2024 pre-budget submission
From More Homes Canada
The federal budget is coming in the spring, and pre-budget consultations are currently happening. Submission from More Homes Canada:
More Homes Canada is a coalition of pro-housing groups across Canada. In many cities, we have lots of jobs but not enough housing. Prices and rents must then rise to unbearable levels to force people to give up and leave, especially younger people and renters.
From an economic perspective, lack of housing limits the size of our most economically productive cities, making labour scarce. Because of this critical supply-side constraint, building more housing is a huge economic opportunity.
We have people who want to live and work in cities, and other people who want to build housing for them. There’s two major obstacles:
Getting local approval is very slow and difficult (“it’s easier to elect a pope”).
Even when something is legal, if costs are too high it won’t get built. So reducing costs is critical. Development charges, high interest rates, and construction cost increases are all headwinds to building more housing.
The federal government has already been working on both bottlenecks, using the Housing Accelerator Fund to convince municipalities to allow more height and density by right, providing the Apartment Construction Loan Program (formerly RCFI) and MLI Select to lower the cost of financing and insurance, and removing the GST on new rental housing.
For the upcoming federal budget, we’d like to ask that the federal government consider further items in the National Housing Accord proposal. Specific requests:
Consider further tax incentives to reduce costs and make more projects viable, offsetting cost increases elsewhere. A key advantage of tax incentives is that there’s no approval bottleneck, in contrast with applying for financing.
Speed up processing of applications to the Apartment Construction Loan Program, by simplifying or eliminating some requirements which duplicate provincial or local requirements, and by hiring more underwriters at CMHC. The goal should be to match commercial underwriting timelines plus a fixed period (e.g. 60 days).
Consider expanding the Apartment Construction Loan Program further. It provides a strong incentive to build more rental housing, and it doesn’t add to the federal deficit, since the loans are repayable with interest. The current commitment is $40B (financing about 80,000 homes). We’d suggest doubling its size again, to $80B (financing about 160,000 homes).
We understand that there’s fiscal constraints. Loosening fiscal policy, by cutting taxes or increasing spending, results in tighter monetary policy, in the form of higher interest rates, to cool down the overheated economy. This slows down homebuilding. There’s no painless options: higher prices, higher taxes, and higher interest rates are all painful.
Discussion
The cost bottleneck. An illustration, from morehousing.ca/metro-van-slides. Cost increases are first absorbed by “land lift” (shown in green), but once that’s gone, they end up being paid by homebuyers and renters. It doesn’t just affect prices for new buildings, it also affects prices for existing buildings, since they compete with each other.
Consider further tax incentives. Recommendation 03 of the National Housing Accord includes the following:
Defer capital gains tax and recaptured depreciation due upon the sale of an existing purpose-built rental housing project, providing that the proceeds are reinvested in the development of new purpose-built rental housing.
Increase the Capital Cost Allowance (CCA) on newly constructed purpose-built rental buildings.
Speed up Apartment Construction Loan Program processing. The current processing time is quite slow. A comment from a practitioner:
I think it took 7 months to get our CMHC underwriter to finally get assigned and respond, and because of that we delayed excavation by 4 months.
This is a combination of too many rules to check for each application; not enough underwriters; and a large number of applications.
Requirements which could be simplified or eliminated, especially those which duplicate provincial or local requirements:
Energy efficiency. Local and provincial requirements are often similar to the federal requirements, but not exactly the same. Apartments are inherently more energy-efficient and more suited to public transit than low-density housing.
Affordability. Likewise, many municipalities have affordability requirements that differ from the federal requirements. Purpose-built rental apartments provide secure housing which is much less expensive than owning.
Recommendation 04 of the National Housing Accord includes the following:
The CMHC should also be provided with additional funding to increase the underwriting resources to expedite approvals or to outsource the approval process based on defined criteria, as currently, developers often have to obtain interim financing while waiting for approval on a CMHC loan.
Fiscal tightening. It sounds like municipal governments are finding it very difficult to raise property taxes (in particular to finance infrastructure upgrades), and are requesting that they be given access to other sources of revenue, such as local sales taxes or local income taxes.
Although this would be a provincial decision, from a macroeconomic point of view it would help with fiscal tightening, and it would be reasonable for the federal government to support.
References
National Housing Accord: morehousing.ca/national-housing-accord
Financing municipal governments: see Enid Slack, “Financing Large Cities and Metropolitan Areas” (2011).
More Homes Canada is a coalition of housing advocacy groups across Canada:
Homes for Living Victoria
Strong Towns Nanaimo
Abundant Housing Vancouver
Strong Towns Langley
More Neighbours Calgary
Grow Together Edmonton
YIMBY Winnipeg
Waterloo Region YIMBY
More Homes Mississauga
More Neighbours Toronto
Make Housing Affordable Ottawa
Construisons Montréal
More Homes Halifax
Our website is morehomescanada.ca. Our email address is info@morehomescanada.ca.