how this is to be achieved, so for now I don’t see modular housing as a major solution to the housing supply problem.
Rental Market Focus
The focus is clearly on the rental market, with the government introducing several initiatives to support the construction of rental housing. These include accelerating the Capital Cost Allowance (CCA) from 4% to 10% for new rental apartment construction projects initiated between now and 2031. This move by Finance, coupled with the $15 billion top-up to the Apartment Construction Loan Program introduced to support the purpose-built market without tax policy changes, marks a significant step forward. Uptake of the new Canada Builds initiative, aimed at partnering with provinces to accelerate apartment construction by combining low-cost federal loans with provincial investments, will depend on whether there will be further conflict between the federal government and the provinces, or a new approach to cooperative federalism.
Other measures include releasing more public lands for new home construction and expanding the availability of Canada Mortgage Bonds (CMB). However, if the current pace of development through Canada Lands is any indication, it could take decades to see significant results. The changes to the CMB program will support financing for more multifamily buildings. As we noted in January, a key question remains: will the government effectively capture the economic benefits of these program changes to fund affordable housing?
Supporting Young Canadians
The plan aims to tackle challenges faced by younger Canadians through a variety of initiatives targeting renters and prospective homeowners. However, many of these measures are marginal, ranging from concepts like incorporating rent payments into credit ratings (although there are very few instances where this would impact mortgage applications), to likely unnecessary intrusions into areas of provincial responsibility like tenant protection. Extending the maximum mortgage amortization period on new homes to 30 years may only appeal to a few unicorn buyers – those purchasing properties under $1 million with an initial deposit of less than 20 percent (unlikely for condos). While the devil is in the details, the most promising aspect is the introduction of the $900-million Greener Homes Affordability Program, aimed at supporting cost-saving, energy-efficient retrofits.
Affordable Housing Initiatives
The plan also introduces several measures to support Canadians who cannot afford a home. These include a $1 billion top-up to the Affordable Housing Fund, the introduction of a rapid housing stream into that fund, a $1.5 billion co-operative housing fund, and a $1.5 billion fund to allow non-profit providers to purchase apartments at risk of being sold to investors. A significant portion of the existing Affordable Housing Fund has been spent on renovations and repairs to existing social housing. The $1.5 billion fund for non-profits to acquire apartments being sold will likely require funding from the increased Affordable Housing Fund. These apartments are primarily C-class buildings in need of renovation and repairs, which is a key reason for their lower rents.
For co-operative housing, a similar concern around long-term viability exists. Previous federal co-op programs were a mix of project financing, capital grants and rental support, with extensive cost sharing between the federal and provincial governments. The Index-linked mortgage program had a stabilization fund that lapsed due to funding challenges. Currently, there’s discussion of funding, but no clarity on how these projects will remain viable if rents are below market rates, or how they will be coordinated and supported by various levels of government.
The budget also allocates $1 billion to enhance programs aimed at ending homelessness and $250 million to support permanent housing options for individuals who are unsheltered or living in encampments, with specific funding to shelter asylum claimants and address homelessness experienced by military veterans. While this funding is welcome, it’s unclear how much progress it will achieve in addressing shortages in the non-market housing sector or in reducing homelessness. The 2022 auditor’s report on Chronic Homelessness was highly critical of Infrastructure Canada, Social Development Canada and CMHC for their lack of program integration, coordination, and understanding of who was benefiting from these programs.
The government has earmarked $409 million to CMHC for the launch of the new Canada Secondary Suite Loan Program. This initiative allows homeowners to access up to $40,000 in low interest rate loans to add a secondary suite to their homes. Although no details are currently available, I expect the program will replicate the existing B.C. program, which offers a rebate over five years to homeowners whose income falls below a certain threshold. To qualify, homeowners must provide below-market rents on a newly constructed and rented secondary suite. However, the incentives of this program are challenging. Even if landlords can take advantage of these incentives, it’s unlikely to result in a surge of building activity.
Leveraging Vacant Lands
One budget item that hasn’t received much attention is a comment that the federal government is looking at vacant land that could be used for new home construction. Designing a tax on such properties that aligns with key taxation principles – efficiency, certainty, simplicity, effectiveness, and fairness – will pose a significant challenge. If this tax proposal is implemented, expect to see fireworks between the feds and the provinces.
Independent Opinion
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