In this month's article, we’ll be presenting a series of ‘Hot Takes and Hot Tips,’ as they pertain to the 2024 federal budget.
‘Hot Takes’ will spotlight our views on the budget, announced in recent weeks, and the ways it will affect housing from the perspective of people in new home developments. And — I think we’re all getting tired of incessant negative opposition without any positive suggestions, so — we’ll balance our ‘takes’ with some useful ‘tips,’ as well.
Budget Hot Takes
Housing Data
This year’s budget commits a large amount of money to housing data. This is good, I think. There is no MLS for new homes in Canada, and all the major data vendors gather their information on a “self-reported” basis, so it is directional, not exact, and with many holes. This is an opportunity.
The data does exist. In fact, at AVESDO, we collect 300 data points on every contract for our customers — like what you would find on MLS — and we don’t sell or use it publicly for data privacy reasons. We have tried to create a dialogue with governments to aid in the housing crisis and support the building industry and, to date, it has gone nowhere. Per usual, it appears they have their own plans, and you will forgive me if I’m skeptical.
In the past, government data has centered around auditing processes, which are clumsy — like the quarterly assignment reporting required in BC, which is a nightmare to track and process. (It’s arguably not a developer’s responsibility, what the purchaser does, and we’ve seen little evidence the BC government has done anything with the information.) We are a software company, so we do understand what’s possible here. We just hope the money is spent to make data collection and transmission easier — and that it actually provides value for all, and isn’t just another ArriveScam app or clumsy Big Brother requirement.
Short-Term Rentals
There is no doubt short-term rental restrictions have an impact on housing, but the questions are: how much, in what jurisdictions, and what are the unintended consequences? From a personal perspective, I think it’s terrible that many Canadians have had to rely on short-term rental income to overcome real inflation challenges and the government’s failure to provide for its citizens. Further, it’s sickening that the federal response is to double down by taking these income opportunities away, in response to a problem the government themselves failed to address earlier on.
READ: Insider: Rate Cuts A Must For Housing Supply (And They Can’t Come Soon Enough)
As for the industry, an unintended consequence is that this will impact unprofessional investor demand, which looks to a combination of long- and short-term rental options to make purchase decisions. Without the investor, it’s difficult to bring many projects to market, which impacts supply. (And, as we’ve said many times, the number of units held back for reasons like these is far greater than any small number of nightly rentals that come back to the long-term market.)
Capital Gains
Further to above, the investor is an important part of the housing equation, as is evidenced by the government’s focus on investor-owned apartments and purpose-built rentals. StatCan data suggests there are almost 1M homes owned by investors in Ontario (700,000 of which are owned by a homeowner with only one other home). This makes up 30% of Ontario housing supply — a percentage that, based on stats from the fall, line up with the nationwide outlook as well.
An investor's decisions are, of course, very much influenced by costs, including taxes. So, increasing capital gains taxes on second homes and real estate investments won’t support project launches and overall supply, as is stated above. In addition, it feels like the government is neutralizing their own policies: all the apartment and rental stock they plan to bring to market relies on institutional investors for funding, and if an additional 30% is owned by a Ma-and-Pa investor, it makes little sense why the government would hurt them, and not support them all.
Finally, I think the notion that this only affects 0.13% of the population, as Crystia Freedland tried to argue in her explanation of the budget line is, at best, a gross misrepresentation meant to downplay its impact on voters. Clearly, the investments those 0.13% make have a far-reaching impact on the people downstream from those investments — or lack thereof.
Acceleration of Apartment and Purpose-Built Rentals
Without doubt, approvals are taking way too long, and are having a profound impact on housing coming to market. Unfortunately, federal governments have shown little ability to impact this in the past and, this time around, the proof will be in the pudding. They are saying the right things with regards to speeding up approvals, but this isn’t a tactic that works in isolation. If the proforma (still) doesn’t work, because they have not addressed the other items required, then we will simply have even more approved projects that don’t work, and won’t go.
Hot Tips
From my perspective, there are four key areas the government has not focused on supporting (and in fact, that have actually been made worse). If the Fed did focus on these areas, and cut costs versus raising them, the impact on housing supply would be meaningful.
Construction Costs
First up: attack provincial and national building codes and rip out all unnecessary bureaucracy and unconfirmed innovation with a goal to make a meaningful double digit dent in costs. Look for areas where government rebates could be applied to increase production and cut costs at the same time.
Environmental Requirements
Further to — and as part of — the building code discussion, the government should review and attack all environmental-related conditions, with a view to continue progress on climate advocacy while removing unconfirmed and/or small-value approaches. This might also include funding to either rebate or increase the supply of certain specialty trades, whose requirement can up the cost of an installation by five-fold (ie. because you need $150/hr labour vs. $30/hr labour).
Safety Requirements
Another straight shooter: attack safety standards and requirements related to the construction of new homes with a view to strip out all bureaucracy that has little-to-no impact on safety. Work with provincially legislated agencies who deal with workplace insurance to find efficiencies and provide solutions to builders and trades for mounting insurance pressures.
Development Charges
As less building is taking place, and municipalities need to find ways to make up the budget they are losing from projects not starting, these are on the rise. I implore officials: stop cutting off your nose to save your face. Drop all DCCs by 10%, rather than raising them, and make it back on the amount of supply you will see come back.
In Conclusion
For all of us in the industry, none of this seems like rocket science; these are basic understandings we all hold. The issue is that the government is looking for ways to put their spin on everything — and they either just don’t understand how things work, or they just don’t care.
In the end, I believe that the topics mentioned under ‘Hot Takes’ will have little-to-zero impact on housing, as the core issues are not being addressed. This means that even if these government programs do create some housing, the results will pale in comparison to the tens of thousands of units the market would normally (but cannot) bring.
As I’ve said many times, we know from our data that, Canada-wide, there are dozens (upon dozens) of projects that are stalled, holding back tens of thousands of units from the market that will not come close to being made up for by these new programs.
And when these new programs are intended to create “additional” supply, they will not. Instead, they’ll become replacements. On a very, very small scale.
This article is authored by Ben Smith, President of AVESDO: a Canadian software company harnessing the power of data to help real estate professionals make better, faster, and more informed sales decisions.
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This article was produced in partnership with STOREYS Custom Studio.
