The 2022 budget says all the right things, while doing nothing to seriously address the housing crisis

A realtor’s sign in the front yard of a home on Lond St. in Toronto’s Seaton Village neighborhood, photographed March 8, 2022. Fred Lum/The Globe and Mail.Fred Lum/The Balloon and the Mail

A core competency of any successful politician is the ability to create the illusion of movement, while actually doing nothing.

Chrystia Freeland is a very successful politician.

The federal budget that the Finance Minister released this week puts housing front and center. Nods in all the right directions, gestures to all key stakeholders. And yet, it leaves us exactly where we started.

Did you expect something different?

All Canadian political parties face the same dilemma when it comes to housing. On the one hand, he wants to point out that he is firmly on the side of young Canadians who can’t afford a home. On the other hand, he also wants to reassure older Canadians that they’re not chasing after all those huge, handsome profits they’ve racked up in their primary residences.

In short, all politicians want to defend affordable housing while strongly opposing any significant decline in home prices. Yes, that is as absurd as it sounds.

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The contradictions are on full display in the 2022 budget. It says all the right things, while doing nothing to seriously address the housing problem it identifies.

At the core of that problem, as the budget points out, is a huge gap between demand and supply. We have a lower number of dwellings per person than nations like France, Germany or Japan. However, demand is increasing due to a growing population.

So what is there to do?

One approach would be to look for ways to reduce demand. Ottawa could, for example, introduce a modest capital gains tax on primary residences. There is no particularly good reason why earnings in real estate should take precedence over earnings in other types of investments.

Number of dwellings per 1,000 inhabitants

the balloon and the mail, Source: federal budget 2022

through the Organization for Economic Cooperation

and development

Number of dwellings per 1,000 inhabitants

the balloon and the mail, Source: federal budget 2022

through the Organization for Economic Cooperation

and development

Number of dwellings per 1,000 inhabitants

the balloon and the mail, Source: 2022 federal budget through the Organization for Economic Cooperation

and development

Liberals might also rethink, at least in the short term, the oversized immigration goals they have revealed. Its goal is to admit roughly 400,000 newcomers a year, which is a big change from the roughly 250,000 people who were admitted annually before the party came to power in 2015. All those additional Canadians will only increase demand. of housing.

But neither the tax lever nor the immigration lever deserves attention in the Ottawa budget. The reasons are obvious: any move would be political poison. Middle-class homeowners abhor the idea of ​​paying taxes on their real estate wealth, while many of us sympathize with the case for more immigration, especially at a time when war is displacing so many Ukrainians.

Fair enough. But note the contradictions here: Ms. Freeland complains of a shortfall in housing supply, while persisting in incentivizing home purchases through the tax system and continuing immigration plans that would admit the equivalent of a city median in each and every Canada. year. At the very least, this suggests that Ottawa isn’t exactly brimming with zeal to get tough on runaway house prices.

His policy confusion becomes even more confusing when budget plans are added for a new Tax-Free First Home Savings Account that will encourage young people to save for a home. If successful, the program will further fuel demand for housing. Apparently, you can fight a red-hot real estate market by adding even more fuel to the fire. Who knows?

Ms. Freeland appears to be counting on a miraculous increase in housing supply to make it all work out. As her budget notes, Canada builds around 200,000 housing units a year, including houses and condominiums. It needs to double that pace of construction to keep up with projected demand over the next decade.

The Liberals’ big initiative to create a wave of new construction is a Housing Accelerator Fund that will distribute $4 billion over five years to encourage the construction of 100,000 new housing units. But the budget, which says that “the fund will be designed to be flexible to the needs and realities of cities and communities,” does not clarify how it will work.

Also, the quantities seem tiny. As Stephen Brown of Capital Economics points out, “Financing per household is only $40,000, which won’t even offset the 30 percent increase in the cost of residential construction projects since the pandemic.”

The big problem with the federal government is that it has no direct control over the slow planning and permitting processes that stand in the way of more new construction. The real power in these areas belongs to the municipalities and provinces. They tend to reflect the attitude of residents who don’t like the idea of ​​adding density to leafy single-family neighborhoods. That not-in-my-backyard mentality hasn’t changed during Canada’s long housing boom, and it seems unlikely to suddenly change now.

So don’t count on the new budget to radically transform the landscape. What is much more likely to cool off the housing market is a rise in interest rates. The Bank of Canada is widely expected to double its policy rate next week, bringing it to 1 percent. More hikes are likely to follow.

Of course, if higher rates rock house prices, it will be central bankers, not politicians, who take the blame. Which, now that I think about it, might have been the real point of the budget.

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