Trudeau’s 2024 budget could drive out investment as housing bubble continues

The extent to which the Canadian economy is distorted by a property bubble can be seen by comparing government debt with household debt, with the latter being 130 percent of GDP, nearly twice as much as American households.

Prime Minister Justin Trudeau’s federal government has brought in its 2024 budget, which projects C$53 billion in new spending over the next 5 years. It includes a significant capital gains tax increase, which some are warning will drive away investment, and a plan for more government-controlled public housing.

The Trudeau government is wrestling with a problem that is afflicting most English-speaking economies: how to deal with the consequences of a 20-year house price bubble that has led to deep social divisions, especially between baby boomers and people under 40.

House prices have tripled over the last 20 years on average, fuelled by the combination of aggressive bank lending and, until recently, falling interest rates. Neither is directly controlled by the federal government. There is no avenue to restrict how much banks lend and the Bank of Canada sets interest rates independently.

Accordingly, the Trudeau government is left to tinker at the edges. It will legislate an increase, from one half to two-thirds, in the share of capital gains subject to taxation for annual investment profits greater than C$250,000. The change will apply to individuals, companies and trusts.

Christina Freeland, Canada’s minister for finance, claimed improbably that only 0.13 percent of Canadians with an average income of $1.42 million are expected to pay more income tax on their capital gains in any given year.

That is a dubious forecast. The average house price in Canada 20 years ago was C$241,000; it is now C$719,000. Any Canadians who bought an investment property (family homes are exempt) before about 2015 are likely to have a capital gain larger than C$250,000 should they sell.

The government’s claim that the change will only affect a tiny proportion of Canada’s population is also belied by the government’s own forecast that the tax change will raise over C$20 billion over five years.

The extent to which the Canadian economy is distorted by a property bubble can be seen by comparing government debt with household debt. Canada’s government debt is fairly modest by current international standards: 67.8 percent of GDP in March 2023, down from 73 percent in the previous year. That is about half the U.S. government debt and half the average for G7 countries.

Canada’s budget deficit is also cautious by Western standards. In 2023-24 it was C$40 billion, equivalent to 1.4 percent of GDP. The U.S. budget deficit is currently over 6 percent of GDP.

Investors account for 30 percent of home buying in Canada, and about one in five properties is owned by an investor. Worse, the enthusiasm for property investment seems to be intensifying. According to one survey, 23 percent of Canadians who do not own a residential investment property say that they are likely to purchase one in the next five years, and 51 percent of current investors say that they are likely to purchase an additional residential investment property within the same time frame.

The problem with the bias towards property investment is that it is actually a punt on land values – and land is inherently unproductive. Business groups have criticized the government’s capital gains hike as a disincentive for investment and innovation, but the far bigger issue is investors’ focus on property, which is crowding out interest in other kinds of investments.

That means the main source investment capital for businesses will tend to come from institutions, such as mutual funds, which typically have a global, rather than local, orientation.

Faced with forces largely out of its control, the Trudeau government is fiddling at the edges. It has announced the introduction of what it calls “Canada’s Housing Plan”, which is aimed at unlocking over 3.8 million homes by 2031. Two million are expected to be new homes, with the government contributing to more than half of them. This will be done by converting underused federal offices into homes, building homes on Canada Post properties, redeveloping National Defence lands, creating more loans for building apartments in Ottawa, and looking at taxing vacant land.

The initiatives may have some effect on supply and demand, but the property price excesses are mainly a financial problem caused by unrestrained bank lending that has been fuelled by low interest rates. When a correction does occur, it will most likely be because of changed global financial conditions, not government policy or fiscal changes.

There are other measures that could be taken to address the property bubble such as reducing, or removing, negative gearing or more heavily taxing capital gains only on property but not other types of investments. But these policies would no doubt would be politically unsalable, so the Trudeau government is instead making minor changes, probably hoping that the problem will fix itself.

Related Topics:#2024FederalBudget #CanadianEconomy #DavidJames #HousingBubble #LifeSiteNews

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Governments in Alberta should spur homebuilding amid population explosion

Published on April 26, 2025

Todayville

From the Fraser Institute

By Tegan Hill and Austin Thompson

In 2024, construction started on 47,827 housing units—the most since 48,336 units in 2007 when population growth was less than half of what it was in 2024.

Alberta has long been viewed as an oasis in Canada’s overheated housing market—a refuge for Canadians priced out of high-cost centres such as Vancouver and Toronto. But the oasis is starting to dry up. House prices and rents in the province have spiked by about one-third since the start of the pandemic. According to a recent Maru poll, more than 70 per cent of Calgarians and Edmontonians doubt they will ever be able to afford a home in their city. Which raises the question: how much longer can this go on?

Alberta’s housing affordability problem reflects a simple reality—not enough homes have been built to accommodate the province’s growing population. The result? More Albertans competing for the same homes and rental units, pushing prices higher.

Population growth has always been volatile in Alberta, but the recent surge, fuelled by record levels of immigration, is unprecedented. Alberta has set new population growth records every year since 2022, culminating in the largest-ever increase of 186,704 new residents in 2024—nearly 70 per cent more than the largest pre-pandemic increase in 2013.

Homebuilding has increased, but not enough to keep pace with the rise in population. In 2024, construction started on 47,827 housing units—the most since 48,336 units in 2007 when population growth was less than half of what it was in 2024.

Moreover, from 1972 to 2019, Alberta added 2.1 new residents (on average) for every housing unit started compared to 3.9 new residents for every housing unit started in 2024. Put differently, today nearly twice as many new residents are potentially competing for each new home compared to historical norms.

While Alberta attracts more Canadians from other provinces than any other province, federal immigration and residency policies drive Alberta’s population growth. So while the provincial government has little control over its population growth, provincial and municipal governments can affect the pace of homebuilding.

For example, recent provincial amendments to the city charters in Calgary and Edmonton have helped standardize building codes, which should minimize cost and complexity for builders who operate across different jurisdictions. Municipal zoning reforms in Calgary, Edmonton and Red Deer have made it easier to build higher-density housing, and Lethbridge and Medicine Hat may soon follow suit. These changes should make it easier and faster to build homes, helping Alberta maintain some of the least restrictive building rules and quickest approval timelines in Canada.

There is, however, room for improvement. Policymakers at both the provincial and municipal level should streamline rules for building, reduce regulatory uncertainty and development costs, and shorten timelines for permit approvals. Calgary, for instance, imposes fees on developers to fund a wide array of public infrastructure—including roads, sewers, libraries, even buses—while Edmonton currently only imposes fees to fund the construction of new firehalls.

It’s difficult to say how long Alberta’s housing affordability woes will endure, but the situation is unlikely to improve unless homebuilding increases, spurred by government policies that facilitate more development.

Tegan Hill

Director, Alberta Policy, Fraser Institute

Austin Thompson

Senior Policy Analyst, Fraser Institute

2025 Federal Election

Homebuilding in Canada stalls despite population explosion

Published on April 19, 2025

Todayville

From the Fraser Institute

By Austin Thompson and Steven Globerman

Between 1972 and 2019, Canada’s population increased by 1.8 residents for every new housing unit started compared to 3.9 new residents in 2024. In other words, Canada must now house more than twice as many new residents per new housing unit as it did during the five decades prior to the pandemic

In many parts of Canada, the housing affordability crisis continues with no end in sight. And many Canadians, priced out of the housing market or struggling to afford rent increases, are left wondering how much longer this will continue.

Simply put, too few housing units are being built for the country’s rapidly growing population, which has exploded due to record-high levels of immigration and the federal government’s residency policies.

As noted in a new study published by the Fraser Institute, the country added an all-time high 1.2 million new residents in 2023—more than double the previous record in 2019—and another 951,000 new residents in 2024. Altogether, Canada’s population has grown by about 3 million people since 2022—roughly matching the total population increase during the 1990s.

Meanwhile, homebuilding isn’t keeping up. In 2024, construction started on roughly 245,000 new housing units nationwide—down from a recent peak of 272,000 in 2021. By contrast, in the 1970s construction started on more than 240,000 housing units (on average) per year—when Canada’s population grew by approximately 280,000 people annually.

In fact, between 1972 and 2019, Canada’s population increased by 1.8 residents for every new housing unit started compared to 3.9 new residents in 2024. In other words, Canada must now house more than twice as many new residents per new housing unit as it did during the five decades prior to the pandemic. And of course, housing follows the laws of supply and demand—when a lot more prospective buyers and renters chase a limited supply of new homes, prices increase.

This key insight should guide the policy responses from all levels of government.

For example, the next federal government—whoever that may be—should avoid policies that merely fuel housing demand such as home savings accounts. And provincial governments (including in Ontario and British Columbia) should scrap any policies that discourage new housing supply such as rent controls, which reduce incentives to build rental housing. At the municipal level, governments across the country should ensure that permit approval timelines and building fees do not discourage builders from breaking ground. Increasing housing supply is, however, only part of the solution. The next federal government should craft immigration and residency policies so population growth doesn’t overwhelm available housing supply, driving up costs for Canadians.

It’s hard to predict how long Canada’s housing affordability crisis will last. But without more homebuilding, slower population growth, or both, there’s little reason to expect affordability woes to subside anytime soon.