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The federal budget includes proposals for the first-time buyer but real estate experts wonder if more should be done

Recent budget measures to make it easier for Canadians to buy homes are a good first step but real estate experts insist there's a need for creative thinking at all levels of government to fix the affordability problem.

In his pre-election budget tabled March 19, federal Finance Minister Bill Morneau included several proposals to help first-time home buyers and millennials.

They included up to $1.25-billion over three years for the First-Time Home Buyer Incentive program to lower monthly payments to buy a home, giving first-time buyers greater access to their Registered Retirement Savings Plans to buy or build a residence, and boosting the withdrawal limit of the Home Buyers' Plan from $25,000 to $35,000.

Access to shared equity mortgages was also expanded.

“It's about time,” says Christopher Alexander, executive vice-president and Ontario-Atlantic regional director for RE/MAX, of the new measures.

However, he questions how much impact the shared equity and home buyers' plans would have in such markets as Toronto and Vancouver.

“It's not going to really help people get into those markets because property values are so high there,” Alexander says. “I think the biggest challenge the markets in Canada face is that there's a shortage of inventory and serious demand.”

That's a concern that is being echoed by others.

“The solution has to be found on the supply side,” says Robert Hogue, senior economist at RBC.

“So it's yet another round that tries to help out on the demand side for certain age cohorts but in our view it's not going to do that much to improve affordability on a sustained basis.

“The shared equity mortgage is a pretty creative way to address part of the issue but at the same time if we are concerned about household debt in Canada, this is not going to help. It's still a form of debt.”

John Andrew, a professor of real estate at Queen's University's Smith School of Business, likes the incentives but points out that municipal and provincial governments are key to making housing more affordable.

He says there is a misconception that there is a lack of land that can be developed when it's actually a case of a lack of land that can be developed in an economically viable way. Andrew says affordable housing is sometimes not part of a development plan because it's not cost-effective.

“Municipalities really need to get their act together in terms of the fees that they charge to developers – the development fees, all the approval fees – they need to shorten the timelines for getting these developments approved,” he says. “They need to be more flexible in terms of things like building density because they're really not.

“They're not prepared to think outside the box ... and really allow for the kind of density of development that we need in order to provide affordable housing.”

The Ontario government pledged in its April 11 budget that its Housing Supply Action Plan would seek to cut red tape, reduce development costs and trim restrictions.

Andrew says municipalities are sometimes being short-sighted when they are overly restrictive on the developments they approve, saying larger condo projects, for example, would increase their property tax base significantly.

“Obviously it's got to be appropriate to the neighbourhood but there are a lot of areas in cities like Toronto and Vancouver that could easily absorb a greater density than it's currently zoned for,” Andrew says.

He suggests that provincial governments could set rules about timelines and maximum levels of development fees.

Andrew says the most important aspect of the federal government's involvement is the bank rate.

Anna Arneson, a spokeswoman at the federal Finance Department, says the First-Time Home Buyer Incentive program also addresses supply issues as do other budget measures such as the expansion of the Rental Construction Financing Initiative and the $300 million Housing Supply Challenge.

“The First-Time Home Buyer Incentive is designed to help eligible first-time home buyers across Canada, including in the Toronto and Vancouver areas,” she says.

“The program is expected to help approximately 100,000 Canadians buy homes that they can afford. With a more generous incentive for new construction, the incentive could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in our largest cities.”

Alexander says he was disappointed that there was no re-evaluation of the mortgage stress test, which was implemented in 2018 with the goal of preventing Canadians from taking on more debt than they could handle in their eagerness to buy a home.

It requires uninsured potential home buyers to meet a minimum qualifying rate plus two per cent or the Bank of Canada's minimum qualifying rate to get their mortgage.

Alexander says most predictions indicate interest rates will rise by one per cent during the next five years. “Asking people to qualify at two per cent makes no sense.”

He agrees that one of the results of the stress test has been to drive people to the rental market “big time, especially in the GTA.” The RE/MAX executive says rent controls have also caused some developers to consider more rental-focused projects.

“In much of the GTA, if you price your rental unit properly, if it's a nice place in good shape, you're probably going to have a lineup of offers,” he says.

Hogue and Andrew, however, say the government was right to leave the stress test alone for now. It had cooled the market and Hogue says prices lowered as a result.

While he is open to softening the test at some point, Hogue says to do so now could spark a rush of buyers back into the market where they would likely end up in bidding wars that would wipe out the gains achieved with the stress test.

Arneson agrees that the stress test did help limit speculation in key areas and control debt, but she doesn’t rule out changes to it in the future.

“The government continues to closely monitor the effects of its mortgage finance policies — including the stress test for insured mortgages — and would adjust them if economic conditions warrant, to support access to housing while safeguarding financial stability,” she says.

Finance Minister Bill Morenau released his budget in March. FRED CHARTRAND/THE CANADIAN PRESS

Key proposals in this year’s federal budget

• Provide up to $1.25-billion over three years for the First-Time Home Buyer Incentive through Canada Mortgage and Housing Corporation (CMHC) to reduce the monthly payments required to buy a home for eligible first-time home buyers. The First-Time Home Buyer Incentive is expected to be launched by September 2019. More details about the First-Time Home Buyer Incentive will be released in the coming months.


• Further expand Canadians’ access to shared equity mortgages by providing $100-million in lending to help existing shared equity mortgage providers scale up their business and encourage new players to enter the market.


• Provide first-time home buyers with greater access to their RRSP savings to purchase or build a home, by increasing the withdrawal limit of the Home Buyers’ Plan from $25,000 to $35,000.


• Increase the supply of new housing by launching a $300-million Housing Supply Challenge to break down barriers that limit new housing, with additional investments to support the recently announced Expert Panel on the Future of Housing Supply and Affordability.


• Expand the Rental Construction Financing Initiative to provide more affordable rental options for middle-class Canadians.


• Increase the supply of new housing by launching a $300-million Housing Supply Challenge to break down barriers that limit new housing, with additional investments to support the recently announced Expert Panel on the Future of Housing Supply and Affordability.


• Improve efforts to address housing supply with state-of-the-art housing supply modelling and related data collection through CMHC.


• The Government also continues to deliver on Canada’s first National Housing Strategy, which is a 10-year, $40-billion plan that will build 100,000 new affordable housing units, repair 300,000 others and reduce chronic homelessness by 50 per cent.

This content was produced by The Globe and Mail’s Globe Content Studio, in consultation with an advertiser. The Globe’s editorial department was not involved in its creation.