A newly-completed housing subdivision is seen in King City, Ont. on April 2.CHRIS HELGREN/Reuters
Greetings to the young people of this country. Our future, in other words.
We in the government know how important it is for you to own a home, just as your parents and grandparents did. Homes are the centre of family life, and a financial foundation. But it’s time to level with you about home ownership. Canada is pivoting into a new reality where houses are too expensive in many cities for a lot of you. Sorry about that.
Our latest policy to help people get into the housing market is the First Home Savings Account, which officially launched April 1. It’s a good little innovation for people trying to save for a down payment, combining the best aspects of tax-free savings accounts and registered retirement savings plans.
You should get one if you plan to buy your first home, but don’t expect much. FHSAs are symbolic of government impotence in doing anything to improve housing affordability that doesn’t result in prices surging higher.
It would be helpful if we gave all first-time homebuyers the option to amortize the purchase of a home over 30 years, maybe even 35. Even at today’s high interest rates, monthly payments would fall noticeably. But that way lies higher house prices. As soon as a government does anything to make buying and owning houses more affordable, people rush into the market and bid prices higher.
We could actually restore housing affordability in a flash by using our nuclear option. Just phase out the tax exemption on the sale of a principal residence. Boom – houses are no longer hot financial assets. People will still want and buy homes, but they’ll be a lot less motivated to overpay.
Taxing houses will never happen, though. A government that goes this route might as well issue an official notice saying it has no interest in re-election, or getting anything further done in its mandate. The backlash would be that bad. From the big slice of the economy accounted for by building, financing or selling houses, and from people who would legitimately feel like the only financial sure thing in their lives was being taken away.
Housing prices have fallen a lot in many parts of the country, but there are signs here and there that the residential real estate market is a coiled spring ready to pop once conditions improve. People still believe in the cult of home ownership, and that ties our hands here in government. If we do anything dramatic to improve affordability for people getting into the market, we anger others who are already there. Guess who our most dependable voters are? Boomers and seniors.
One effective thing we can do to help affordability is to increase supply by getting more homes built. We’ve got policies to help make that happen, and so do some provincial and municipal governments. But if we’re all honest about our efforts, they show a complete lack of urgency. Construction of new homes picked up last month, but the mega-boom we need isn’t happening.
Anyway, building affordable rental units is just as important as more houses and condos. We’re talking here about clean, safe, livable rentals where rents don’t go up 20 per cent a year and tenants aren’t paying 40 per cent or more of their income in rent.
It’s our failure – the failure of decades of federal governments – that we let the housing market get this bent out of shape. We thought it was good for the economy, good for our re-election prospects, good for families and good for public order to encourage home ownership. A selection of government measures over the years: the Home Buyers’ Plan, the First-Time Home Buyers’ Tax Credit, the First-Time Home Buyer Incentive and the FHSA, which is an echo of the Registered Home Ownership Savings Plan of yesteryear. When interest rates fell, we stood aside while housing demand went through the roof.
Another cycle of interest-rate cuts is coming. House prices will rise again, offsetting the affordability benefit of lower rates. We in the government will have sympathetic things to say, and maybe some further affordability measures that add up to little.
Don’t expect anything more. The housing market got away from us and we don’t see a way to walk it back. Enjoy the FHSA.
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