Budget 2024. The main budget document is about 400 pages.
The federal budget was released yesterday. It includes a lot of measures on housing, especially housing supply (see Chapter 1).
In the short term, the federal government is cutting total population growth from >1M to more like 300,000. But we also need to build more housing everywhere: since Covid, the housing shortage in Toronto and Vancouver has spilled over to the rest of the country. Doubling the rate of homebuilding would be a good start.
Previous posts, summarizing the main supply measures:
Federal plan, September 2023 - using the Housing Accelerator to persuade municipalities to reform land use; removing GST on new rental housing
Federal housing infrastructure fund - $6B for infrastructure, to persuade provinces to adopt land-use reforms similar to BC’s
Budget 2024 preview - low-cost long-term loans for more purpose-built rental housing; funding to acquire older rental housing; funding for innovation, like prefab
The overall federal housing plan - plus accelerated depreciation for new rental housing; leasing public lands for housing
On the tax side, the government is increasing the inclusion rate on capital gains over $250,000 from 50% to two-thirds, while increasing the exemption for selling a small business to $1.25 million. The inclusion rate for all capital gains within corporations and trusts will be increased to two-thirds. See Chapter 8.
The inclusion-rate change affects investors selling an investment property (since you sell it all at once), reducing their rate of return. It takes effect June 25, so this would be an incentive for investors to sell before then. It doesn’t affect principal residences, which are exempt from capital gains taxes.
Judging by initial commentary from Kevin Milligan, it seems like the overall budget is reasonably prudent. Fiscal policy can’t be too loose, or the central bank would have to tighten monetary policy (i.e. raising interest rates) to compensate. Increasing spending in some areas (housing, health care, national defense) means that you need to raise taxes. Comparing Canada’s overall debt and deficit picture (including federal, provincial, and municipal) to other G7 countries:
Commentary by Mike Moffatt
Thread time! Budget 2024 is out. The biggest announcement is an increase to the inclusion rate on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and trusts from one-half to two-thirds.
On housing… most of what’s in the Budget was already announced last week. But we do have a costing on the non-infrastructure parts – 8.5 billion over 5 years. But we do have a fair bit more detail on the plans, which is helpful. [See pp. 98-99]
A big change was buried in the Tax Measures supplement: an exemption to EIFEL tax rules for apartment construction! Wonky, but really important. – will really help get shovels in the ground. This is something Cara Stern and I talk about here.
The budget has a big focus on building on public lands, particularly on Canada Post properties and National Defense lands. Feds clearly see land availability/cost as a bottleneck to building homes.
An eye-opener – “the government will consider introducing a new tax on residentially zoned vacant land”. Interesting idea, not sure how it will work in practice.
Unfortunately, there is still a frustrating lack of detail on this 3.89M housing target. [See pp. 27-28] All we know is:
- 1.89M from “Business as Usual”
- 1.2M from federal measures
- 800K from provincial measures
I hope more is coming.One very interesting piece is the heavy emphasis in the housing chapter (Chapter 1) that the government is placing on announced reductions to population growth. Any hesitation they had in linking population growth to housing shortages is now gone.
I couldn't have imagined a budget saying something like this [p. 44] even a year ago. (And, note, this is in the housing section!)
The budget mentions the 600,000-person reduction in permanent residency three times [p. 77].
All and all, the biggest new housing item (in terms of impact) looks to be the EIFEL change. This is a big, transformative plan, though I still have all kinds of "details" questions. Hope we learn more in the coming weeks.
A blog post by Moffatt: Budget 2024 Goes Big on Housing. “'Fairness for Every Generation' includes the most ambitious housing supply plan any federal government has released in at least fifty years.”
First-time homebuyers
Mike Moffatt and Cara Stern argued in March that measures were needed to support first-time homebuyers. The dream of Canadian homeownership is dying. Here’s how to revive it. “First-time homebuyers need solutions now, not in a decade or more when supply increases.”
They had a package of recommendations: build more student housing, provide incentives for investors in student rentals to sell, allow younger first-time homebuyers to take on mortgages with 30-year amortizations (instead of 25 years), and ease the stress test.
Increasing the capital-gains inclusion rate to two-thirds for gains over $250,000 acts as a disincentive for individual investors.
The 30-year amortization for first-time homebuyers is included in the budget, but only for new homes at this point. Deny Sullivan notes that this would lower the monthly payment on a $500K mortgage at 5% by $250, but he thinks it’s a mistake to increase demand. Extending Mortgage Amortization is a Mistake.
More
Even before the release of the federal budget, Ottawa’s pro-housing agenda is changing the country. Alex Bozikovic, Globe and Mail.
Justin Trudeau’s grand plan will never solve our housing crisis. Here’s why…. David Olive, Toronto Star.
I've mostly abandoned 'politics Twitter' (where I used to get my housing news), so I really appreciate you keeping me up-to-date with these Substack posts. Thanks!!