What does the federal budget for 2024 have to say about housing?

The Federal budget was tabled yesterday by Minister of Finance Chrystia Freeland and all eyes were on their housing plans.

According to the latest data from RBC Economics, Canadians are putting more of their household income into housing than ever before, with the Vancouver market in a “full-blown crisis” and other cities getting less and less affordable.

The causes of this housing crunch are multiple: High interest rates are not only impacting mortgage-holders, but they also set up higher bars for anyone hoping to even qualify for a mortgageunder the current OSFI stress test. Meanwhile, developers and builders are suffering from higher borrowing costs for goods and supplies, even as their shipping supply issues fade in the rearview mirror. The result? A housing shortage that could take years to rectify.

Combined with higher demand — from Canada’s ambitious immigration targets and more millennials coming into their prime home-buying years — the outlook seems pretty bleak.

While interest rate cuts (which are regulated by the Bank of Canada, not the Federal government) will help, it won’t solve the housing crisis altogether.

The Federal budget promises to boost the housing supply through freeing up more land and incentivizing builders to get more buildings up. It also aims to ease home-buyer affordability by cutting down monthly mortgage payments and fast-tracking down payment savings with tax-advantaged savings accounts.

While it all sounds good, how effective are the new policy proposals? Let’s dive in.

Stretching amortizations from 25 to 30 years for first-time buyers

On April 11, the Federal government announced that it would allow 30-year amortizations on insured mortgages for first-time homebuyers of newly-built homes. Previously, only 25-year amortizations were allowed on insured mortgages, but by stretching the term by five years, new mortgage-holders will be able to reduce their monthly payments.

In a high-interest rate environment, those reduced mortgage payments could offer some relief. According to data supplied by mortgage broker and RATESDOTCA expert Victor Tran, a homeowner would save $240 a month on a $500,000 mortgage with a 5% interest rate (or, about $48 for each $100,000 of their mortgage).

However, Tran sees a few shortcomings with this new policy change.

“To me, it’s a little disappointing,” he says. “It's a very small percentage of people that can actually take advantage of that.”

Here’s why: For one, it only applies to first-time homebuyers who want to take out insured mortgages on newly-built units. The ‘insured mortgage’ criterion means that the home must cost less than $1 million (as homes more than a million cannot be insured), and the down payment would have to be less than 20% of the purchase price.

However, the majority of units in new home developments require a larger down payment as a deposit to spur construction, limiting qualified individuals even further.

“So, in those cases, the home purchaser won't even be able to insure that mortgage anyway because the builder requires a minimum of 20% of its deposit,” he adds. “It's best to just have it across the board. That will definitely increase the demand for housing.”

Meanwhile, longer amortization terms also result in more interest paid out. The difference that a homeowner would pay in interest to stretch a $500,000 mortgage at an interest rate of 5% from a 25-year amortization term to a 30-year term is nearly $1,900 over the initial five-year term.

Current Canada Mortgage and Housing Corporation (CMHC) guidelines recommend that lenders apply an additional mortgage default premium fee on top of the mortgage amount for extended amortizations. Depending on the province where the home is purchased, that premium amount could be subject to additional provincial sales tax – eight per cent in Ontario and as high as nine per cent in Quebec.

“That means you’re paying interest on top of interest,” he says. “But then that PST is payable out of pocket and part of the closing costs. So, there’s going to be more fees overall if one is to go from 25 years to 30 years.”

The minor upshot, however, is that by lowering a homebuyer’s monthly payment, that marginally rebalances their debt-to-income ratio, allowing them to qualify for more than they would have under current stress test rules.

“Generally, if a customer signs for a longer amortization, they will be able to qualify for a little bit more,” he says.

Read more: $23,579: This is how much more a variable-rate could have cost homeowners over fixed-rate

Increasing the Home Buyer’s Plan to $60,000

The second key policy change announced by the government to ease Canadians into homeownership is the increase to the Home Buyer’s Plan (HBP).

First introduced in 1992, the HBP allows Canadians to withdraw a certain amount of their RRSP towards a down payment — currently $35,000 — with a repayment deadline of 15 years after withdrawal.

The new policy allows prospective buyers to withdraw up to $60,000 from their RRSP. Combined with the First Home Savings Account, launched in April 2023, Canadians will be able to contribute a lifetime amount of $100,000 tax-free towards a down payment.

More flexibility with tax-free savings can certainly give homebuyers (or anyone else for that matter) a boost, especially those who benefit from employer-matched RRSP contributions. However, the extent of the benefits of these new registered accounts have yet to be seen.

“I've never come across any clients saying, ‘I wish I could pull out more than what I'm allowed to right now,’” says Tran. To date, he hasn’t had to verify any payments from clients coming from a FHSA.

Instead, most of his clients tend to withdraw from their TFSA’s, or non-registered investments, or – most commonly – from money gifted for a down payment.

“I can't say that [the FHSA] is really helping people get into the market more or enticing people to save more for a home,” he adds. And as far as the enhanced RRSP limits go, he says it may be too small of an amount to make a real difference in affordability.

Related: Here’s what you need to make to afford a home in Canada’s major cities

Rent credit reporting and more accountability for landlords and tenants

Of course, before anyone holds the title to their own home, they still must live somewhere. And tenants navigate a minefield of challenges, from being able to find affordable rent in the city of their choosing, to maintaining long-term safety and security in someone else’s home.

Entrenched in the budget is a new $15 million Tenant Protection Fund — to support tenants who are facing dramatic rent increases or who have been unfairly renovicted — as well as a new Canadian Renters’ Bill of Rights, which will create clear reporting on rental pricing and standardize lease agreements across the country.

One key policy item in the budget is a new amendment to the Canadian Mortgage Charter to allow landlords to report rent payment history on a tenant’s credit report.

For newcomers and young adults with a short credit history, being able to build a credit score with rent payments can be a major advantage towards securing better rates for a future mortgage, line of credit or car loan. A good credit score can also help establish trust with future landlords.

However, some critics are concerned that this amendment will unfairly punish low-income renters or renters who don’t understand their rights or lack access to legal services.

In an interview with the Globe and Mail, Philippa Geddie, a lawyer with Downtown Legal Services at the University of Toronto, said, “For low-income tenants forced into mandatory reporting, the possibility of a credit hit could be devastating.”

In addition, tenants who find themselves in a position where they must actively withhold rent due to poor building conditions and above-guideline rent increases – such as the 100 tenants currently on a rent strike in Toronto – may face even more dire consequences and fewer options if their rent non-payments are reported.

Boosting housing supply and construction workforce

Encouraging more homebuyers through registered savings accounts and extended amortizations aside, the budget announcement also highlighted other solutions to reverse the housing crisis.

Housing supply is scarce right now, which is driving up demand and keeping many Canadians from buying a home.

In order to restore affordability to 2003/2004 levels — a time of peak affordability in Canada — the CHMC projects that 2.5 million additional housing units need to be built by 2030. Shorter term, insights from TD Economics says that we will likely be 300,000 units short of what the population demands by 2026.

As population growth outpaces the construction of new homes, the federal government has outlined ways to encourage more building at a faster rate. It intends to tackle this by offering federal tax breaks on new builds and opening up more access to financing. It will also be freeing up more government land and relaxing zoning bylaws around the development of new housing and topping up the Housing Accelerator Fund.

To boost labour efforts, it will also be investing in programs that help train apprentices and admitting foreign building credentials to the workforce. Currently, the industry is seeing one of the highest job vacancy rates in Canada and one-in-five construction workers are nearing retirement age.

“Our work to build more homes faster across our country is quite literally an exercise in nation building,” said Minister Freeland in her address, describing it as a “true Team Canada effort.”

These pledges have been welcomed by building organizations, including the Canadian Home Builders’ Association (CHBA).

“All measures to reduce costs are important, as those cost reductions, just as is the case with cost increases, are passed directly through to the consumer,” says the CHBA in a statement. “In simple terms, higher construction costs, financing costs and taxes mean more expensive housing; lowering them means less expensive housing for both home buyers and renters.”

It remains weary that any taxes of vacant land will increase the cost of the land itself and that climate adaptation-oriented changes to the National Building Code will drive up construction costs for builders. However, the CHBA is optimistic that allowing more newcomers and encouraging Canadians into the skilled trades will counter the current labour shortage.

So that’s all been said – what’s been done?

It’s important to remember that many of these changes are still being worked out, and not a lot of information has been shared by the government on how these policies will be implemented. For example, it’s impossible to say whether rent reporting will be mandated across the board, or just an option for tenants who will be able to benefit most from it.

Other items are already underway. The enhanced Home Buyers Plan will apply to the 2024 tax year and onwards. Changes to the extended amortizations will be in effect on August 1, 2024.

However, there’s much still unknown, and the CMHC and other mortgage insurance providers will likely provide more clarity in the future on new premiums for extended amortizations.

Investments have been pledged to the Housing Accelerator Fund, which builds new communities in partner municipalities, and to the new Tenant Protection Fund. Investments have been earmarked as well for other funds that will target housing infrastructure (such as water, stormwater and solid waste infrastructure), apartment construction loans for new rental homes, and the development of new homes.

Read next: How will Ontario’s 2024 budget plans affect your auto insurance?