Federal election campaign promises on housing could provide little relief on affordability, experts say

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All three major federal parties have promised to bring housing prices down in two ways. One, by increasing supply, meaning they would introduce measures that would encourage more housing construction. And two, by making it easier for young people to buy real estate.

But there may be danger in this two-pronged approach. Working to increase the supply of homes while also fuelling demand for them, by making it cheaper for first-time buyers to secure and service mortgages, could hurt affordability rather than help it.

Some housing experts worry that the promised increases in housing supply won’t happen in time to offset the market-stimulating effects of the parties’ demand-side measures.

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“I am not sure how the supply measures will be implemented in an effective way. And there is a timing issue,” said Benjamin Tal, deputy chief economist with CIBC. “The demand measures will impact the market much faster than any supply measure, so near-term it might be in fact stimulative.”

Home prices are already out of reach for many would-be buyers. The cost of a typical home in Canada hit $730,000 this summer, according to the Canadian Real Estate Association’s home price index, which adjusts for pricing volatility. The index is now over $1-million in Toronto, and it’s around $800,000 in places within driving distance of the city that used to be considered affordable, such as Hamilton, Guelph and Cambridge.

The rental market is also competitive and unaffordable. The national vacancy rate is around 3 per cent, and it’s lower in Toronto and Vancouver.

The demand-side measures being proposed by the parties include a pledge from the Liberals to slash the federal mortgage insurance rate by 25 per cent, which would reduce monthly costs for people who buy homes with down payments of less than 20 per cent. The party has said it would also create a type of tax-free savings account that young Canadians could use to save for down payments. And the Liberals would give first-time home buyers rebates on closing costs.

The NDP plans to lengthen the maximum mortgage amortization period to 30 years from 25 years for insured mortgages on first-time home purchases. That would reduce monthly payments for buyers who opt for the longer timeline. And the Conservatives have said they will “encourage” seven- and 10-year fixed mortgage terms in order to provide stability for first-time buyers. Currently, the most popular type of home loan is a five-year fixed rate.

Supply promises by party

Total homes to be created, by type and time, according

to party platform

=100,000 houses

NDP (new or repaired over four years)

1.7 million

Liberals (new or repaired over four years)

1.4 million

Conservatives (new over three years)

1 million

Green (Build or acquire over 10 years)

350,000

frances bula and john sopinski/THE GLOBE AND MAIL

SOURCE: party platforms

Supply promises by party

Total homes to be created, by type and time, according to party platform

NDP (new or repaired over four years)

1.7 million

Liberals (new or repaired over four years)

1.4 million

Conservatives (new over three years)

1 million

Green (Build or acquire over 10 years)

=100,000 houses

350,000

frances bula and john sopinski/THE GLOBE AND MAIL

SOURCE: party platforms

Supply promises by party

Total homes to be created, by type and time, according to party platform

NDP (new or repaired over four years)

1.7 million

Liberals (new or repaired over four years)

1.4 million

Conservatives (new over three years)

1 million

Green (Build or acquire over 10 years)

=100,000 houses

350,000

frances bula and john sopinski/THE GLOBE AND MAIL

SOURCE: party platforms

All of these proposals are intended to reduce purchasing costs or lower monthly payments. They would, at least initially, enable more Canadians to buy homes. But the presence of more buyers in the housing market would also mean more competition for real estate, which could drive up prices.

“There is no question that demand will increase as a result of the parties’ proposals to increase affordability,” said Jean-François Perrault, chief economist with Bank of Nova Scotia. Those measures, he said, are likely to be self-defeating if housing supply does not increase significantly.

Mr. Perrault has found that, among the Group of Seven advanced economies, Canada has the lowest number of housing units per 1,000 residents. And when he examined the change in that number from 2016 through 2020, he found that it had declined in most of the country’s major cities, including Toronto, because of a spike in immigration.

He predicts that trend will continue over the next few years, because the federal government expects to accept more permanent residents in order to make up for last year’s pandemic-related drop in immigration levels. “As we go forward in time, things will become less affordable and there will be more people needing to rent. That is going to get worse, if you don’t increase supply a lot,” Mr. Perrault said.

The Liberals have pledged to build or repair 1.4 million homes over the next four years if they form government after the Sept. 20 election. The Conservatives have said they will create one million homes over three years, and the NDP has promised 500,000 affordable homes over 10 years.

The parties have not specified how they would achieve these targets. “It’s quite possible that no party really does anything meaningful for some time,” said Paul Taylor, president of the lobby group Mortgage Professionals Canada.

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