Budget 2024: 4 Minor Wins For Home Buyers

Home buyers were front of mind when the federal government knocked together its 2024 budget. Four sets of proposals could bring a little balance back to the housing market.

Prior to its release on April 16, it was clear that the federal budget had housing squarely in its sights.

By publicizing measures such as a renter’s bill of rights and a comprehensive housing plan in the weeks leading up to the budget, the government wasn’t dropping breadcrumbs so much as baguettes.

Canada’s Housing Plan, the housing component of Budget 2024, is an ambitious, far-reaching pledge to boost both housing construction and affordability. But it also faces enormous challenges at the community, administrative and macroeconomic levels.

Let’s take a look at four ideas contained in the budget that could make the market less hopeless for home buyers. There isn’t a silver bullet solution among them, but together they might slow the Canadian housing beast by a few steps.

1. Easing builder burdens

As noted in NerdWallet’s recent analysis of the housing market, high costs, a shortage of labour and Byzantine approval processes prevent builders from keeping up with Canada’s runaway population growth.

The 2024 budget unveiled several proposals that could help builders break more ground, including:

Recruiting and training new tradespeople.
Streamlining the credential recognition process for foreign tradespeople.
Topping up the Housing Accelerator Fund to reduce administrative red tape and zoning barriers.
Making more public land available for development and partnering with builders to raise homes on these sites.

Cumulatively, these initiatives could ease some of the pressure felt by Canadian builders, but Christopher Alexander, president of RE/MAX Canada, says they fall well short of eliminating the main barriers to development: exorbitant development fees and slow approval processes.

“The country has to find a way to speed it up,” Alexander says. “In Toronto or Vancouver, it’s like three years to get a plan approved. The city of Miami, four weeks.”

Without speeding up approval processes considerably, it’s hard to imagine a scenario where Canada builds anywhere close to the budget’s target of almost 3.9 million homes by 2031.

2. Increasing housing density

There are numerous proposals in the budget for improving housing density across Canada. Here’s just a sample:

Launching the Canada Housing Infrastructure Fund to help pay for upgrades necessary to support larger populations.
Making infrastructure funding contingent on municipalities creating new density-friendly zoning laws.
Taxing residentially zoned vacant land to spur development.
Supporting innovative housing designs, including modular and 3D-printed homes.
Providing low-cost loans to homeowners building secondary suites.

“It’s pretty big stuff. It’s just that it takes a really long time, so we’re not going to see the benefits of those policies for two years, probably,” says Brendon Ogmundson, chief economist at the British Columbia Real Estate Association.

Encouraging new zoning laws by tying them to infrastructure funding is particularly interesting, as it provides communities a strong incentive to ignore NIMBYism, the resistance some homeowners have to the densification of their neighbourhoods.

“NIMBYism slows down development and drives up costs, and it’s one of the biggest barriers to getting more homes built in areas where individuals and families want to live,” the Canadian Home Builders Association (CHBA) said in an email.

“If you look at other world class cities, they figured out a long time ago that you can’t have both. You can’t have affordable housing in the most desirable cities and big backyards and single detached [homes] everywhere. It just doesn’t work,” Alexander says.

3. Helping first-time home buyers

In addition to addressing housing supply, the budget takes on affordability by offering measures that should boost buying power for some first-time home buyers. These include:

Extending the maximum amortization period for insured mortgages on new builds from 25 to 30 years.
Upping the RRSP withdrawal limit from $35,000 to $60,000 for use in the Home Buyers’ Plan.
Encouraging lenders to consider rent payment history when assessing a mortgage applicant’s creditworthiness and determining a mortgage rate offer.

The first two proposals carry a certain amount of risk, both for individuals and the market as a whole.

To take advantage of the longer amortization period, a first-timer has to buy a newly constructed home. For many, this will mean buying a condo or townhouse; both come with monthly maintenance fees that can make homeownership more expensive. A 30-year amortization also results in an additional five years of interest payments.

The money withdrawn from an RRSP for the Home Buyers’ Plan needs to be repaid over a 15-year period. Once the grace period expires, a $60,000 withdrawal would result in a minimum annual payment of $4,000. That could be hard for households to swing if they’re also paying a mortgage for the first time.

There’s also the matter of bringing more buyers to the market at a time when there’s already so little supply for them to bid on. The CHBA disagrees, at least where 30-year amortizations are concerned.

“Without the ability to buy, houses are simply not getting built, hence falling housing starts and a growing housing supply gap. This increased buying power for first-time buyers will get them into the market as new home purchasers, enable more housing starts, increase the housing stock, and help prevent house price escalation,” the CHBA said.

4. De-commodifying housing

One aspect of Canada’s real estate crisis that feels real but is hard to quantify is a shift in attitude that characterizes housing as a commodity.

Viewing houses as shortcuts to wealth or an early retirement can fuel property hoarding and the use of homes as profitable short-term rentals at a time when the nation’s rental stock is in dire shape.

Canada’s Housing Plan attempts to address these issues by:

Restricting large, corporate investors from purchasing existing single-family homes.
Removing tax deductions for short-term rentals that violate local and provincial regulations.
Providing support to municipalities to enforce short-term rental restrictions.

Under certain conditions, making short-term rentals less profitable might increase condo supply or create more long-term rental housing. Keeping hedge funds away from single-family housing stock could make certain markets less competitive, but corporations aren’t gobbling up homes in Canada to the same extent they are in the U.S., Ogmundson says.

Because they’ve played such a role in getting multifamily housing stock built over the last two decades, suppressing demand among investors is tricky and politically risky, so these limited ideas are about as far as the government can go.

But that’s the Canadian housing crisis in a nutshell: Fixing it requires a sledgehammer but there’s just not enough room to swing it.