One of the main themes of the 2024 Federal Budget is housing affordability.
From funds meant to curb short-term rentals, to opening up federal lands for development, several measures in this year’s budget aim to chip away at Canada’s housing crisis and make it easier for Canadians to one day own a home.
Douglas Porter, Chief Economist and Managing Director Economics with the Bank of Montreal, said during BDO’s Federal Budget webinar that the focus this year was clearly aimed at improving housing options for young Canadians.
“Trying to improve affordability in the housing market from the terrible levels we're currently at, the budget was clearly aimed at supporting people 40 or a little bit younger than that,” he said at the time.
“We'll see whether it really does have much of an impact on affordability.”
Below are several measures the federal government announced in its budget that could impact the housing market.
Capital gains tax
The headline announcement from the budget, the federal government is increasing the inclusion rate on capital gains from any sale from 50% above $250,000 to 66.66%.
A controversial announcement, experts believe it could cause a flood of properties, specifically cottages, to enter the market before the changes take effect on June 25, 2024.
“The new information here was the rise in the inclusion rate on capital gains for corporations, for trusts, and for individuals paying more than $250,000,” Porter said in the webinar.
Lorenzo Bonanno, Real Estate and Construction Tax Partner at BDO Canada added, “The federal budget did not include draft legislation for the capital gains inclusion rate increase. However, based on the budget projections, the federal government has indicated it expects a large number of taxpayers to accelerate the recognition of accrued gains prior to the June 25, 2024 implementation date.”
Repurposing federal lands
Several budget announcements focus on repurposing federal lands for housing development.
Douglas Porter, Chief Economist and Managing Director Economics with the Bank of Montreal, said during BDO’s Federal Budget webinar that the focus this year was clearly aimed at improving housing options for young Canadians.
The federal government announced it would review its entire federal lands portfolio and identify areas that could be developed into housing. It also plans to create a Public Lands Action Council to spur development on public land with housing opportunities.
The government is also pushing to reform the Canada Lands Company to focus on several measures, including repurposing unused federal offices into housing and redeveloping underused properties.
Among the properties most earmarked for housing development are Canada Post offices. They often sit in low-rise buildings that could be redeveloped into multi-story housing projects with post offices on the ground floor, the government said. National Defence lands are also a prime target for development.
Incentivizing construction
One of the big announcements from 2023 was the removal of the goods and services tax (GST) on new purpose-built rental projects.
Now, the government plans to add to the incentives with a 10% accelerated capital cost allowance—up from the previous 4%—for new rental projects that begin construction on or after April 16, 2024 and have residents ready to move in by the end of 2035.
The government is also considering boosting construction incentives on vacant lands with a tax on residentially zoned vacant properties that could be used for immediate housing development.
Whether it will also encourage investment in rental properties, and increase affordable housing, remains to be seen."
Will the new measures improve housing affordability?
Porter remains unsure as to whether the federal budget housing announcements will materially help with housing supply and in turn bring down housing prices.
“The budget really was laser focused on increasing the supply of housing,” he said. “Even though I think a lot of the measures are reasonable—In fact, I think there were a number of good ideas there—I personally am very skeptical that the needle can be moved in a significant way in terms of home building.”
Porter worries Canada’s aggressive housing targets will hurt prices for land, materials, and labour costs.
“I think frankly the building industry is somewhat constrained in terms of how many homes we can realistically have built in a year,” he said.
“The most homes we have ever built in a single year is about 275,000 units and some of these wild forecasts of three or four million units over the next six or seven years I just think is fantasy land.”
The federal government’s Canada Housing Plan, aimed at addressing affordability, targets 3.87 million new homes in Canada by 2031.
The information in this publication is current as of May 14, 2024.
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