DATE

Election Day

Steve Saretsky -

CPI inflation ripped, hitting 4.1% in August. Inflation in Canada is now accelerating at its fastest pace since 2003. The homeowners’ replacement cost index, which is related to the price of new homes, continued to trend upward, rising 14.3% year over year in August—the largest yearly increase since September 1987.

Meanwhile, borrowing costs continue to fall. Several of the large Canadian banks slashed their five year fixed rate mortgages, with TD cutting theirs by 40bps to 1.99%. In other words, the REAL cost of borrowing, when adjusted for inflation is negative 2%. If you’re taking out a variable rate mortgage, which sits at about 1.29%, you are looking at a real negative interest rate of nearly 3%. It is simple math, Canadians are essentially being paid to take on debt, it is therefor no surprise to see mortgage loan growth at 10 year highs and national home prices up 21% as of the end of August.

Keep the above paragraph in mind as we move on to some election talk. Negative interest rates and the financialization of housing are largely a function of the global financial system and are not in the purview of Justin Trudeau, Erin O’Toole, or even Jagmeet Singh. It is therefor my opinion that, for the most part, not much will change in the housing market regardless of who wins the election. Politicians can dabble around the fringes with various policy tweaks, but it won’t undo the global phenomenon of house prices decoupling from incomes over the past few decades.

With that being said, here’s a brief summary of the housing policies proposed by each party. Hopefully this allows you to make an informed vote today.

Conservative 

  • Promise to build one million homes in the next three years. We have been averaging about 220,000 housing starts recently so this would add an additional 250,000 homes over three years.

  • Review the extensive real estate portfolio of the federal government – the largest property owner in the country with over 37,000 buildings, and release at least 15% for housing.

  • Ban foreign investors from buying residential properties in Canada for at least two years.

  • Establish a federal beneficial ownership registry

  • Encourage a new market in 7-10 year mortgages ensuring more certainty in borrowing costs

  • Remove the stress test when a homeowner wants to renew with a different lender

  • Increase the limit on mortgage insurance eligibility and index it to home price inflation. The goal is to make it easier for first time buyers, and self employed people to obtain mortgages.

  • Encouraging Canadians to invest in rental housing by extending the ability to defer capital gains tax when selling a rental property and reinvesting in rental housing, something that is currently excluded

In summary, the Conservatives housing plan appears to be the most sensible and realistic. Removing the stress test when switching lenders is a no brainer, and something that ultimately benefits the borrower. Hitting new housing supply targets will depend largely on municipalities though so don’t get your hopes up. Encouraging additional investment into rental housing is much needed as it provides Canadians with a secure alternative to home ownership. Everyone is aware the biggest risk to Canadian housing is rising interest rates, so if the Conservatives can actually find ways to make 7-10 year mortgage terms more attractive then it’s a huge win, as it removes some of that risk.

Liberal

  • Ban foreign money from purchasing a non-recreational, residential property in Canada for the next two years, unless this purchase is confirmed to be for future employment or immigration in the next two years.

  • Introduce a new Rent-to-Own program, provide $1B in loans and grants to develop and scale up rent-to-own projects

  • Establish an anti-flipping tax on residential properties, requiring properties to be held for at least 12 months.

  • Reduce the price charged by the Canadian Mortgage and Housing Corporation on mortgage insurance by 25%. For a typical person, this will save $6,100.

  • increase the insured mortgage cut-off from $1 million to $1.25 million, and index this to inflation

  • invest $4 billion in a Housing Accelerator Fund which will grow the annual housing supply in the country’s largest cities every year, creating a target of 100,000 new, middle-class homes by 2024-25. This application-based fund will offer support to municipalities that grow housing supply faster than their historical average, reduce approval times, help establish inclusionary zoning bylaws, and encourage transit-oriented development.

  • Banning blind bidding, which prevents bidders from knowing the bids of other prospective buyers.

  • Permanently increase funding to the National Housing Co-Investment fund by a total of $2.7 billion over 4 years, more than double its current allocation. These extra funds will be dedicated to helping affordable housing providers.

    Ok the Liberal housing plan is a long list and full of promises. I’m skeptical they can deliver on these promises considering they’ve had six years to tackle the housing crisis. In June they voted against a foreign buyer ban, now they are promising one if re-elected. The rent-to-own program relies on investors/ developers actually wanting to provide this option to tenants, the details are murky. Banning blind bidding falls under the purview of provincial regulators and my discussion with these regulators is they have little desire to change the existing system. The best policy the liberal government has here is no doubt their housing accelerator fund. The biggest roadblock to new housing is municipal governments, by incentivizing municipal governments with cash, it should get projects approved quicker and more new housing built.

    NDP

  • Create at least 500,000 units of quality, affordable housing in the next ten years, with half of that done within five years.

  • Re-introduce 30-year terms to CMHC insured mortgages on entry-level homes for first time home buyers.

  • Introduce a 20% Foreign Buyer’s tax on the sale of homes to individuals who aren’t Canadian citizens or permanent residents.

  • work with the provinces to create a public beneficial ownership registry

    I went through the entire housing platform for the NDP and it lacks any concrete details. I am in favour of extending CMHC insurance to 30 years, this will help lower payments for those squeezing into the market and level the playing field with investors. The foreign buyers tax is actually less punitive than the outright ban promised by the liberals and conservatives. The NDP promised a renters subsidy to the media but never put it in their actual housing policy document so i’m not sure if that’s actually a go.

Happy voting, the polls suggest this should be a close one, enjoy!

Three Things I’m Watching:

1. CPI inflation jumps to 4.1% in August, highest reading since 2003. (Source: The Globe & Mail)

2. National home price inflation is now decelerating, but still up 21% year-over-year. (Source: CREA)

3. Months of Inventory across the nation sits at just 2.2- indicative of a tight sellers market in the months ahead. (Source: The Habistat)

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The Saretsky Report. December 2022