Impact of Government Policies on Real Estate

Canada’s real estate market is known for its stability and resilience, having withstood all major economic downturns in recent history. This is, in no small part, due to the government policies and procedures at the municipal, provincial, and federal levels. Despite our strong administrative foundation, the Canadian real estate sector has been facing notable challenges in recent years. As Canada’s population continues to grow, the gap between housing supply and demand has continued to expand, pricing many Canadians out of the market entirely. In this guide, we hope to provide an overview of the current initiatives being implemented at all three levels of government, to arm you with the information you need to predict and succeed in the market.

Recent Government Initiatives and Their Impact on the Real Estate Market

Federal Government

The federal government has been rushing to fund new housing projects across the nation. This past year, both Toronto and Vancouver saw record numbers of new construction starts, supported by accelerated rental construction. For context, the annual federal housing budget was $9 billion larger now than it was 10 years ago. The federal government also announced an additional $15 billion in loan funding—beginning in 2025—for the Apartment Construction Loan Program, for a total of more than $40 billion in loan funding. This investment will support more than 30,000 additional new homes across Canada, bringing the program’s total contribution to more than 101,000 new homes by 2032.

The Canadian government also announced an investment of $309.3 million in new funding for the Co-operative Housing Development Program. This program, developed in collaboration with the Co-operative Housing Federation of Canada and other housing partners, is set to launch in early 2024. Furthermore, the Government of Canada owns and manages the largest real estate portfolio in Canada—through the Canada Lands Company. This is a Crown corporation that has supported the construction of over 10,300 new homes since 2016. In collaboration with the Canada Lands Company, the federal government has committed to building over 29,000 new homes on surplus federal lands by 2029.

Provincial Government (Ontario)

The Ontario provincial government passed the Affordable Homes and Good Jobs Act on December 4, 2023. This bill amends the Development Charges Act (1997) to exempt affordable residential units from development charges. The goal of this change is to make it cheaper and easier to build affordable homes, support municipal housing initiatives, and help more Ontarians find an affordable home based on their household income.

The provincial government has furthermore committed to help communities across Ontario build over 1.5 million homes by the end of 2031. They have supported this goal through recent funding investments, including $14.7 million over three years starting April 2022 and $11.8 million over three years starting April 2023. These capital endowments have allowed the Ontario Land Tribunal to streamline processes, improve customer service and resolve land use planning disputes more quickly.

Municipal Government (Toronto)

Olivia Chow, Toronto’s mayor, won her campaign through a renter-centric approach, and a promise to address the housing crisis facing Ontario’s core metropolitan area. As part of her campaign, Chow promised to build 25,000 rent-controlled homes over the next eight years on City-owned land. She also vowed to ensure that at least 7,500 of these homes would be affordable units and at least 2,500 would be rent-geared-to-income units.

Chow has furthermore approved a new Municipal Land Transfer Tax for luxury homes, that would increase the taxation of that segment. This will further incentivize the building and sale of affordable housing in Toronto. In addition to this, she has created a framework to raise the Vacant Home Tax from 1% to 3%. The funds collected from these new taxation policies are expected to help support new and existing affordable housing initiatives throughout the municipality of Toronto.

Tax Incentives and Subsidies: How Government Policies Influence Homebuying

Government policies play a more significant role in influencing homebuying than many realize. Mechanisms such as tax incentives and subsidies are often used to cool an otherwise volatile real estate market. Here's an overview of some of these policies, and how they are implemented:

Tax Incentives

Mortgage Interest Deductions: Governments often provide tax benefits to homeowners by allowing them to deduct mortgage interest payments from their taxable income. This incentive aims to make homeownership more affordable and attractive.

Property Tax Deductions: Homeowners may be eligible for deductions on property taxes, providing relief on the financial burden associated with homeownership.

Capital Gains Exemption: Some governments offer tax exemptions on capital gains realized from the sale of a primary residence, encouraging individuals to invest in homeownership without the fear of substantial tax liabilities.

Subsidies and Grants

First-Time Homebuyer Programs: Governments may offer subsidies or grants to first-time homebuyers, reducing the initial financial burden. This can include down payment assistance, low-interest loans, or outright grants to help individuals enter the housing market.

Affordable Housing Initiatives: Subsidies are often directed towards the development of affordable housing projects, making homeownership more accessible to a broader segment of the population.

Interest Rate Policies

Central Bank Policies: Governmental monetary policies, particularly those set by central banks, can influence interest rates. Lower interest rates generally make borrowing more affordable, stimulating homebuying activity.

Government-Backed Loans: Governments may support programs that offer favourable loan terms or guarantees, making it easier for buyers to secure mortgages with lower interest rates.

Regulatory Measures

Zoning and Land Use Policies: Governments regulate land use and zoning, impacting the availability and cost of land for housing development. Policies that encourage responsible and efficient land use can contribute to a more balanced and affordable housing market.

Building Codes and Standards: Regulations related to construction and building standards can influence the cost of housing. Governments may introduce incentives for energy-efficient or sustainable construction practices, affecting both new and existing homes.

Economic Stimulus

In times of economic challenges, governments may introduce stimulus packages that include measures to boost the housing market. These could involve tax credits, subsidies, or relaxed lending criteria to encourage homebuying and stimulate economic activity.

Navigating the Shifting Landscape of Real Estate and Mortgages

Navigating Canada’s real estate market can be challenging, but it does not have to be. Here are some strategies that can help set you up for success:

• Stay Informed About Market Trends: regularly monitor real estate market trends, including property values, inventory levels, and sales data. This information can help you make informed decisions about when and where to buy.
• Understand Mortgage Options: research and understand the various mortgage products available. Different mortgage terms, interest rates, and payment structures can significantly impact your overall financial commitment.
• Consider Mortgage Pre-Approval: obtain a mortgage pre-approval before starting your home search. This gives you a clear understanding of your budget and allows you to act quickly when you find the right property. Our Clover Mortgage brokers can assist you in securing a pre-approval and finding the best lender for you.
• Factor in Affordability and Budget: evaluate your financial situation and determine what you can comfortably afford. Consider not only the mortgage payments but also property taxes, insurance, maintenance costs, and potential changes in interest rates.
• Explore Government Programs and Incentives: take advantage of any government programs or incentives for homebuyers. In Canada, programs such as the First-Time Home Buyer Incentive and the Home Buyers' Plan offer financial support and flexibility.
• Stay Flexible in Your Approach: be open to exploring different housing markets or property types. In a shifting landscape, opportunities may arise in areas or property segments that were not initially on your radar.
• Watch for Interest Rate Changes: keep an eye on interest rate trends. Even small changes in interest rates can have a significant impact on mortgage payments. Consider consulting with a mortgage professional to understand the potential impact on your mortgage affordability.
• Evaluate Job Market and Economic Conditions: consider the economic conditions in the region where you plan to buy. A stable job market and positive economic indicators can contribute to a more favourable real estate environment.
• Seek Professional Advice: consult with real estate professionals, financial advisors, and our expert team of Clover Mortgage brokers. They can provide valuable insights, guide you through the process, and help you make well-informed decisions.

Real estate markets can be cyclical, and conditions may change over time. Be patient and strategic in your approach, especially if you're considering a long-term investment. Remember that the real estate and mortgage landscape can vary across provinces and cities in Canada, so it's essential to stay informed about local conditions and regulations. If you choose to work with Clover Mortgage, we can help you assess your goals and financial situation to ensure that your real estate decisions align with your overall financial strategy. Contact us to schedule a free consultation today!

FAQ

How does politics affect the real estate industry?

Understanding the intersection of politics and the real estate industry is crucial for professionals, investors, and homeowners alike. Political instability on a global or regional scale can impact investor confidence and influence real estate markets. Economic sanctions, trade agreements, or geopolitical tensions can have ripple effects on property values and investment decisions. Elections and changes in political leadership can introduce uncertainty into the real estate market. Investors may adopt a wait-and-see approach during election periods, and policy shifts following an election can impact market dynamics.

Changes in laws and regulations, such as those related to rent control, tenant rights, or building codes, can also have a direct impact on real estate operations. Investors and developers must adapt to new regulatory environments. Political decisions related to infrastructure projects, such as new transportation networks or public amenities, can impact property values. Improved infrastructure can enhance the appeal of certain areas for both residential and commercial real estate. Political decisions, especially those related to monetary policy, can affect interest rates. Central banks may adjust interest rates to control inflation or stimulate economic growth. Changes in interest rates can impact mortgage rates, influencing affordability and demand in the real estate market.

What are the three most important things in real estate?

The importance of various factors in real estate can depend on individual preferences, investment goals, and market conditions. However, there are three key factors that are generally considered crucial in the real estate industry:

Location:

The old adage "location, location, location" remains a fundamental principle in real estate. The location of a property is often the most significant factor influencing its value. Proximity to amenities, schools, workplaces, public transportation, and the overall neighbourhood quality are essential considerations. A property in a desirable location is more likely to appreciate in value over time and attract potential buyers or tenants.

Market Conditions:

Understanding and adapting to current market conditions is crucial for success in real estate. Factors such as supply and demand, interest rates, economic indicators, and local development trends can significantly impact property values and investment returns. Investors, homebuyers, and industry professionals must stay informed about market dynamics to make strategic decisions.

Property Condition and Quality:

The physical condition and quality of a property play a vital role in its value and market appeal. Well-maintained properties with modern amenities and energy-efficient features tend to attract more interest from buyers or tenants. Renovations and upgrades can enhance a property's value, and a thorough inspection is essential to identify any potential issues.

While these three factors are widely recognized as critical in real estate, it's important to note that individual circumstances and goals can influence the importance of other factors. For example, factors like financing terms, property size, and the potential for future development may also be significant considerations depending on the specific objectives of the buyer or investor. Real estate is a complex and multifaceted industry, and successful navigation often involves a careful balance of various factors.

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