Clearly, this year is about going big or going home when it comes to housing. This part of the budget was pre-announced last week to ensure it was not lost in the current budget coverage. And it is worth delving into this important impulse. The housing measures are not the biggest expense in the budget, but that is largely because much of the housing support comes in the form of lower-interest loans to buy and build rental housing. That type of support does not reflect its full value in a budget.
So let’s take a closer look at the budget changes to see what impact they might have and when.
There have been large additions to major lending programs, first on the apartment construction side, with an increase of $15 billion, and second, in the Affordable Housing Fund, a billion more dollars. The construction fund is intended for for-profit developers to build some affordable units, and the Affordable Housing Fund is intended for nonprofit organizations to construct and renovate buildings.
The interesting thing about these recharges for these two large programs is that they will not have an immediate impact. Still, the shows are nowhere near fully subscribed. Take the Apartment Construction Loan Program. Before today’s budget, he had $40 billion in loans to give away, but only $18 billion was discussed, leaving $22.5 billion available. The 2024 budget added another $15 billion to that total, but since it was nowhere near fully subscribed, it doesn’t matter. Now, a higher ceiling may matter in the future, but it doesn’t change the current landscape.
Compare that with the Rapid Housing Initiative (RHI), which allows nonprofit organizations to quickly purchase and renovate existing buildings so they can provide supportive housing. The RHI is heavily overwritten; It has gone through three rounds and in each round it receives more applications than it can fund. It only received a supplement of 24 million dollars in this budget.
This budget introduced another major program that is almost certainly underfunded: the Canada Rent Protection Fund, which will provide $1.5 billion in loans and grants so nonprofit housing providers can outbid private investors for existing apartment buildings for sale. I suspect that, like the RHI, it will receive many more applications than it will be able to fund. It’s a good way to keep rents from skyrocketing, but it probably won’t receive enough funding.
The deadline to determine the impact of #Budget2024 on housing is at least two years, and probably more, writes @DavidMacCdn @ccpa #cdnpoli #ParlCA
Regulatory changes can also influence housing, and the federal government has been quite creative on this front. first with him Housing Accelerator Fund and now in this budget with the $5 billion for the provincial portion of the Canada Housing Infrastructure Fund. Each of them is exchanging money for changes in housing regulations where the federal government has no jurisdiction to force the issue. The municipal version paid cities to change various zoning restrictions and the provincial version will pay provinces to allow quadruples everywhere, as well as instituting bills of rights for renters and homebuyers.
Is this budget inflationary?
Broadly speaking, this budget has almost the same deficits as the fall fiscal update, just under $40 billion a year. The deficit is the interaction of the federal budget and the economy. The same deficit means the same impact on economic growth… and probably inflation.
What is useful to understand is what is driving inflation now and the answer is clearly housing costs. This is due to mortgage interest costs or rent increases. Both are directly related to high interest rates. Lowering rates reduces these parts of inflation.
In fact, if you remove just those two costs from the Consumer Price Index, it sits at or below the 2 percent target, and has actually been there since October 2023. Housing affordability is the problem, and solving it also solves inflation.
This budget will definitely be a boost for the construction of affordable apartments and units. The problem is that the fruits will be reaped by the next federal government, whoever that may be. The timeline for determining the impact of this budget on housing is at least two years, and probably longer.
The two measures that would have the greatest impact on housing affordability in the short term would be mortgage interest reductions and rent controls. The interest rate is the domain of the Bank of Canada and rent controls could have been included in the tenants’ bill of rights, but now appear to be off the table.
Investment in new homes plummets
One of the missing pieces of the housing debate is how much new construction is actually declining, not increasing. There is an affordability crisis, to be sure, but high interest rates are crushing new home construction as builders now pay much higher maintenance costs before selling them and are unsure whether consumers can afford higher prices. .
Now, this impact has largely been on the single-family housing front, something Canada already has in abundance, but the aggregate drop in new home construction amounts to $8.7 billion a year compared to increases of interest rates prior to February 2022. of this budget are not that high. In any case, the federal housing program will stop the decline in new residential construction and shift it to rentals.
On the housing front, federal ambition is approaching the scale of the housing affordability crisis. There is much more to do and the focus is squarely on supply with fewer short-term measures such as rent controls. However, the construction approach takes time and Canadians will likely not see the benefits of these measures for several years. So we have an ambitious plan whose benefits will accrue to the next federal government, whoever that may be.
David Macdonald is a senior economist at the Canadian Center for Policy Alternatives.