RBC Economics says budget 2022 measures on housing “won't immediately relieve affordability crisis”

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      RBC Economics says the 2022 federal budget announced by Finance Minister Chrystia Freeland is “big on housing”.

      “Whether Freeland’s new measures will bring quick relief to Canadians struggling with poor housing affordability is another story,” economist Robert Hogue wrote.

      Hogue counted 29 housing-related measures, mostly “taken from last fall’s Liberal election platform”.

      The RBC economist thinks that while the size of the entire package sends a message, it “won't immediately relieve [the] affordability crisis”.

      “Many of the measures announced won’t be effective for some time,” Hogue noted.

      “Individually, many of these measures aren’t likely to move the needle much or will do so only gradually over time,” he also wrote.

      Nonetheless, Hogue is pleased to “see a focus on growing the supply of housing”.

      “We think the Housing Accelerator Fund is a good example of the constructive role the federal government can play to unlock local supply,” he pointed out.

      The said housing fundinvolves $4 billion over five years.

      As Hogue noted, the fund is intended to help municipalities speed up construction approval times, update zoning policies and development permit systems, and increase housing density.

      Moreover, it targets the creation of 100,000 additional units by 2024-2025.

      The 2022 federal budget announced on April 7 also includes support for buyers.

      One is the introduction of a first home savings account, which is meant to enable Canadians to invest up to $40,000 tax-free for a residential purchase.

      Another is the doubling of the first-time home buyers’ tax credit from $5,000 to $10,000.

      While these are commendable, there’s another side.

      “We’d caution that measures that ultimately boost demand tend to perpetuate the imbalance between demand and supply, and do little to temper price appreciation,” Hogue wrote in his report on April 8.

      The budget also includes a two-year ban on foreign buyers of non-recreational residential properties.

      The prohibition does not cover permanent residents, temporary foreign workers and students, and non-residents buying their primary residence in Canada.

      Hogue thinks that this foreign-buyer ban is “not a game-changer”.

      “We suspect the direct market impact of a temporary ban on foreign buyers will be minimal,” he wrote.

      Hogue added, “Non-residents own less than 2% of the housing stock in most markets—with recreational areas (exempt from the ban) typically seeing the higher rates—so their influence tends to be localized at best.”

      Hogue’s paper came in advance of the Bank of Canada’s announcement on Wednesday (April 13) of a widely anticipated 0.5 percent increase in its interest-setting rate.

      The RBC economist expects the central bank to raise its rates by another one percent by the year-end.

      This means that the Bank of Canada’s key rate would stand at two percent by the end of 2022.

      For Hogue, this rate increase “represents a significant shift in a factor that’s been a strong tailwind for housing demand”.

      Going back to the 2022 federal budget, Hogue stated that that “efforts to address supply issues go in the right direction even if federal power is limited in that regard, and any benefits will be realized only gradually”.