Overview of housing initiatives in the government's Fall Economic Statement

  11/21/2023 |   SHARE
Posted in Mortgages and Real Estate by Jim Turnbull| Back to Main Blog Page

Government of Canada

From a crackdown to short-term rentals to new investments to create more housing supply, the federal government made housing a key component of its Fall Economic Statement released today.

While many of the initiatives had been previously announced, the government provided an overview of its housing strategy to tackle the housing supply and affordability crisis facing the country.

It reiterated the need for an additional 3.5 million new housing units—above and beyond the current rate of construction—by 2030.

The Fall Economic Statement, tabled by Finance Minister Chrystia Freeland in the House of Commons on Tuesday, includes $20.8 billion in net new spending over the next six years, of which $6.3 billion is related to housing affordability initiatives. The government said it expects to record a deficit of $40 billion this year.

Below are some of the key housing-related initiatives—both new and existing—that the government is currently focused on.

Highlights of new housing initiatives

  • Crackdown on short-term rentals
  • Incentivizing new housing supply
  • A new Canadian mortgage charter
  • Clarification of the mortgage stress test on insured renewals
  • The Canada Mortgage Bond (CMB) program
  • Prioritizing construction workers for permanent residency
  • Update on the First-Home Savings Account

Crackdown on short-term rentals

As had been widely hinted at this week, the government said it will crack down on non-compliant short-term rentals, e.g., Airbnb.

“Canada needs more long-term housing for Canadians to live in, and the federal government is taking action to crack down on these short-term rentals which are keeping homes for Canadians off the market,” reads the Fall Economic Statement.

Earlier this month, mortgage industry representatives told the House of Commons Standing Committee on Finance how short-term rentals are contributing to Canada’s housing supply crisis.

“We are depriving long-term tenants of these locations and we are also depriving people who could purchase those properties,” Ron Butler of Butler Mortgage told the committee.

As part of its plan, the government said it will remove the ability for owners of such units to claim income tax deductions on expenses and interest in provinces and municipalities that have prohibited short-term rentals. This would include Toronto, Montreal and Vancouver.

Income tax deductions will also be denied for owners of short-term rentals who aren’t compliant with provincial or local licensing and registrations requirements.

In response to the decision, BMO economists said that despite the large enforcement requirements, “[this] should disincentivize those units for many, while still allowing regions that benefit from short-term rentals to continue uninterrupted.”

Incentivizing new housing supply

The government announced an additional $1 billion over three years towards its existing $4-billion Housing Accelerator Fund (announced in the 2022 budget) and its goal of helping municipalities build 100,000 new units over five years. The new funds are expected to support the construction of 7,000 new homes.

It outlined agreements signed with nine cities to date that are expected to result in the construction of nearly 21,500 homes. An agreement with the province of Quebec is expected to result in an additional 8,000 social and affordable housing units.

Another $15 billion in low-cost loans was also announced as part of the pre-existing Apartment Construction Loan Program, which the government says will result in supporting the construction of an additional 30,000 homes.

It also confirmed that its previously announced plan to eliminate the GST on new rental construction will come with a price tag of $1.1 billion.

A new Canadian mortgage charter

The Liberals unveiled a new Canadian Mortgage Charter, which they say “builds on the government’s existing guidance and expectations for how financial institutions are to work with Canadians to provide tailored relief and ensure payments are reasonable for borrowers.”

It says mortgage holders who experience financial difficulty on their principal residence can expect to receive “fair, reasonable and timely” mortgage relief measures from federally-regulated financial institutions (FIs).

Those FIs would be expected to allow temporary amortization extensions for mortgage-holders at risk, a waiving of internal fees and other costs and not charging interest on interest if the relief measures result in temporary negative amortization.

The new charter would also allow homeowners at risk to make lump sum payments to “avoid negative amortization or sell their principal residence without any prepayment penalties.”

The measures align with guidelines introduced this summer by the country’s financial consumer watchdog, the Financial Consumer Agency of Canada (FCAC).

Clarification of the mortgage stress test on insured renewals

The government reiterated the recent revelation that the mortgage stress test does not need to be reapplied on transfers or switches for insured mortgages (those with a down payment of less than 20%). The stress test requires mortgages to be qualified at a rate of 5.25% or 2% over the borrower’s contracted rate—whichever is greater.

In a statement, the country’s national mortgage association, Mortgage Professionals Canada, said it will continue to advocate for the removal of the mortgage stress test from uninsured mortgage switches and transfers.

“While MPC acknowledges the federal government’s reiteration of the existing policy that reapplication of the stress test is not required on renewals, switches and transfers of insured mortgages, the association is calling for this to apply to all mortgages,” it said. It cited recent CMHC data that found only 27% of Canadian mortgages were insured as of Q2.

The Canada Mortgage Bond (CMB) program

The government reiterated previously announced plans to increase the annual limit for Canada Mortgage Bonds from $40 billion to $60 billion. It said the additional $20 billion in new financing will facilitate the construction of an additional 30,000 rental apartments per year.

Starting in February, the government will begin purchasing an annual maximum of $30 billion of Canada Mortgage Bonds, with the remaining amount being available to market participants.

Prioritizing construction workers for permanent residency

In May, the government launched a new selection process to prioritize permanent residency applications with specific skills, education and certifications in the construction sector to address the country’s labour shortage.

In its Fall Economic Update, the government said 1,500 workers with experience in trades have been granted permanent residency.

Update on the First-Home Savings Account

First announced in the 2022 budget, the Tax-Free First-Home Savings Account (FHSA) officially became available to Canadians this year.

In an update included in the Fall Economic Statement, the government confirmed that over 250,000 Canadians have already opened an account at one of the more than 20 financial institutions that currently offer it.

The new registered plan allows first-time homebuyers to save up to $8,000 per year—up to a lifetime maximum of $40,000—for the down payment on their home on a tax-free basis.

Similar to the Tax-Free Savings Account (TFSA), funds in the account can be placed in a variety of investment vehicles, and can then be withdrawn tax-free as long as the funds are used for a qualifying first-home purchase. And similar to a Registered Retirement Savings Plan (RRSP), contributions are tax-deductible on your income tax return for the tax year you make them in.

Source: Canadian Mortgage Trends

Canada Real Estate, Government Intervention, Government of Canada