Conservatives Aim to Increase Homeownership in Canada by 700,000
In a recent speech, Stephen Harper announced that the Conservative party has a new target of 700,000 new homeowners by 2020. We argue that this is largely a political maneuver and is counter to policies that have been implemented by the Federal Government in recent years.
The Lowdown on Harper's "Plan"
You will notice the use of quotation marks in the title. That is because this target was provided without specific polices, nor any firm reasoning for the target.
The government aims to raise the homeownership rate from its current 69% (as of 2011) to 72.5% which, in combination with population growth, would create 700,000 new homeowners in Canada. If you read the Conservative press release, it will lay out some policies. However, we argue that, for the most part, they would not have a substantive impact:
- Expansion of the Home Buyer's Plan to allow first-time homebuyers to withdraw up to $35,000 from their RRSP's without penalty and put it towards their down-payment - This represents a sizable increase from the current $25,000 and would indeed help some households buy a home
- Maintaining the increase to the TFSA contribution limit - This is nice, but it is not a new measure. That being said, we are fully supportive of it.
- Establishing a new "permanent" Home Renovation Tax Credit for home renovation expenses between $1,000 and $5,000 -. We fail to see how this would have much effect on homeownership. Further, the home renovation industry is doing just fine
- Collecting data on foreign ownership. We have argued in the past that a falling supply of houses is the major driving force behind price growth, not foreign investors. That being said, we are fully supportive of the initative.
While some of the announced policies are beneficial, some are merely meant to appeal to voters. On the whole, we do not expect this to have a substantial effect on the average household's propensity to own rather than rent. The fact of the matter is that homeownership rates have been steadily rising in Canada for decades, well before any policies the government put in place
An important question. Is there a strong reason to intentionally implement policies to raise homeownership rates? Importantly, by more than the market would normally choose? We have argued before that we should be primarily concerned with providing suitable housing, not necessarily ownership housing
In Contrast to Recent Policies
Lastly, this stated claim is in direct contrast to recent Federal Government polices that were directly aimed at cooling Canada's housing market:
- Decrease in the maximum amortization period from 35 years down to 25 years
- Cessation of new mortgage insurance for properties over $1 million
- Declining CMHC market share
- Stricter rules for income validation that hampered the self-employeds' ability to obtain a mortgage
Reversing some of these polices would have a much more substantial impact on a household's ability to buy a home than a home renovation tax credit.
We realize that it might seem odd for a company involved in the housing industry to come out against such a target. However, to be explicit we are in favour of thoughtful policies that remove harmful barriers for some potential homeowners, help incorporate externalities into the price of the transaction, and overall help the market operate more efficiently and with less risk. This, after all, is the appropriate role of governments in markets. We argue that this target is largely to garner favour with voters, however, and may not be in the best interests of the broader economy.