April 7th witnessed the release of the Canadian budget for the fiscal year 2022-23. Through the budget release, the Canadian government promises to enhance the housing conditions by making it more affordable and cost-efficient. The liberal party committed a few key measures, in case of re-election, that they will include a tax-free savings accounts for the first home for residents of Canada falling under the age of 40 years. A second promise is to double the home buyer text credit from $5000 to $10,000 to save on closing costs. The government has made commitments in order to speed up supply with the inclusion of $4 billion of investment in the housing accelerator fund in order to achieve growth in the annual housing supply. The federal government aims at the creation of 100,000 new, middle-class housing by the year 2024-25 and the conversion of void offices into residential components along side affordable build and repair
With such eminent promises by the country’s government, came a warning from the economists’ bench. They called the dream of better and affordable housing in today's market a dream far-fetched. Despite the Canadian Government's full-fledged on-paper strategy, the economists are skeptical of such a plan and are calling it an impossible strategy or a political agenda that is not efficient enough to conceive itself. The Economists are reluctant to accept this plan and warn the people, who have hope in their eyes, to beware of the ‘extreme’ housing goals and the risks that could drown them with such a housing plan.
Economists stand firm on the view that the federal government lacks an understanding of inflation costs that undergoes double home construction and states that the plan is too dismal to turn into reality. Most economists agree that the new housing plan determines the existing supply level to be negligible while dismissing the fact that one in ten dollars of the economic output of the country is spent on building houses.
Here are a few economists who shared their opinions along with the reason why they think the new housing policies are the waves of hot air. Stephen Brown, a senior Canada economist at capital economics, feels that this plan is a demand-weighted strategy and that backfire is imminent. He analyses the situation and believes that for a less number of buyers a demand-oriented strategy could work but in the long-run housing will become expensive, dismissing the whale objective of the new plan.
A certain Economist at BMO states the following reasons for their disagreement with the flow of the new housing plans -
The skilled laborers and materials for the construction are in a shortage supply due to the fixed capacity of the Canadian building industry. If the production was to be doubled it’d result in a significant rate of inflation dismissing the entire goal of the campaign.
It's easier to talk about the zoning changes than to actually implement them in a real off-paper world. The economist warns about a strong political resistance. The federal government's interference with the municipal committees will result in abuse of power. In the coming few years, Canada is likely to witness a change in its demographic structure. The millennials are currently peaking their demand needs which will result in low demand in the future. Moreover, the second half of the plan if would ever be conceived and implemented will result in housing for none.
The said economist was also in high disagreement with the Ontario transit-oriented community project and housing plans. BMO economist titled the strategy as a way of pandering to a higher number of votes. In regards to the new housing plans, Brett House- deputy chief economist at Scotiabank believes ‘Policy efforts to stoke demand will only increase prices. All levels of government need to do the hard work together to enable an increased supply of appropriate housing with related services in Canada’s major cities.’
Angelo Melino, a professor at the University of Toronto, feels ‘You can’t improve affordability by subsidizing purchasers. This will just raise the price of the existing housing stock. Affordability requires an increase in the stock of low-cost housing.’ A chunk of economists praises the housing plans devised by the government as an admirable and an ambitious move but question the supply of workers needed to achieve the targets. Doubling production by cutting the extra costs seems like an intangible plan because of the rooted inflation that can devour the economy.
