What Does the 2018 Federal Budget Say About Our Housing Market?
The 2018 federal budget didn’t have much to say about the Canadian housing market that we didn’t already know, but it did add some interesting initiatives to help vulnerable populations and create more rental housing.
Where are we at?
The budget acknowledged how expensive the Vancouver and Toronto real estate markets are, but also says those markets have likely peaked and are becoming more balanced. The price growth for single-detached homes slowed, while condominium prices continue to grow in the double-digits. Housing activity in the oil-producing provinces picked up after a slump, and the rest of Canada is doing just fine. Yet, housing demand may be “tempered” by rising interest rates and the new mortgage-rate stress test that came into effect this January 1.
No crash imminent
The government has no fear a housing bubble exists or a crash is upcoming.
“Since November 2015, Canadians have created almost 600,000 new jobs and the unemployment rate has fallen from 7.1 per cent to 5.9 per cent— close to its lowest level in over four decades. The Canadian economy has been remarkably strong, growing at a pace well above that of all other G7 countries since mid-2016”.
Decreasing wages and massive debt
What the budget fails to adequately analyze, however, is that real compensation decreased about 2 percentage points from a decade previous. So, while Canadians may have had jobs in the last quarter of 2017, they earn less than at those jobs than they did in 2007. (Chart on page 288 of the budget).
The differential between wages and housing prices can help, along with record-low interest rates, to explain why OECD called out Canada for being the only country in the world whose household debt exceeds its GDP, at over $2 trillion.
(See page 10: http://www.oecd.org/eco/outlook/Resilience-in-a-time-of-high-debt-november-2017-OECD-economic-outlook-chapter.pdf)
The budget prides Canada on being the fastest growing economy of all G7 nations. But does it fully account that Canadians are the most indebted among the same nations?
Is the entire economy at risk because of the housing market?
It does note that household debt, the majority due to mortgages, is the biggest area of vulnerability for the economy.
Here’s why: the Canadian economy is largely driven by consumption. That means that all those clothes and lattes and fancy cars that many personal finance experts constantly shame you for are actually the reason the economy is so healthy. When Canadians spend, especially on stuff they don’t really need, they create jobs and allow businesses to thrive. (The worst economic move is to hide money under a mattress, preventing banks from lending it out.)
If something does happen to the housing market, like a decline in housing prices, an increase in interest rates or a decline in market conditions, Canadians won’t have the cash to spend and the economy is likely to slow down.
Women and the housing market
The 2018 Federal Budget was especially notable for its overall focus on women. To that end, the government is implementing a National Housing Strategy to help “Canadians find safe and affordable places to call home and to protect those already living in community housing from being displaced.”
At least 25 per cent of the $40-billion budget over 10 years will support projects that specifically target the unique needs of women and girls, including senior women who are more likely than senior men to need affordable housing. In addition, it plans to create 100,000 new housing units, repair 300,000, and create or repair 7,000 shelter spaces for survivors of family violence.
Rental housing
The budget estimates that 30 per cent of Canadians are renters, but that the rental supply is extremely low and consequently getting more and more expensive. To increase supply, CMHC created the Rental Construction Financing Initiative in April 2017, which plans to provide $2.5 billion in low cost loans to incentivize developers to build new rental housing. This budget proposes to increase the size of those loans to $3.75 billion over the next three years. They hope this will lead to more than 14,000 new rental units across Canada.
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