With the release of the federal budget pending, there is no “magic bullet” to solve the millennial housing crisis, Royal Bank of Canada is warning Ottawa.
The government is set to release its pre-election budget on March 19 and Finance Minister Bill Morneau has suggested that the budget would include measures to help millennials break into the housing market, though he didn’t offer any details. Rumours have swirled about whether these measures could include introducing the 30-year mortgage option or revising the mortgage stress test rules.
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RBC economists warn that taking steps to stimulate demand and increase purchasing power may not have the desired effect.
“Our view is that, while these measures could be well intended, at the end of the day, they might become counterproductive,” explained senior RBC economist Robert Hoque.
“It might just stimulate the demand at the time when the supply has difficulty adjusting to that demand, so basic economics entails this is quite likely going to inflate prices and perpetuate the affordability issue.”
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Liberals, Conservatives and New Democrats have been trialing housing policies that could be added to their campaign platforms. A common theme is making it easier for young people to buy their first houses or condominiums.
Hogue counters, however, that instead of focusing on demand, the government should focus on increasing housing supply by making it easier for land developers to have new projects approved, and by increasing the range of housing options in the GTA and other popular areas.
“You can increase the density by various forms, alternative forms of housing. Condo apartments have been the favourite kind of housing that’s been built over the last 20 years. There is room to expand that to other forms that have a little bit more space for families to grow into,” Hogue said.
He suggests looking at building more single detached family homes to serve the needs of millennials looking to grow their families.
The Canada Mortgage and Housing Corporation has put forth plans to address the issue of housing supply across the country as part of a recently-proposed plan to see every Canadian with an affordable home by 2030.
The corporation had talked about the target with stakeholders for months as it took the lead on delivering most of the money in the federal government’s 10-year, $40-billion housing strategy.
It aims, in part, to create at least 100,000 new housing units by 2028 for low- and middle-income households.
“We believe that everyone in Canada deserves a home that they can afford and that meets their needs. We also believe that we are in the best position to make that happen,” Evan Siddall, the corporation’s president, writes in an opening message in the document. “We are single-minded in striving toward this goal and it will guide our work in the coming years.”
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Housing prices have been steadily rising across the country until recently, after the federal government created a policy-induced affordability shock last year when it tightened mortgage rules.
Despite the revised rules, however, Hogue states that family homes in metropolitan areas such as Vancouver and the GTA are likely to remain expensive due to rapid population growth in these regions.
“The single detached homes, in regions like the GTA, have become a very expensive form of housing, and that’s so unlikely to change just because population has grown so much and the land is finite,” he said.
Global News previously reported that it’s becoming harder and harder for millennials to afford homes across the country — especially in major cities. Even smaller downtown condos remain out of reach for middle-income millennials in Toronto and Vancouver.
Furthermore, while the government’s federal and provincial housing regulations seem to have cooled off the market for detached homes, they may have intensified the competition for entry-level properties.
Some major cities, however, such as Ottawa, Winnipeg and Calgary remain in reach for young buyers.
“The affordability issue is concentrated in large urban areas like the GTA and the Vancouver area. Most of the policy discussion really is about Toronto or Vancouver,” Hogue explained.
Hogue stresses that attacking the supply side of this issue isn’t a quick fix — it’s likely going to take time and buy-in from all levels of government.
“This is not the responsibility of the federal government alone. This is an issue that should be a concerted effort across all levels of government to address.”