a recent Weekly Commentary report<\/a> that the federal government\u2019s proposed budget measures would only close a portion of the country\u2019s current housing shortage.<\/p>\n\n\u201cBig picture? There\u2019s a significant gap between the current pace of homebuilding and the supply that will be needed every year, but by our estimate, the budget measures would close less than 20 per cent of the annual gap, and only in the first few years of the projection period,\u201d said Jean.<\/p>\n
\u201cSome of the remaining gap in the federal government\u2019s plans could be filled by units promised in the 2017 National Housing Strategy, but the success of this initiative has been mixed,\u201d he added.<\/p>\n
Low interest rates, population growth and the rush to buy homes before prices and mortgage rates jumped higher have all contributed to the rise in real estate demand, Jean stated. Despite high levels of housing starts over the last few years, the pace of home supply hasn\u2019t been able to keep up in Canada. While the Canadian Real Estate Association\u2019s (CREA) MLS Home Price Index increased 15 per cent on average over the past two years, Desjardins\u2019 Canadian Affordability Index dropped to its lowest level in almost 15 years, an indication of the widening difference between prices and income growth.<\/p>\n
\u201cSo we were expecting to see a 2022 federal budget with a lot of strong measures to boost the housing supply,\u201d said Jean. \u201cWhat we found was a clearly stated problem: Canada will need to double its current pace of homebuilding to meet demand over the next decade.\u201d<\/p>\n
However, Jean pointed out that Desjardins couldn\u2019t find a \u201cvery convincing strategy.\u201d The 2022 budget includes plans for the Housing Accelerator Fund, which would build 100,000 net new housing units over the next five years. However, this would average out to just 20,000 units a year, Jean said. The budget also dedicated funding to thousands of co-op and vulnerable housing units, but support for these programs has already been included in prior initiatives.<\/p>\n
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SEE ALSO:<\/span>The Bank of Canada hiked the overnight rate to 1%. What do the experts think?<\/a><\/strong>\r\n <\/div>\nIn addition to the budget\u2019s modest plans to boost housing supply, Desjardins\u2019 chief economist said that the doubling of the First-Time Home Buyers\u2019 Tax Credit and the introduction of the First Home Savings Account next year may create a bump up in demand. The government has banned foreign buyers from purchasing residential property for two years, but data indicates that non-residents make up a marginal role in the current housing market. While the anti-flipping tax was a positive step to discourage market speculation, Jean noted that it appears unclear how much extra home supply it will free up.<\/p>\n
The aggressive tightening from the Bank of Canada should cool down demand for housing, said Jean. In its latest announcement, the BoC hiked its key lending rate<\/a> 0.5 per cent up to one per cent, the largest increase in 22 years. However, the chief economist pointed out that \u201cmonetary policy can\u2019t build homes.\u201d Higher interest rates and a dearth of unfilled construction jobs will create headwinds.<\/p>\n\u201cTo be sure, measures taken in the budget to increase supply are a step in the right direction,\u201d said Jean. \u201cBut given the importance of adequate housing supply to Canada\u2019s economic outlook, we\u2019ll have to pray for more decisive policy in the future.\u201d<\/p>\n
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<\/a>Photo:\u00a0Jerome<\/a> \/ Adobe Stock<\/em><\/p>\n