Budget 2021 - Fails to Curb Demand and Prices Will Continue to Rise
The Federal Government introduced its first pandemic budget on April 19th 2021 and committed to the following housing initiatives.
$2.5 billion to Canada Mortgage and Housing Corporation over seven years, to fund the Rapid Housing Initiative, Affordable Housing Innovation Fund, Canada Housing Benefit and Federal Community Housing Initiative
$1.3 billion, advanced and reallocated to previously announced funding to build and repair units and convert commercial space into rentals
$3.8 billion to build, repair and support 35,000 affordable housing units
1% value-based tax proposed on vacant homes Canada-wide, owned by foreign non-residents
The budget was not expected to set out major housing reforms or cooling measures and the ongoing nationwide shortage of properties continues to drive up home resales and rental rates while hurting affordability across the spectrum.
With the annual 1% tax signalling Ottawa’s dislike of the housing supply not being maximized, it is highly unlikely to push homeowners to rent or sell their houses – many regarding it simply as “the price of doing business”.
Given the new Immigration Levels Plan 2021-2023 committing to 1.2MM new immigrants any COVID – 19 induced shortfall will only become more acute. The problem is exacerbated in the major metropolitan centres across the country with The Greater Toronto Area (GTA) usually absorbing at least at least a third of the new demand for real estate.
Basic economics reminds us that with increasing demand and a supply shortfall prices only have one direction to trend – upwards.
Until potent and progresssive cooling measures are introduced and the underlying issue of addressing the housing supply leads to cultivating a much healthier balance between supply and demand all initiatives by governments including those listed above will be band-aid remedies at best.
Douglas Porter, the Chief Economist with The Bank of Montreal is succinct.
“These are not insignificant measures – I just don’t believe that stacked up against the tidal wave of demand that they can make much of a dent”.
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