What does a federal government led by the Liberals mean for housing.

According to the Liberal platform, "Every Canadian deserves a place to call home." Nobody would disagree with that sentiment, but that doesn't imply everyone deserves homeownership.

So, will the Liberal's proposals bring affordable housing to all? Or will it result in higher prices? It's time to dig in.

Spoiler: The Liberal's platform is unlikely to help affordability - but that doesn't mean prices won't drop. Keep reading to find out why.

I this article, we will look at each Liberal pledge and provide a rough assessment of its impact on the average Canadian.

1. Unlock Home Ownership

This plank of their housing platform intends to support housing demand. Frankly, demand is already eye-watering hot, so why are they doing it? Because voters mistakenly think that if the government helps them own a home, it will help them win in this highly competitive real estate market. It won't help because every Canadian will have access to the same government programs. Voters will see the government is "trying" and be pleased, but the net effect is to drive up prices.

Here's the demand-side "homeownership” plan:

• Help renters become owners by committing $1 billion to develop rent-to-own projects with private, not-for-profit, and co-op partners in 5 years or less.

  A billion sounds like a lot, but this is an untested real estate model to the first few attempts in each province (each province has different real estate laws) will burn through more cash per unit than purpose-built rentals. Even if it goes well and they finance 65% of each unit built, and most units are in Toronto and Vancouver, it will cost them about $500,000 per unit. That's a total of 2,000 rent-to-own homes across Canada. Even if the cost is $250,000 per unit, that's nowhere near the scale required to make a difference.
  
  This program will have no impact on the market.
  

• Help young Canadians afford a down payment faster by introducing a tax-free First Home Savings Account.
  High taxation on savings is a problem very few young Canadians have. Most can't put enough money in their RRSP to hit the limit on the Home Buyers Plan, so providing another savings plan will probably only benefit the wealthiest 5% of young Canadians.

  The challenge young Canadian's face is not to do with down payments. The problem is home values and rents that far exceed economically sustainable levels. They can't save enough because rents are high, and those that can save keep getting priced further out of the market with double-digit home growth in home value.
  
  This program will have little effect on the market and will mostly benefit the rich.
  

• Make the First Time Home Buyer Incentive more flexible tto give Canadians the option of a deferred mortgage loan as an alternative to the current shared equity model and reduce their monthly mortgage costs.

  This one is not only complicated (so mortgage brokers and loan officers are less likely to recommend it), but it's also risky. Essentially, they'll allow first-time buyers to buy now and pay later. However, mortgage rates are probably lower now than they will be in the future. Few financial advisors would recommend this option.
  
  Like the first version of this program, where the government took equity in the homebuyer's home, this program will probably cost more in bureaucracy than the benefit it will bring the homebuyers who choose to use it.
  

• Double the First-Time Home Buyers Tax Credit, from $5,000 to $10,000, which puts $1,500 back in their pockets.
  Okay, thank you for paying back the legal fees on the home purchase. Nobody will complain when they get free money - but is it free? Maybe they should have kept the taxes and funded childcare or infrastructure because a rebate received a year after the purchase doesn't reduce the barrier to purchasing in the first place. You have to buy the home first and wait a year to get your tax rebate. 🤔
  
  This doesn't help young people buy it simply helps them but a TV to a sofa a year later. It will have zero effect on the market.
  

• Reduce monthly mortgage costs by reducing the price charged by CMHC on mortgage insurance by 25 percent. For a typical person, this will save them $6,100. BUT typically, the $6,100 is added to the mortgage balance and repaid over 25 to 35 years. With mortgage rates so low, we will ignore the interest paid on the $6,100 in our back of the napkin calculation. If we assume a 30-year mortgage, the monthly cost of the $6,100 is $17 per month or two orders of avocado toast or three lattes. 🤷
  
  Sorry to disappoint, but $17 per month won't make a huge difference. Perhaps the Liberals could seek to fix the pay gap between men and women! Canadian women earn roughly 30% less than men. If Canadian women's incomes are levelled up, the 30% raise would significantly help women (and their partners) with mortgage costs, plus it's the right thing to do. The median total income of Canadians in the GTA is $32,000, and a 30% raise would bring that to $42,000. Here's a way to help with monthly mortgage and rent costs without requiring the government to spend a penny. It's socially progressive enough that core Liberal supporters should love it too.

In summary, we wouldn't recommend you put much weight on the first plank of the Liberal housing platform. It's shaky at best.

2. Build more homes

Well, this is embarrassing. Yes, the title of this plank says build, but the fine print says they hope to build, preserve, or repair 1.4 million homes in the next four years. Key observations:

1. They haven't committed to building any new homes because they only provide incentives for others to build homes.

2. They made no shorter-term targets. After all, they could call another election before the four years are up!

3. It's not clear if these homes are reallocating construction resources from other projects or helping to grow the scale of the construction industry. If the federal program results

Examining the details:

• Give cities the tools (i.e., cash incentives) to speed up housing construction by making $4 billion to the country's largest cities to create 100,000 new middle-class homes (no definition of what a middle-class home is) in four years. They will offer the funding to municipalities on a use-it-or-lose-it basis with the hopes of creating a sense of urgency.
  
  In May 2021, Scotiabank estimated that Canada had a shortage of 100,000 homes, so this might seem like a solution; however, the government plans welcome:
  → 401,000 new permanent residents in 2021,
  → 411,000 in 2022, and
  → 421,000 in 2023.
  420,000 newcomers are equivalent to roughly 170,000 households. Canada built 170,000 new homes in 2020, and to make up for the shortfall, Canada will need to build an extra 100,000. We expect this will take time to gather momentum, so let's assume it's 50,000 homes in 2024 and 50,000 in 2025. The Canadian construction industry would need to grow by 30% to support that goal (i.e., materials, supply chain, heavy equipment, trades, architects, etc.).
  
  Pardon the skepticism, but this goal is a long shot because of the aggressive targets and the complete reliance on municipal governments taking the bait. However, if they meet 50% of their target, the market will still be in a supply deficit, and it will be as hot as it was in 2018 (so long as interest rates remain as low as 2018).
  

• Build and repair more affordable housing with an extra $1.35 billion over 4 years
  
  This is good for the quality of living for people in affordable housing, but it doesn't impact market housing. It has no effect on homeownership nor the supply of affordable housing units.
  

• Convert empty office space into housing with an additional $300 million.

Source: CBRE Canada Quarterly Statistics Q3 2021

• There are high office vacancies in Calgary and Edmonton, but they are the most affordable markets in Canada, and ideally, this program would focus on the least affordable markets. Most other cities had a shortage before COVID, and they are recovering as economies reopen. If we increase our population by 400,000 annually, we should expect that population growth to translate into more jobs and office workspace.
  
  This goal is another long shot.

• Encourage young families to live with their ageing parents by introducing a Multigenerational Home Renovation tax credit to support families looking to add a secondary unit to their homes, to allow a family member to live with them.
  
  This program could help Canadians who have homeowner parents. It's a shame they haven't set a target.
  
  We could argue that this reduces their quality of life by housing more people in the same sized structure, but many baby boomers have half empty homes. As well, a study in 2018 found 56 percent of boomers consider their local housing market unaffordable for retirement.
  
  This program is probably the least talked about, but it could help. However, it won't help the 400,000 new immigrants who don't have house-rich parents living in a large Canadian home.

• Support Indigenous housing by co-developing with Indigenous partners an Urban, Rural, and Northern Indigenous Housing Strategy and create a National Indigenous Housing Centre, which will see Indigenous people overseeing federal Indigenous housing programs.
  
  This is fantastic, but the program is somewhat opaque, and it doesn't appear targeted as helping the broader Canadian real estate market. It won't have much impact on the market, but hopefully, it will bring much-needed relief to indigenous communities.

• End chronic homelessness by supporting communities across the country in delivering locally oriented homelessness prevention and reduction programs.
  
  So they plan to continue supporting the current programs that were in place while homelessness worsened in Canada. We would have hoped they would try something new, considering the current approaches and programs have failed.

Will they build a significant number of new homes? Probably not, because most of these programs are designed to repurpose, subdivide, or renovate existing homes or offices. If new homes are built, the Municipalities and Provinces will take credit because none of these programs put shovels in the dirt. They only provide financial incentives for other people to roll up their sleeves and build.

3. Protect your rights

This plank contains a laundry list of industry practices that make people uncomfortable, but they don't change supply, demand, access to financing, or the ability to save a down payment. There is the list:

• Ban blind bidding, where people make an offer attempting to outbid competing offers without knowing what those other offers are. Instead, all offers would be in the open like an auction.

• Establish a legal right to a home inspection

• Ensure total price transparency on the history of recent house sale prices (the buyer real estate agent should be providing this, but sometimes people get poor service).

• Require real estate agents to disclose if they represent the buyer and the sellers and are in a conflict of interest (This is already the case in B.C., where realtors are restricted from representing both sides).

• Establish a publicly accessible beneficial ownership registry (B.C. has a registry, but it is not public).

• Ensure banks and lenders offer mortgage deferrals for up to 6 months in the event of job loss or another major life event (Lenders are already flexible to 3 months, so it's unclear how much the extra three months help an average Canadian on employment insurance benefits).

• Require mortgage lenders to fully inform buyers of the full range of financing choices and programs available (This is cringeworthy. There are so many programs, and mortgage financing is frighteningly complex already. Buyers would need to sit through a two-hour presentation. Likely, lenders will offer an online course to meet this requirement, and most buyers will skip it.)

• Stop "renovictions" by deterring unfair rent increases that fall outside of a normal change in rent. (This is a provincial domain, so it's unclear how the federal government will touch it.)

• Crackdown on speculation and house flipping with a tax on owned for less than 12 months. (This will help with the quick paint jobs, but many people move into a house before flipping it so they can avoid the capital gains taxes, so this might not be very impactful.)

• Ban new foreign ownership of Canadian houses for the next two years to ensure Canadians have more access to purchasing homes. (This has no impact on resident students buying homes for their out-of-country parents, and in most provinces, a foreign-owned Canadian company buying property is not considered foreign ownership.)

• Expand the upcoming tax on vacant housing owned by non-resident, non-Canadians to include foreign-owned vacant land within large urban areas. (Vancouver has an empty homes tax, and it hasn't made a dent in the market, as well there were fewer foreign buyers during COVID, and the market soared.)

• Look closely at the tax treatment of large corporate owners and speculators trying to amass large portfolios of Canadian rental housing.

• Strengthen federal oversight of the housing market by establishing the Canada Financial Crimes Agency to investigate and combat all forms of major financial crime, including the presence of money laundering in the housing market. (FINTRAC, OSFI CISC, RCMP and other agencies have responsibility for this, and the lenders, banks, real estate agents, and lawyers involved in every transaction have a duty to prevent financial crime. It's unclear how creating another agency will help.)

This shotgun approach and many of these changes are the right things to do. However, it is unlikely they will have a significant impact on the market

The saviours in the housing markets will be municipalities. If Canada is incubating cities primed to become global powerhouses, they should look at the infrastructure and density of global powerhouses. If you don't like Manhattan, Hong Kong, and Singapore, look at Paris, Madrid, and London. Regardless, none of these cities expect middle-class citizens to afford a single-detached house. Long ago, they transformed into family-sized apartments and rowhouses. Higher density with the accompanying infrastructure is the only long-term solution.