April 16, 2024

By Mike Moffatt

This year’s federal budget has adopted dozens of policy recommendations from both the National Housing Accord and the Blueprint for More and Better Housing. It goes a long way to address the supply and affordability goals of the blueprint and has several initiatives that will lower the carbon footprint of housing. Unfortunately, it falls short of ensuring homes are resilient to the impacts of climate change.

Encouraging apartment construction

Budget 2024 focuses a lot on creating the financial conditions to scale up apartment construction, though most of these initiatives were announced before the budget. These pre-releases included reintroducing the 10% Accelerated Capital Cost Allowance provision on apartment construction, along with last year’s elimination of GST on the construction of those buildings. Both were key recommendations of the accord and blueprint, which will help accelerate development. One new announcement buried in the supplementary Tax Measures document is a proposal to exempt apartment construction from the excessive interest and financing expenses limitations (EIFEL) rules. These rules made it more expensive and challenging for multinational developers to build apartments in Canada; eliminating these rules will help attract much-needed capital to the sector.

Legalizing gentle density

The government is making a clear attempt to reduce the carbon footprint of housing, with heavy lifting being done through reducing emissions from transportation than from the buildings themselves. A $6-billion housing infrastructure fund for municipalities and provinces requires governments to legalize gentle density, including fourplexes. To be eligible for transit funding, municipal governments will need to allow high-density housing and eliminate parking minimums near transit stations. Legalizing density can reduce emissions through both lowering commutes and lowering land-use change emissions from greenfield developments.

Some initiatives do seek to reduce building-level emissions. These include changes to the National Building Code, a new Canada Greener Homes Affordability Program to finance energy efficiency retrofits for low- and medium-income households, and research dollars for innovative, low-carbon construction solutions. The budget also commits $30 million to develop a national approach to energy efficiency labelling of homes.

Increasing building resilience to climate change

Groups looking for initiatives to help ensure that housing is more resilient to the effects of climate change are likely to be disappointed. There are some announcements related to flooding, including a commitment from the Canada Mortgage and Housing Corporation (CMHC) to deliver flood reinsurance, along with additional funding to assist the CMHC in developing a national flood insurance program. While the government did announce a new mapping tool to help identify public lands for development, the budget contained no movement on a nationwide hazard mapping initiative — one of the key recommendations of the Blueprint for More and Better Housing.

Increasing housing supply

As part of the supply-side housing focus of the budget, the document sets a target of 3.87 million homes of which 1.2 million will come from actions the federal government has made in the last year, 800,000 from provincial actions, and 1.87 million will have been built anyway. However, there are no details given on how these actions will create 1.2 million homes or even the period that this promise covers. We recently estimated that Canada would need to build 3.5 million homes over ten years (covering July 1, 2021, to June 30, 2031) to keep up with population growth in the same ballpark as the budget’s ambition. The housing chapter of the budget also indicates that reducing population growth will be a key component of the government’s plan to “help balance housing supply with housing demand.” This reduction in population growth will be accomplished by reducing the number of non-permanent residents by 600,000 over the next three years.

Helping families, not investors

A secondary component of the budget’s housing plan is ensuring that single-family homes are owned by families rather than by investors. These initiatives are likely to be popular with Canadians and make it easier for first-time homebuyers to buy a home, but they will have the unintended consequence of reducing the number of homes available for rent. The initiatives include banning large corporations and hedge funds from buying single-family homes and introducing 30-year amortizations for first-time homebuyers purchasing newly constructed homes. Although not framed as a housing measure, the increase in the inclusion rate on realized capital gains will likely deter wealthy individuals from buying secondary properties, which will leave more homes for first-time homebuyers. However, it will likely leave renters with fewer options.

Overall, the budget presents a bold plan for housing supply, with several dozen new initiatives that, combined, have an estimated fiscal cost of $8.5 billion spread over five years. Given the number and scope of these reforms, these initiatives may create an additional 1.2 million units. However, the government will need to show its math for the estimates to be credible. The focus on rental housing should help drive affordability, though additional work will need to be done to restore the dream of homeownership to young Canadians. The biggest gaps are in ensuring that new housing is low-carbon and resilient to extreme weather events; we hope this will be addressed in Budget 2025.