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The long-term focus on increasing housing supply in Tuesday's federal budget is being praised by the housing and real estate sectors, but some question whether the effort could worsen the country's affordability problems in the short term.
“Giving first-time buyers the ability to make larger RRSP withdrawals for down payments or lock in a 30-year payback when purchasing a new home will increase purchasing power and bring more people into the market at a time when There is already a lack of housing listings,” said Clay Jarvis, personal finance writer at the website NerdWallet, referring to two measures the Liberals telegraphed ahead of the budget announcement.
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“Competition may not increase much, but we don't need it at all,” he said.
Currently, Canadians can withdraw up to $35,000 tax-free from their retirement savings plan (RRSP) for their first home purchase, but the federal budget proposes to increase that limit to $60,000. The Liberals are also extending the maximum payback period for first-time buyers buying newly built homes from 25 years to 30 years, a change that would result in lower monthly payments.
Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd., welcomed these measures and additional efforts to increase supply, but emphasized the need for concrete action.
“Initiatives aimed at making it easier for young Canadians to enter the market are welcome…” However, without a significant expansion in supply, there will be further upward pressure on housing prices,” Yoevski said in an email.
Jason Mercer, chief market analyst for the Toronto Regional Real Estate Board, also expressed concern about the expected increase in demand over the next few years.
“We need to see policy papers turn into shovels in the ground,” Mercer said. We have built up a housing supply deficit over the last decade, but even more so now we will see a further increase in demand, not only because borrowing costs tend to fall in the second half of this year, but the population also continues to grow.”
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One group that was clear on the budget was the Canadian Home Builders' Association.
“The Canadian Home Builders' Association (CHBA) and our members are very pleased with the federal budget measures that will help the sector meet the government's goal of doubling housing starts to address the housing deficit,” said CEO Kevin Lee on Tuesday. “CHBA has long called for policies to support those who dream of home ownership but find it out of reach. Today’s Budget will go a long way towards paving the path to home ownership.”
In January, Lee publicly advocated for the federal government to consider a series of recommendations.
“Introduce 30-year amortizations for insured mortgages on new build properties and lower the mortgage stress test qualification rate generally and even more so for longer term mortgages of 7 and 10 years,” Lee said.
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While changes to the stress testing policy, which requires borrowers to qualify for a mortgage at an interest rate two percent above the offered contract rate, were not included in this year's budget, Lee praised the change in repayment.
“It has been so tough for first home buyers and this will have an immediate impact on new construction and help turn things around as many other measures will take a little more time.”
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