Federal government has policy tools that can help build more homes
August 21, 2023
The Bank of Canada hiked interest rates again in July, just days before Statistics Canada reported that the inflation rate fell to 2.8 per cent in June. Given the sensitivity of the housing sector to adjustments in interest rates, the Bank’s hawkish stance is not only going to increase housing costs – a significant inflationary pressure in itself – but will also hamper the addition of new housing supply. The federal government should use the tools at its disposal to help counteract these forces.
Most parts of Canada face critical housing supply and affordability challenges, and the GTA is among those most severely affected. While prices have cooled and supply increased somewhat since the peak of the market in 2022, federal policies are continuing to drive housing demand, even as the Bank of Canada’s monetary policies make it more difficult to meet that demand. Canada’s immigration policy seeks to expand the population by 1.5 million people in the next three years.
Economic and social wellbeing
Newcomers are important to the economic and social wellbeing of Canada, and the home building industry welcomes the task of building the communities where they can live, work and play.
However, rising interest rates hamper the pre-construction sales that help finance the building of new homes, particularly in the highrise and multi-family sectors. Thus, raising interest rates moves buyers to the sidelines, delays the addition of much-needed supply to the market and exacerbates Canada’s housing supply and affordability crisis.
Effective tools
The federal government has several tools at its disposal to help spur the addition of housing supply and improve affordability. These include waiving or deferring HST on purpose-built rental housing, indexing the price thresholds for the GST/HST new housing rebate (an outstanding government pledge since 1991) and helping municipalities and provinces fund housing-supportive infrastructure.
While driving inflation down to the Bank of Canada’s target rate benefits all Canadians, putting off the vital task of adding more housing supply benefits no one. The federal government should act now to ensure monetary policy does not prevent us from building the homes Canadians need.