Prime Minister Mark Carney announces a GST break for first time home buyers, in Edmonton, on March 20.Amber Bracken/Reuters
The housing affordability crisis will be one of the hairiest problems confronting the newly elected Liberal government.
Prime Minister Mark Carney has promised to add nearly half a million homes a year, with the federal government playing a central role in spurring and orchestrating that gargantuan building effort.
But will Mr. Carney be able to deliver on his ambitious pledge? We asked three housing experts and advocates what they feel optimistic about – and skeptical of – in the Liberals’ new housing agenda.
A new Build Canada Homes organization
Mr. Carney believes Canada should take a page from the public policies that he says helped bring about the building boom that followed the Second World War, when the country also faced a severe housing shortage. Central to that vision is the creation of a new Build Canada Homes federal entity to help develop and finance affordable housing and prefabricated homes.
Eric Lombardi, a founder of the pro-housing advocacy group More Neighbours Toronto, sees merit in the concept of Ottawa financing some housing development. Countries such as France, Austria and Singapore have been able to make similar schemes cash-flow positive, with governments providing cheap loans and other incentives to build homes – including affordable ones – but also making money on the projects so the capital can be reinvested to increase supply, he said.
But a new federal housing agency is unlikely to be successful in the long term if it doesn’t become financially self-sustaining, he said.
Another open question is whether Ottawa would be able to manage such a complex job, according to Mike Moffatt, an economist and founding director of the Missing Middle Initiative, a project based at the University of Ottawa’s Institute of the Environment.
“I think skepticism is warranted about the government’s ability to deliver on it,” he said. “But if they even come close to delivering on it, it would be quite transformative.”
Government financing of prefabricated homes
Mr. Carney has pledged Build Canada Homes will provide more than $25-billion in financing for prefabricated and modular housing, among other incentives.
This means building more panels, modules and other parts of a home in factories rather than at the construction site, something that proponents say will make home building both cheaper and faster.
Dr. Moffatt is a fan of the idea. In countries such as Japan and Sweden, the practice is well established and successful in accelerating the increase of supply, he said.
But the challenge in Canada, he added, is that home-building regulations vary across provinces and even municipalities, which makes it hard to mass-produce factory-made building parts.
Reviving a 1970s building tax incentive
Mr. Carney has also promised to revive the Multi-Unit Rental Building (MURB) tax incentive, a 1970s measure that allowed individuals who invest in building new rental apartments to deduct some related costs from their personal taxes.
Dr. Moffatt said a similar program could rewire incentives for wealthy individuals who want to put their money in real estate. For example, instead of buying up detached homes in university towns to turn them into student housing – which reduces the supply of family-sized housing – investors would likely be better off building a new, mid-rise rental apartment, he said.
One significant hiccup, though, is that zoning rules in many cities make it hard to build the kind of smaller rental buildings that would fit the budgets of mom and pop or groups of real estate investors, Dr. Moffatt said.
Andy Yan, associate professor and director of the City Program at Simon Fraser University, sees more reasons why MURB might not perform as advertised.
In the 1970s interest rates were much higher, while construction costs were lower, and there was no competition for purpose-built rentals from swaths of rented-out condo units, he said.
Just because the measure stimulated rental building back then, doesn’t mean it would work in today‘s housing market, he cautioned.
Cutting the GST on new housing for first-time buyers
The Liberals would also eliminate the goods and services tax (GST) for first-time homebuyers on homes worth up to $1-million and reduce it for homes between $1-million and $1.5-million.
Dr. Moffatt and Mr. Lombardi are both skeptical that the measure would meaningfully incentivize new construction, because the tax cut is too narrowly limited.
Tariffs, uncertainty and what Ottawa can’t control
In addition to the question of whether the new Liberal government will be able to execute what it promised, there’s the issue of what will happen with everything it can’t control, Prof. Yan said.
Developers in both Toronto and Vancouver are struggling to finance new projects, and housing demand in much of the country has cratered amid concerns about tariffs and economic uncertainty.
Factors such as the overall state of the economy and the trajectory of interest rates will have a major impact on how many homes Canada builds under the new government, Prof. Yan cautioned.
