The 2021 federal budget‘s response to the real-estate market does not fully impress RBC Economics.
An analysis by bank economist Josh Nye describes the measure as “half-hearted on housing”.
“Budget 2021 reacts to blazing hot housing markets across the country, but only half-heartedly—it does little to turn the tide in a rising market,” Nye wrote as part of his broader report on the overall budget.
The federal budget was unveiled Monday (April 19) by Deputy Prime Minister and Minister of Finance Chrystia Freeland.
There has been mounting concerns that the Canadian real-estate market is overheating.
Calls have been made for the government to step in and cool down the market.
With supply and listings of homes falling short of strong demand, measures to cut back or trim purchasing power have been suggested as the only way to scale back sales and prices.
Nye wrote: “Notably absent were demand-side measures addressing skyrocketing prices and climbing indebtedness.”
Specifically, the RBC economist noted that the federal government “did not align the insured stress test” with what the Office of the Superintendent of Financial Institutions intends to do.
On April 8 this year, the OSFI announced that it wants to increase the qualifying rate of uninsured mortgages from the current level of 4.79 percent to a higher 5.25 percent.
The federal banking regulator plans to start implementing a higher qualifying rate on June 1, 2021, thereby tightening borrowing rules.
The proposed change covers uninsured mortgages, or loans that have a down payment of at least 20 percent.
Some have anticipated that the federal budget would include an announcement that mortgage rules will be tightened as well for insured mortgages.
Insured mortgages are loans that have down payments of less than 20 percent.
However, the budget did not the touch the subject about insured mortgages.
What the 2021 budget includes is a proposed one percent tax on the value of vacant or underused homes owned by foreigners and non-residents in Canada.
The foreign levy will take effect on January 1, 2022, and it will be preceded by a public consultation.
The tax is forecast to generate $700 million in revenues over four years, which will be used for affordable housing projects.
However, RBC’s Nye wrote that this tax measure will have a “marginal impact on housing demand and supply”.
Nye noted that the budget also includes new and accelerated funding to create and renovate affordable housing units.
The funding totals $3.8 billion.
“But the government didn’t commit to working with the provinces and municipalities on supply of market housing, where pressures intensified during the pandemic,” Nye wrote.