What the Election Means for Your Housing Issues

Published on 10th October 2019

I try to stay out of political conversations as much as possible, whether it be the Hong Kong protests that my family often talks about or all the current chatter about the upcoming Federal election. I just do my due diligence so that I know what the election would mean for me. I’m no climate expert, but I can tell you a lot about housing. So I’m going to use this week’s Insight Article to tell you each political party’s housing platform and explain what it could mean for you. Also just for fun, I’ll grade each party’s platform at the end as well.

Justin Trudeau and the Liberals

The Platform:

  • Expand First Time Home Buyer Incentive for Victoria, Vancouver and Toronto to $800,000 from $500,000
  • 1% vacancy tax on non-Canadian residents
  • Up to $40,000 interest-free loan for renovations
  • A few climate-related green initiatives for homes relating to Energy Star

The 2 most prominent points are the expansion of first time home buyer incentive for the more expensive cities and the 1% vacancy tax. The amount up to $800,000 will undoubtedly force a lot of the entry-level products to increase in price. It’ll open a huge floodgate for buyers who have been priced out of the market and let them back in. In the first 6 months of this incentive becoming effective, a spike in the activity and average price would be expected for the Toronto area. All of the condos and semi’s in Toronto will increase in price, in addition to all of the towns and semis in the 905. I would expect the average price to increase by about 4-5% as a result of this policy.

As for the 1% vacancy tax, we still have no definitive proof of how many properties are held empty by non-Canadian residents. There is definitely a handful, but likely not as much as most people would think. This policy feels more like a talking point for the Liberals because it’s a popular talking point among my local clients.

A $40,000 loan for renovations is nice – I can see that being useful for forcing appreciation in properties, but we’ll have to see what the terms on that program are.

Overall Mark: B+ for helping out the first time homeowners in the short-run but may negatively impact the market as a whole by driving prices up at a much more rapid pace in the long-run (due to the spike in demand after first time home buyers receive their incentives to buy a home). In any case, the Liberal platform does not address the supply issue.

Andrew Scheer and the Conservatives

The Platform:

  • Increase amortization periods on insured mortgages to 30 years for first time home buyers
  • Remove stress test for mortgage renewals

Increasing the amortization period for first time home buyers will effectively allow them to qualify for a larger mortgage because their debt ratios will be lower. If you take a look at the chart below, you can see that this new policy will allow you to do a 30-year amortization with 5% down and it could have a sizable difference in your monthly payments (approximately 11% difference in your monthly payment).

The other policy is the removal of the stress test for mortgage renewals. It’s not a removal of the stress test entirely (I honestly don’t think the stress test as a whole is going anywhere anytime soon). The removal applies only to mortgage renewals. It prevents your existing bank from locking you just because you cannot qualify under the new stress test rules with another bank. For example, a few years ago, you got a mortgage from Bank A before the stress test. In present day, you can no longer qualify for the same mortgage with other banks given the current stress test rules. As a result, you’re stuck at Bank A even if they increase the interest rate. You’re out of luck. This new policy will allow you to move your mortgage to a different bank without having to qualify again from scratch and having to go through the stress test again. It’s real purpose is to prevent banks from being shady and increasing interest rates for people who can no longer qualify elsewhere. This issue has actually been happening very low-key since 2018.

Overall Mark: A- because longer mortgage periods will allow first time home buyers to enter the market at a more steady pace, thereby slowly increasing demand and pricing, rather than a rapid spike with free cash incentives from the Liberals. This will allow for more stability of the housing market as a whole in the long term. However, the Conservative platform doesn’t address the supply issue either.

Jagmeet Singh and the NDP

The Platform:

  • Create 500,000 units for affordable housing in the next 10 years, at 50,000 units/year
  • Double Home Buyer’s Tax credit to $1,500
  • Remove GST/HST on new rental units
  • Re-introduce 30-year terms to CMHC for insured mortgages (Similar to Conservatives)
  • Add $5 billion dollars of spending to affordable housing in the first 18 months in office
  • Invest $40 million dollars over 4 years in a shelter enhancement program

This platform is like a beefed up version of the Conservatives’ platform. All of the effects of the 30-year amortization for first time home buyers apply to this NDP platform as well. All of the other proposed policies sound great as well as they are catered to affordable housing in addition to increasing supply. This should help alleviate some supply pressure from the entry-level condo market. The removal of GST/HST will also stimulate a lot more institutional money to build rental buildings to help alleviate the supply issue again. Very good intentions. My only concern about this is that the private sector (builders, developers and investors) can barely create 25,000 units per year in Toronto. As such, how would the NDP be able to promise to double that output to 50,000 units per year, and where is all of this money coming from for housing?

Overall Mark: B- but A+ for the intention of addressing affordability and supply, however, it seems there could be delivery issues in some areas of this platform.

Elizabeth May and the Green Party

The Platform:

  • Housing becomes a fundamental human right for all Canadians and permanent citizens
  • $1.5 billion into co-investment fund and rental assistance programs
  • Remove the first time home buyer incentive
  • Tax incentives for purpose-built rental
  • Remove GST when builder sells empty condos

These policies will ultimately slow down the housing market. The other 3 political parties are going forward with assisting Canadians with buying properties, but the Green Party is going in the opposite direction. Their policies are more geared towards helping those who are in need of shelter (100% approve of that).

Overall Mark: A+ for intentions but D- for not addressing the supply crisis for the middle-class segment in Canada.

The Wrap – I hope that was insightful and helped to shed some more light on the upcoming Federal election. Go out there and vote, because your vote makes a difference!

Until Next time, happy real estate-ing,
Zhen

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