How to fix Canada’s shambolic housing market is one of the most important questions in this election. Homes remain absurdly expensive in a lot of the country. Building new ones is far too costly, difficult and slow. And a sizable chunk of what Canada has been building doesn’t fit the needs of many who are supposed to live in them – cue the current glut of shoebox condos for sale in Toronto.
Happily, both of the parties that stand a chance to form the next federal government are treating the housing shortage as a national emergency. There is also a welcome degree of consensus between Conservatives and Liberals on some of the basics, such as the need to reduce the taxes and fees on new construction – something even the NDP is now advocating, to an extent.
But the Conservative and Liberal platforms differ in two fundamental ways. Pierre Poilievre’s ideas are mostly about removing obstacles that stand in the way of the private sector, along with some tax measures. The Conservative leader is also more about results than process: He wants homebuilding targets reached but isn’t too fussed about how exactly cities will get it done.
Liberal Leader Mark Carney has also outlined tax breaks and measures to reduce housing bureaucracy. But his core promise on housing is to create a Build Canada Homes entity that will “get the federal government back in the business of building homes.” While the Liberals also want more homes built, they have an elaborate roadmap to get everyone there.
Consider how the Liberals and Conservatives propose to deal with provinces and municipalities, which control many of the levers that shape what goes on in the housing market.
In many cities, soaring development charges help drive up the cost of new homes. Red tape slows down construction. Zoning restrictions and outdated building codes make it nearly impossible to build the kind of mid-rise buildings with larger units that would fit both the needs and the budgets of middle-class families.
The federal government can’t directly rewrite those rules, so both the Conservatives and the Liberals aim to cajole local and provincial governments to move in the desired direction – albeit in much different ways.
The Conservatives would set a goal for some cities to boost housing by 15 per cent annually. Cities that beat that goal would receive additional federal funding, but those that fell short would be penalized. Municipalities would have a lot of flexibility to figure out how to meet those targets.
The Trudeau Liberals had taken a more interventionist approach, promising extra funding in exchange for municipalities adopting desired measures, such as zoning reforms, and Mr. Carney has promised to continue in a similar vein. The risk of this approach is that local governments will pocket the cash and then simply find new ways to slow down development.
Mr. Poilievre has also presented a better plan for eliminating the GST on new homes, which adds another government-imposed layer of costs on homebuilding. The Conservatives, who first came up with the idea, would make the tax cut broad based – rather than limiting it to primary residences – and available on properties worth under $1.3-million, a ceiling high enough to help buyers in Vancouver and Toronto.
Mr. Carney says he’d do the same, for properties worth up to $1-million but only for first-time homebuyers – that latter limitation would turn the measure into a boutique tax cut of limited benefit. Meanwhile, the NDP housing plan proposes an expansion of rent control, a policy that would deepen Canada’s housing crisis.”
That’s not to say Mr. Poilievre has nailed the housing file. His 15 per cent annual homebuilding target for cities is too rigid. A bigger concern is the Conservative pitch to defer the tax on capital gains as long as the proceeds are reinvested in Canada. Any such deferral should exclude the purchase of residential real estate. Otherwise, the measure promises to be a massive tax break for real estate investors that risks sucking even more capital into the housing sector, as this space has argued before.
Still, the Conservatives get this much right: An approach that seeks to magnify private-sector efforts in fixing Canada’s broken housing system is the way to go. The next government would do best to focus on setting clear goals and carefully designed incentives rather than try to micromanage how developers and cities build homes.