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Housing policy should focus on closing the demand-supply gap, not inducing demand or stifling supply

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From the Fraser Institute

FEDERAL REFORMS TO IMPROVE HOUSING AFFORDABILITY

BY JOSEF FILIPOWICZ AND STEVE LAFLEUR

Canada’s declining housing affordability reflects a large, worsening imbalance between housing demand and housing supply.

Few policy areas are gaining as much attention in Canada as housing. This is unsurprising, given that Canada has the largest gap between homes prices and incomes among G7 nations (OECD, 2023) and rents continue to rise in most cities (Statistics Canada, 2023a). As eroding housing affordability has expanded to more parts of Canada, demands for policy solutions have grown beyond local jurisdictions, pressuring federal decisionmakers to act.

First, this essay offers a diagnosis of the issue—a large, growing imbalance between housing demand and supply. Second, it discusses federal policies affecting housing demand, urging better coordination and restraint amid tight supply conditions. Third, it discusses the federal government’s less-direct—though still important—options to improve housing supply.

Guiding principles: do no more harm, and close the demand-supply gap

Canada’s declining housing affordability reflects a large, worsening imbalance between housing demand and housing supply. This is evident when comparing trends in population growth and housing completions. Figure 1 charts these two metrics between 1972 and 2022. In recent years, Canada’s population growth has accelerated, while the number of homes completed has declined relative to the 1970s. 1

Policy efforts should focus on closing the demand-supply gap. The federal government should first ensure that it is not exacerbating the problem, either by stoking demand or by stifling supply, and second by both reviewing all existing policies through a supply-demand lens while implementing tailored policies aimed at closing the demand-supply gap.

Demand-side considerations for federal housing policy

Though all levels of government influence both housing demand and supply, the federal government’s policy levers pertain more directly to demand. They do so in two important ways.

First, federal policy influences population growth. As Canada’s birth rate has declined, population growth has been driven primarily by immigration (including both permanent and temporary residents) (Statistics Canada, 2023c). Though provinces may influence immigration decisions, the federal government establishes annual targets (where applicable) and admission criteria (Filipowicz and Lafleur, 2023).

Second, the federal government influences households’ ability to pay for housing. Policies for home buyers including the First-Time Home Buyers’ Tax Credit and the First Home Savings Account, which, combined with the Home Buyers’ Plan, enable the accumulation of tax-free savings for a down payment. Federal policies for homeowners include the exemption from capital gains taxation on the sale of primary residences, loan insurance through the Canada Mortgage and Housing Corporation, and residential mortgage underwriting through the Office of the Superintendent of Financial Institutions. Combined, these policies influence the relative attractiveness of housing as an investment.

Without adequate supply, these policies result in higher prices, rather than greater affordability. The federal government should review all existing or proposed policies directly or indirectly impacting housing demand. Further, it should adopt the following two policy approaches:

• Stronger consideration of housing supply dynamics when determining short, medium and long-term immigration targets or visa issuance. For example, supply metrics (e.g. housing starts, completions, and rental vacancy rates) should help inform multi-year plans or criteria for permanent and non-permanent resident admissions.

• Refraining from introducing new demand-inducing subsidies, such as tax credits or subsidies to homebuyers and homeowners, while comprehensively reviewing the impact of existing subsidies.

Supply-side considerations for federal housing policy

Housing supply in Canada is influenced primarily by provincial and local governments. Decisions concerning land-use and growth planning—including for lands owned by the federal government—largely rest with these levels of government, meaning housing construction projects cannot be realized without first aligning with, and receiving approval from, local authorities. Federal policies aiming to grow the housing supply must account for this.

Federal influence on housing supply can be divided into four policy types. First are fiscal transfers. Every year the federal government transfers billions of dollars to municipalities to fund infrastructure. In some cases, funding is permanent and based on federal-provincial agreements.3 In other cases, funding is negotiated for specific projects.4

Second, the federal government also funds the development of non-market housing. Programs such as the National Co-Investment Fund and Rapid Housing Initiative offer low-interest or forgivable loans, and direct funding, respectively, to organizations building or acquiring non-market housing.

Third, federal tax policies and programs influence the financial feasibility of homebuilding. For example, federal sales and capital gains taxes apply differently to different housing types, such as condominiums, rental buildings and accessory dwelling units (e.g. basement or laneway suites).5
Further, federal programs such as the Rental Construction Financing Initiative and multi-unit mortgage loan insurance products influence project feasibility by providing rental builders with low-interest loans or reduced premiums.

Fourth, the federal government’s primary responsibility for immigration gives it significant influence over the mix of skills prioritized in application screening, affecting the construction sector’s ability to recruit workers. Indeed, the share of immigrants working in the construction sector was lower than that among Canada’s overall population in 2020 (BuildForce Canada, 2020), reflecting the longstanding selection preferences of federal immigration policy until more recent changes.6

The federal government should coordinate with local and provincial governments as it develops policies, avoiding the creation of additional barriers and duplication. Specifically, the following three approaches should inform federal efforts to improve housing supply:

• Tying all federal infrastructure funding to housing supply metrics such as housing stock growth, starts or completions, ensuring limited funds are directed to those regions facing the strongest growth pressures in a transparent fashion, while reducing administrative costs and jurisdictional overlap.

• Reviewing and reforming the tax treatment of all housing development, helping improve the feasibility of large- and small-scale projects Canada-wide.

• Further prioritizing skills related to homebuilding in immigration policies and eligibility criteria.

Conclusion

Faced with a widening gap between housing demand and supply, this essay focuses on the federal government’s influence on housing markets, offering five areas of policy action.

The most direct federal levers pertain to housing demand. Housing constraints should be weighed more heavily when setting immigration policy, including temporary immigration, and new demand-inducing policies such as homebuyer tax credits should be avoided, while existing policies should be reviewed.

Given the federal government’s less direct influence on housing supply, intergovernmental coordination is recommended. Limited transfer funding should follow local housing supply metrics, while the tax treatment of housing development could also be reformed, enabling a larger number of projects to be financially feasible.  Lastly, immigration policies should emphasize skills required to build more housing.

Notes
1 For more on the gap between population growth and housing completions, see Filipowicz (2023).
2 For a full list of incentives and rebates for homebuyers, see <https://www.cmhc-schl.gc.ca/consumers/home-buying/government-of-canada-programs-to-support-homebuyers>, as of February 5, 2023.
3 For example, the Canada Community-Building Fund (formerly the Gas Tax Fund) delivers approximately $2 billion annually to local governments.
It is governed by a series of federal-provincial agreements.
4 For example, the federal government has committed one-third of the capital funding required by the Surrey Langley SkyTrain. Similar agreements
are common for major transit infrastructure.
5 The federal government recently announced the removal of the goods and services tax on purpose-built rental housing, helping the feasibility
of this housing class. For more on the influence of federal taxation on rental housing, see Canadian Home Builders’ Association (2016).
6 Immigration, Refugees and Citizenship Canada changed screening processes in mid-2023, favouring trade occupations, among others. The full effects of these changes will become apparent with time.
Sources for Figure 1
Statistics Canada, 2023a, table: 17-10-0009-01; Statistics Canada, 2023b, table: 34-10-0126-01.
References
BuildForce Canada (2020). Immigration Trends in the Canadian Construction Sector. <https://www.buildforce.ca/system/files/documents/Immigration_trends_Canadian_construction_sector.pdf> as of September 13, 2023.
Canadian Home Builders’ Association (2016). Encouraging Construction and Retention of Purpose-Built Rental Housing in Canada: Analysis of Federal Tax Policy Options. <https://www.evergreen.ca/downloads/pdfs/HousingActionLab/HAL_EncouragingConstructionAndRetention_FINAL.pdf> as of September 13, 2023.
Filipowicz (2023). Canada’s Growing Housing Gap: Comparing Population Growth and Housing Completions in Canada, 1972–2022.
Fraser Institute. <https://www.fraserinstitute.org/sites/default/files/canadas-growing-housing-gap-1972-2022.pdf>, as of February
5, 2024.
Filipowicz, Josef and Steve Lafleur (2023a). Getting Our Houses in Order: How a Lack of Intergovernmental Policy Coordination
Undermines Housing Affordability in Canada. Macdonald-Laurier Institute. <https://macdonaldlaurier.ca/getting-our-houses-in-order-how-a-lack-of-intergovernmental-policy-coordination-undermines-housing-affordability-in-canada/>, as of February 5, 2024.
Immigration, Refugees and Citizenship Canada (2023). Express Entry Rounds of Invitations: Category-based Selection. <https://www.
canada.ca/en/immigration-refugees-citizenship/services/immigrate-canada/express-entry/submit-profile/rounds-invitations/category-based-selection.html>, as of September 15, 2023.
International Monetary Fund (2023). Report for the 2023 Article IV Consultation. [or Country Report: Canada]. <https://www.imf.
org/en/Publications/CR/Issues/2023/07/27/Canada-2023-Article-IV-Consultation-Press-Release-and-Staff-Report-537072> as of
September 13, 2023.
Organisation for Economic Cooperation and Development [OECD]. 2023. Housing Prices (indicator). DOI: 10.1787/63008438.
OECD. <https://data.oecd.org/price/housing-prices.htm>, as of February 5, 2023.
Statistics Canada (2023a). Table 34-10-0133-01. Canada Mortgage and Housing Corporation, average rents for areas with a population of 10,000 and over. <https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=3410013301>, as of February 5, 2023.
Statistics Canada (2023b). Table 34-10-0127-01. Canada Mortgage and Housing Corporation, vacancy rates, apartment structures of six units and over, privately initiated in census metropolitan areas. <https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3410012701>, as of February 5, 2024.
Statistics Canada (2023c). Table 17-10-0008-01. Estimates of the components of demographic growth, annual. <https://www150.
statcan.gc.ca/t1/tbl1/en/tv.action?pid=1710000801>, as of March 2, 2023.

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Carbon Tax

Only a Conservative Victory Would End Liberal Oil and Gas Sector Assault and Help Diversify Away From the US

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From EnergyNow.ca

By Jim Warren

A minority Liberal victory in our upcoming federal election has the potential to take anti-Ottawa sentiment on the prairies to a whole new level. That’s because a Carney government can be expected to frustrate the legitimate aspirations of millions of Western Canadians. It’s what Liberals do.

Obviously, one of the most pressing economic concerns of the oil producing provinces of Alberta and Saskatchewan is the collection of Liberal policies which are restricting growth in Canada’s non-renewable resource sector. Liberal anti-oil and anti-pipeline measures have hamstrung the capacity of the producing provinces to increase the revenue generating capacity of the oil and gas sector. They have restricted the ability of prairie people to benefit from the ingenuity, sweat and capital they have invested in their resources industries. The right to those benefits was supposedly guaranteed under the Canadian constitution.

It is far from clear that a Carney government would get behind developing increased export capacity for oil and gas. Previous statements Carney has made in support of new pipelines were clearly disingenuous. He supported a revival of Energy East when speaking in Kelowna. He went so far as to suggest the emergency powers of the government could be used to get it built. But during the French leadership debate he said Quebec would be given the power to veto any such project. Carney’s handlers should tell him it is impossible for both statements to be true at the same time.

Furthermore, Carney has expressed no intention of dismantling the labyrinthine approval processes and the legalized disruption of construction which makes export pipelines impossible to build (at least without incurring jaw dropping cost overruns). If those policy measures remain in place any pipeline given some sort of special approval, could still remain vulnerable to legal challenges and retroactive cancellation and shut down.

Let’s say special emergency approval for a pipeline is granted but the Impact Assessment Act (Bill C-69) and other onerous environmental regulations are allowed to remain in place. Couldn’t construction still be delayed or the line re-routed whenever a bird nest, arrowhead or rare plant is found on the right-of-way? Will protesters who block construction be treated with kid gloves or more like horn-honking truckers? Those are the sorts of issues that contributed to the $34 billion in cost overruns that plagued construction of the TMX.

There are, no doubt, measures a federal government could take to minimize these sorts of threats. Nevertheless, many of us expect a Carney government would not be prepared to provide truly bullet proof guarantees to new pipeline projects. The Liberals and their core supporters are too deeply invested in climate alarmist ideology to allow for the unfettered completion of pipelines or continued growth in oil and gas production.

The Liberals have already shown us who they are. They were very reluctant to enforce the law against environmental protesters during the period leading up to the cancellation of the Northern Gateway and the Keystone XL. In fact they awarded federal grants to activist organizations that helped organize protests and anti-pipeline court challenges.

Retroactive cancellation of previously approved oil production projects is a tactic recently embraced by environmental groups like Greenpeace in the UK. The Liberals’ allies in the environmental movement can be expected to apply a similar approach to new and pre-existing pipelines in Canada. The activists will no doubt be able to rely on grants from the Liberal government to fund their efforts.

There are approximately 75,000 people directly employed in extracting and transporting gas and oil on the prairies and about twice that number whose jobs rely indirectly on the sector. Several hundreds of thousands more understand how the ripple effects of the changing fortunes of the resource sector affect their province’s economies. For the past nine years those people’s interests and complaints have been ignored, frustrated and attacked by the Liberals and their allies in the environmental movement.

If the past is prologue, it is a safe bet the prairie West will be ignored and abused again should the Liberals pull off a minority election win. Their backers in the Bloc and NDP will insist on it. However, rejecting the reasonable aspirations of a large minority or majority of the citizens in the two major oil producing provinces is guaranteed to produce a precipitous decline in national harmony.

It is true there are large numbers of low information voters and woke supporters of environmental extremism in some of the big cities in the West. They are likely to elect a Liberal or two to the next parliament. But they do not represent the views of the people who create most of the wealth in the West—the people who risk their own capital and help build a more vibrant economy, as well as most of the people whose jobs involve sweating. Annoying these people, in order to garner support among the environmentally sanctimonious in Montreal and Toronto, will not make for a stronger, more united Canada.

Similarly, there are tens of thousands of farm operators who are vehemently opposed to Liberal backed measures that will limit their use of fertilizer and penalize them for owning cattle. Saskatchewan’s potash miners won’t take kindly to the imposition of export taxes on their products to save jobs in Ontario and Quebec. These are all capable people—and they don’t take being pushed around lightly.

Central Canadian fantasies about placing export taxes on Western oil shipped to the US, have already angered people in the producing provinces. Anti-Ottawa feelings on the prairies would surpass the boiling point if a Carney government actually attempted to do it.

An all too common response of federal Liberals and the talking heads in the mainstream media to spikes in Western alienation is to smugly claim, “They’ll get over it.” Don’t count on it.

Following a Liberal election win, expect court challenges over the abrogation provincial rights under the constitution and outright defiance of federal policies detrimental to Alberta and Saskatchewan. The federal government may face the prospect of having to arrest popular politicians for refusing to comply with unfair federal policies.

Cabinet Ministers in Saskatchewan have already said they would risk imprisonment for refusing to charge the carbon tax on natural gas used for home heating. The Saskatchewan government has also refused to comply with Liberal regulations requiring coal-fired power plants to be shut down by 2035. They have indicated the province can simply not afford to transition to renewables or nuclear within such a tight time frame.

Carney has had nothing to say about rescinding inane one-size-fits-all federal environmental regulations. Included in the class of mindless federal policies are plans to force people from the colder parts of the prairies to purchase electric cars and heat pumps even though they don’t function properly here in winter. We can expect many prairie people to resist the compulsory transition to EVs. And, as is the case with Liberal gun control laws, governments on the prairies are likely to ensure federal rules are lightly enforced.

More significantly, Carney would be confronted by a campaign to make significant changes to Canadian federalism that will provide greater autonomy to the prairies provinces. An additional bottom line demand will be the creation of constitutionally guaranteed energy corridors, allowing for the construction and protection of pipelines from the prairies to Canada’s coasts.

We are at a critical inflection point in our history that could influence the economic fortunes of Alberta and Saskatchewan for the rest of this century. There is a good chance that during the last half of this century renewable energy will be displacing non-renewable energy at a rate that reduces global demand for oil and gas. If this turns out to be the case, failing to get new pipelines built in the next decade will virtually guarantee a significant portion of Canada’s proven oil reserves will remain forever stranded. Hundreds of billions in potential revenues could been lost. That is, by the way, one of the goals shared by Mark Carney and the alarmist factions of the environmental movement.

Barring substantive reforms to federalism, including meaningful concessions to the producing provinces, the prospects for national harmony and less fractious federal-provincial relations are bleak. A Conservative majority victory in the upcoming federal election is clearly more likely to result in fair treatment for Alberta and Saskatchewan than a win for the Carney Liberals. Mark Carney doesn’t appear to realize heightened levels of alienation in the producing provinces have the potential to raise discontent to levels not seen since the days of the National Energy Program.

The next election could well be our last chance to ensure the producing provinces are permitted to maximize their constitutionally guaranteed capacity to generate non-renewable resource revenues.

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Business

Biden-era tax on natural gas repealed, a boon for energy industry

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Fr0m The Center Square

By Thérèse Boudreaux

America’s natural gas industry celebrated Monday after President Donald Trump signed into law a resolution repealing Biden-era fees on methane emissions.

The Waste Emissions Charge, which Republicans say is the equivalent of a natural gas tax, was authorized by the 2022 Inflation Reduction Act and implemented by the Environmental Protection Agency in November 2024.

The resolution rescinds that regulation under the Congressional Review Act. The CRA legislation gives Congress the authority to repeal regulations issued during the final months of a previous administration.

House Committee on Energy and Commerce Chairman Brett Guthrie, R-Ky., called the repeal “a victory for the American businesses and families who would have been forced to bear the cost of the Biden-Harris Administration’s natural gas tax.”

“It’s time to restore American energy dominance by harnessing innovation and producing the natural gas needed to support our electric grid,” Guthrie added.

Energy experts who testified before Congress in February said the high energy prices during Joe Biden’s presidency directly resulted from increased environmental regulations on energy production. The regulations slowed down domestic energy production and consequently led to increased costs, they said.

The American Exploration and Production Council (AXPC) shares the same view, praising Republicans in Congress and Trump for repealing the Waste Emissions Charge.

“AXPC thanks President Trump for signing the Congressional Review Act legislation – to undo EPA’s flawed rule to implement the natural gas tax,” AXPC CEO Anne Bradbury stated. “While American energy producers remain laser focused on reducing methane emissions, this punitive rule risked undermining those efforts.”

An analysis by the Congressional Budget Office shows that “Charging for methane emissions leads to an increase in the price of natural gas and a decrease in the quantity of natural gas produced and consumed.”

But environmental groups have argued that the legislation will increase energy costs and disrupt efforts to reduce emissions of a potent greenhouse gas. Nearly 80 environmentalist groups recently sent a letter urging lawmakers to keep the regulation, about to take effect, in place.

The Center Square reached out to multiple environmental groups but received no response in time for publication.

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