What Real Estate Changes to Expect Post-Election 2021

Tembo outlined what the three big parties promised on real estate in three blog posts. Given that the Liberals have been re-elected, let’s recap what they promised, and what changes (if any) are in store. Many of the Liberal Party’s promises are designed to put more cash into the hands of prospective buyers – so those measures will end up increasing demand (and thus prices):

  • Tax-Free First Home Savings Account
  • First-Time Home Buyer Incentive
  • First-Time Home Buyer Tax Credit
  • Reduced Mortgage Insurance Fees

Measures against home flipping (a tax), and a temporary ban on foreign buyers were designed to decrease demand, but very few experts and market watchers believe these planks will make a dent on the market.

The big question is whether supply will increase meaningfully. The government’s plan will see capital allocated to developers who are focused on building affordable housing. It remains to be seen if this will benefit the average prospective buyer. The government has had years to implement these kinds of policies, and few have remarked on tangible impacts on the market.

Other changes we’ll see that were promised are likely to have some impacts on actual house purchasing:

  • Blind bidding ban
  • Legal rights to home inspection
  • Price transparency
  • Disclosure of all parties in a transaction

We can’t say whether these measures will contribute to prices levelling off or of demand calming, but they have been called for by many for a long period of time. Blind bidding has become a hated term and has been pilloried by the press repeatedly in recent years. Having enough of a down payment or a mortgage approved is just one fight in the house buying war, bids for available homes are another. How quickly and comprehensively the federal government moves to implement these promises is a big question, let’s wait and see.

How is Canada’s Economy Doing?

Overall, we’re holding fast. August saw 90,000 jobs created across the country (when lockdowns are lifted, jobs come back, when they’re imposed – we lose employment). Our unemployment rate is at the overall historic average, more or less, at about 7.5%. If one were to broaden the definition of unemployment to include those who are ‘underemployed’ – or want to work more hours but can’t – the real rate of ‘labour underutilization’ is at around 15%. This underscores the impact of COVID. The CBC recently reported on ‘labour underutilization’, a rarity for mainstream media.

Some parts of the economy are still slowly recovering from COVID – retail, restaurants, small business, and hospitality. Others are going ahead at full steam (tech., services, fintech.). Amazon Canada recently announced it was raising the average wage of its frontline workers to just under $22 an hour, and that it was in the process of recruiting 15,000 new workers across Canada. The company is also going to pay for up to 95% of the tuition of many of its workers in Canada, as it is increasingly doing so in the U.S., as part of its Career Choice program.

The really big news though, is that there are over 800,000 job vacancies in Canada. This is staggering considering the levels of unemployment and underemployment in the country. Labour shortages are being felt across all regions of the country and in a wide range of economic sectors, from restaurants, to hospitality, to primary industries, the list goes on. Job vacancies increased 22% from May to June, and will likely continue to do so. The business lobby complains that COVID related government benefits and supports are the cause, as people are making more money collecting these benefits than working – especially working part-time.

An Election About Nothing

Election 2021 is finally behind us. The end result of this $600M snap election in the middle of a fourth wave is a parliament that is almost exactly the same as the one that preceded it. As the Liberal Party did not lose any seats, the outcome was not as politically damaging to the Prime Minister as it could have been. Although he lost a good deal of precious political capital in calling this election, taking the risk, and not gaining a majority – for now at least, Justin Trudeau is safe as PM. Over the medium term though, pressures on his leadership are likely to build.

For Erin O’Toole the election was a serious failure. He both failed to increase his seat count and lost a bit of the vote share. He also failed to gain any Tory seats in the crucial 905 mortgage belt or in the city of Toronto. O’Toole is the first Tory leader from the GTA since the party reunified almost two decades ago, and his lack of success in the area is going to hurt him. The Tories actually lost two seats in the GTA (Aurora Oak Ridges Richmond Hill, and Markham Unionville). This speaks to the Tory party’s weakness in the region, the failure of O’Toole’s pivot to the centre, and to the Liberal Party’s local organizational heft and popularity. If O’Toole lost seats in the GTA to a Prime Minister who’s shine is gone and who called an unpopular, expensive election then how will the Tory party return to power under him in the future? Media talk of how O’Toole’s leadership is going to be challenged is already significant (ditto for Justin too).

For the other parties the election was a mixed bag. The Bloc Quebecois won two new seats and increased its vote share – not a bad outcome. The NDP saw a slight increase in its vote share but only gained one new seat – the party failed to recover much of the support it has lost under Singh’s leadership. The Greens gained one seat in Ontario at the expense of the Liberals, but saw its overall vote share fall precipitously, and Bernier’s PPC failed to pick up a single seat. From a strategic perspective, the Liberal Party were the big winners, as they fended off contenders well and actually gained one seat overall (so far). When the next election comes around, it is likely that we could see a whole new cast of leaders (Lib/Tory/Green especially).

The NDP Plan for Housing

In our final Election 2021 housing blog post, we’re looking at the third party NDP’s platform under leader Jagmeet Singh. As is expected for the housing section of an NDP platform, it starts with building affordable housing. The NDP wants to build 500,000 units of “quality, affordable housing” over 10 years. This will be done by:

“Breaking the logjam that has prevented these groups from accessing housing funding, we will set up dedicated fast-start funds to streamline the application process and help communities get the expertise and assistance they need to get projects off the ground now, not years from now. We’ll mobilize federal resources and lands for these projects, turning unused and under-used properties into vibrant new communities.”

In addition, the NDP will waive the federal portion of the GST/HST on the construction of new affordable rental housing units as a “quick, simple” change to help get more units online.

Like the Liberals, the NDP will double the first-time Home Buyer’s Tax Credit, and will reinstate 30 year mortgages, as are widespread in the United States, to lower monthly costs. Finally, the NDP will tackle speculation by implementing a 20% Foreign Buyer’s tax on the sale of homes to individuals who aren’t Canadian citizens or permanent residents. The party also promises to tackle speculation and money laundering, as the other two major parties.

The NDP’s housing proposals are the least detailed and most concise of the two parties, but this could be an advantage in getting their message across to the public. You can read more here.

How the Tories Will Tackle the Housing Crisis

Welcome to the second Election 2021 housing platform blog, with a quick dive into what the official opposition is proposing to do to help Canadians afford homes. The Conservatives are focusing on a platform that addresses four areas, with the first looking at boosting supply.

To “quickly” build 1M homes over three years, the Conservatives will look to transform 15% of the property the federal government owns into residential space. Tax incentives will be implemented to encourage the construction of rental units and for large landowners and businesses to donate property to trusts, and public transit will be paid for under conditions that high density housing be built close by.

Step 2 is rooting out corrupt activities that drive up prices“. This would include changes to the Proceeds of Crime Act, among others, to give law enforcement and prosecutors tools to root out aggressive instances of real estate related money laundering. The Tories would also look at the findings and recommendations of the Commission of Inquiry into Money Laundering in British Columbia, and quickly implement recommendations at the federal level.

Like the Federal Liberals, the Tories would ban foreign investors not moving to live in Canada from buying homes for 2 years, and then reviewing the policy.

The third area of focus is homelessness. The Tories want to focus on rehabilitating homeless people from drug related challenges through an investment of over $300M over a number of years.

Finally, to make mortgages more affordable, the Tories propose to:

  • Encourage a new market in seven- to ten-year mortgages to provide stability both for first-time home buyers and lenders, opening another secure path to homeownership for Canadians, and reducing the need for mortgage stress tests.
  • Remove the requirement to conduct a stress test when a homeowner renews a mortgage with another lender instead of only when staying with their current lender, as is the case today. This will increase competition and help homeowners access more affordable options.
  • Increase the limit on eligibility for mortgage insurance and index it to home price inflation, allowing those in high-priced real estate markets with less than a 20% down-payment an opportunity at home-ownership.
  • Fix the mortgage stress test to stop discriminating against small business owners, contractors and other non-permanent employees including casual workers.

There is very little fiscal firepower attached to this plan, as it focuses on stimulating market forces, leaning on crown property, and incentivizing construction through preferential tax treatment. The Tories will likely hammer away on the need to increase supply throughout the campaign, but so far, the plan shows less government involvement in housing than the other party platforms. The full Tory platform can be accessed here.

The next and final blog will examine NDP Leader Jagmeet Singh’s plans for housing.



How Trudeau Plans to Fix Housing

With Election 2021 on and in full swing, Tembo will dedicate three blog posts to outline what each of the three parties is offering to tackle housing, increase affordability, and help people get their first homes. In this blog, we’ll examine what the governing Liberals have in mind.

At its essence, the Liberal Party is rehashing its 2017 National Housing Strategy. They’ve repackaged and rehashed the older plan into a new, three-point housing pitch. The new pitch is called A Home For Everyone, and consists of:

  1. Unlocking Home Ownership: Liberals will help save a family buying their first home up to $30,000.

This part of the plan starts with a new, tax free First Home Savings Account to help young, prospective home buyers afford a down payment faster. It would combine the features of a RRSP and a TFSA and would allow up to $40K to be saved and withdrawn before the age of 40 tax free.

Another piece is the $5,000 First-Time Home Buyers Tax Credit will be doubled to $10,000, putting an extra $1,500 into the average buyer’s pocket to buy a home.

And another big piece is a new, $1B Rent-to-Own program. This money will be extended to developers to build rent-to-own projects. Ownership must be completed in five years, and rents will be required to be below market. There will also be measures to help people save on closing costs.

  1. Building More Homes: Liberals will build, preserve, or repair an additional 1.4 million homes in four years.

This starts with a $4B Housing Accelerator Fund aimed at increasing the housing supply in our biggest cities, for a total of 100,000 new middle class homes completed by 2024-25. Existing measures to increase affordable housing units and to convert more office space to residential housing will be made permanent. These are measures Tembo has already introduced to our readers in a past blog post. In this sense, this part of the plan doesn’t increase the net flow of funds, and just maintains what’s already going out the door.

  1. And Protect Home Buyers’ Rights: Liberals will create a Home Buyers’ Bill of Rightsto make the process of buying a home fairer, more open, and transparent.

Interestingly, the Home Buyers Bill of Rights will ban blind bidding, establish a legal right to a home inspection, mandating full transparency on recent house sale price on title searchers, and many other measures. The Bill of Rights would force banks and mortgage lenders to offer mortgage payment deferral options for up to 6 months for those who lose their jobs – a clear COVID inspiration.

The Libs are also increasing efforts to ban foreign ownership and speculative activity. A national tax on non-resident, non-Canadian owners of vacant or underused housing that kicks in on January 1, 2022 will be expanded to include foreign-owned vacant land. A proposal to temporarily ban new foreign ownership of housing will also be implemented. 

As always, the Liberals plan to invest further in aboriginal housing, and to strengthen federal oversight of the housing market. All in all, the plan is decent, with some recycled components, some creativity, and some tough measures. Our next blog will look at the Federal Tory plan for housing.

You can read the Housing component of the Liberal manifesto in full detail here.

On The Bank of Canada’s Latest Thoughts (on the economy and interest rates) Part II

Inflation took up a lot of the statement, as was expected. Let’s summarize what the BOC said. First, they acknowledged that the inflation rate exceeds their band. It’s not at a level they’re comfortable with. They then point out that the big driver was gasoline prices, which collapsed at the onset of COVID, and have now returned to their more historic norm – this had a very big impact on the CPI. The BOC continues this point, arguing that many other prices which fell from a drying up of demand when COVID hit rebounded, taking another hit to the CPI metric. And finally, they then point to the international supply chain situation (bottlenecks, shortages, logistical issues, border closures, lack of raw materials, pullbacks in production, etc.). They point out that the overall supply chain complication had a big and fast impact on prices.

Overall the Bank’s logic and argument is strong and well thought out. They humbly admit that “we expect the factors pushing up inflation to be temporary, but their persistence and magnitude are uncertain, and we will be watching them closely.” This is an important sentence. The key point the Bank is making is that high gas prices, price rebounds, and supply chain concerns will all more or less go away by the second half of 2022, when they expect inflation to return to 2%. This is the big question. Finally, the BOC says that their bond purchasing program, or QE, will continue until the economy goes back to more normal growth and inflation subdues.

We can’t underscore how important this statement is, and how important the BOC’s next steps will be. If their analysis holds, we’ll have low rates continue, growth and inflation normalize, and a very comfortable landing from the difficulties of COVID. If their analysis and decision making is off, and if the boat is rocked, we may be in for some ongoing and longer term financial and economic difficulties. Fingers crossed.

On The Bank of Canada’s Latest Thoughts (on the economy and interest rates) Part I

In this blog, Tembo will dig into the BOC’s latest major statement to the media and the public from mid July, to try to understand the Bank’s analysis of the macro-economic situation Canada finds itself in. What the Bank does in the coming months and years will be crucial to how our economy and society fares at this point of our history.

First and foremost, the BOC is very optimistic and confident of medium to long term economic recovery. The Bank sees the worst of COVID behind us. It cites the overall resilience of the economy and the high efficacy of vaccines as key pillars of stability and strength. Despite these positive forces, the BOC still expresses some uncertainty over how ‘smooth’ the recovery will be, the course of the virus, and how international economic, virus, and financial conditions change. They have no crystal ball, and they don’t pretend that they do. The BOC does point to strong U.S. economic growth and stimulus, along with oil prices recovering as key forces which will benefit Canada and uplift economic growth here.

The BOC sees consumption as being the key domestic driver of recovery: “Some of the sectors hit by lockdowns, including retail, restaurant, and other hard-to-distance sectors, are already seeing a rebound, while others, like business and international travel, may take longer to recover.” The BOC makes the important point that there’s still half a million jobs that must be regained for us to return to pre-COVID levels, but also says that many businesses have optimistic plans to return to full capacity soon. The expectation is that we’ll recover those jobs as people continue to engage economic sectors most hit by COVID (restaurants, retail, bars, services, etc.)

The BOC remains confident that the rest of this year and all of 2022 will see strong, consistent, and sustained economic growth. If the BOC is correct, GDP will go up 6% this year, 4.5% next year, and just over 3% in 2023 – marking a healthy period of recovery ahead. Let’s hope they’re correct, we continue with Part II.

Is It Finally Almost Over?

In a recent briefing to the media, Premier Ford had the following message: “Everyone’s worked hard: healthcare folks have worked hard, the people of Ontario… we just can’t go back, we have to go forward. We can’t afford another lockdown. I’m 99 per cent sure we won’t face any more lockdowns, but nothing in this pandemic is 100 per cent. And we will always follow the guidance of the health table.” The province does have a plan to fully re-open, to move away from the step system, and to return to ‘normal’ with some public health measures if appropriate. To get to this point, our vaccination figures would have to reach 80% for one shot, and 75% for full vaccination.

Ontario’s new Chief Medical Officer Dr. Kieran Moore had this to say: “If [we hit vaccination targets] and other key public health and health system indicators continue to remain stable, then the vast majority of public health and work safety measures will be lifted… only a small number of measures will remain in place, including the requirement for passive screening, such as posting a sign, and businesses requiring a safety plan.” In addition, every public health unit must have 70% of its inhabitants fully vaccinated. As of July 22nd, we’ve hit 80.5% of people with one shot, and 65.6% who are fully vaxxed.

Some expect us to reach this ‘step 4’ in mid August, given the 21 day rule, and given vax increase numbers. Dr. Moore has been quoted in the media as saying that until 90% of the population is fully vaxxed, the threat of more transmissible variants won’t go away.

Prepare For a Federal Election Very Soon

The media have been whispering about a snap summer federal election for many months now, and the tempo of these ramblings has been increasing. In addition to the media chatter is a relentless amount of federal announcements in the last few months, investments in transit, money for Montreal, cash for steelmakers in the Sault, progress on re-opening the border – the list goes on. Polling for the federal Liberals has been very reasonable for a long period of time. The federal Tories have consistently polled in and around 30%, a number too low for a chance at a win. The amount of money the feds are spending due to COVID is historically unprecedented. Everyone is getting something. More money for student loans, more cash for seniors, Canada Child Benefit cheques to parents, all of this points to good political omens for the government.

On top of all of the news, polls, and cash, is COVID vaccination rates, which have risen sharply in the last few months. This trend is good news in and of itself, while also easing any potential criticism that a federal election would be opportunistic and dangerous in difficult times. With 155 seats in the House, the Libs only need to pick up 15 seats to win a majority government. The last Ipsos poll from late June had the government with a 10 point lead over the opposition. The Liberals are dominating in seat rich Ontario, performing strongly in Quebec, and also polling very well in BC. Given the low popularity of Alberta’s provincial Conservative government, the Liberals have improved their polling in Alberta. The opposition only have a big polling lead in Saskatchewan and Manitoba.

The Liberals have leads with basically all major voting groups (millennials, seniors, middle aged parents). The trick for the Liberals is how to trigger the election without appearing too greedy. Nanos polling shows that very few Canadians want an election (only a quarter). The federal government’s stimulus measures and COVID response is crunching through the legislative process with the help of the NDP and Bloc abstentions, so there’s no argument over dysfunction. This is not the early Harper era, where an election was always around the corner and the opposition were all eager to pull the trigger. How and when the Libs make their move, no one knows, but a late summer election would give them the momentum.