Front Burner - The Liberals' plan to fix the housing crisis

Episode Date: April 16, 2024

Today, the government unveiled their federal budget. And they are spending big on housing.They pledged billions of dollars for low-cost loans to increase rental construction, 30-year mortgages for first-time home buyers, and programs to spur non-profit housing.All in all, they’re promising to build 3.87 million homes by 2031.But will it fix the affordability crisis? We ask Housing, Infrastructure and Communities Minister Sean Fraser.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. The Liberals are presenting the federal budget today. But we already know one thing that they're going to be spending billions of dollars on. Housing policy.

On Friday, after a week-long drip of announcements, Housing Infrastructure and Communities Minister Sean Fraser unveiled his full housing plan. It's not all new, but it's got tax measures, big money with a lot of strings attached to pressure the provinces, and programs to spur non-profit housing. It targets building 3.87 million homes by 2031. And it comes out as we keep getting dire warnings about the state of our market. RBC said earlier this month that this is the worst housing affordability has ever been and that the median household needs to spend 64% of its income to own a home. So what is in this new plan? Is it finally ambitious enough to get back to affordability? And how long could that actually take? Housing Minister Sean Fraser is here with me to discuss.

Minister Fraser, thank you very much for coming on to FrontBurner. It's a pleasure to be here. Thanks so much for having me. So I am sure that you saw the Ipsos poll that says 63% of Canadians who don't own a home have given up on ever owning one. I know a lot of younger listeners feel like their interests have been sacrificed to keep older generations' housing prices high. So for them, for their sake, I just want to ask you straight out here. Do you think Canada's home prices need to fall, even though that hurts homeowners? I think that we need to adopt policies that are going to offer new products in the market at lower prices than people have now. Some of the measures we put in place could have a downward

pressure on the existing market. That may not be the primary goal, but we know as we bring on more supply that that will play out. One of the challenges when it comes to predicting where housing prices will go, there's a number of factors in the market that are beyond the control of any given government when you look at interest rates, for example. But my own perspective is we need to create more supply at lower prices than exists today. There's a number of ways that you can do that. Some of it will bring more supply onto the market. And I don't think that a new apartment building somewhere in the GTA necessarily deflates the price of a single family home that exists in a suburb. But to the extent that we can build more homes, we do think that there could be a downward pressure on pricing that's going to help people get into a place that they can afford. But our goal is to reduce the share of a person's income over time that they actually spend on housing.

We think it's reasonable for us to try to get to a 30% threshold, whether a person is choosing to rent or to buy, but that's going to require us to create new opportunities with different kinds of homes for people to get into the market if that's what they choose. So let me just pick up on that 30% threshold there. So RBC says that currently a household needs to spend 64% of its income to carry a mortgage. So that's double. So really, how is it possible that you can get to that 30% threshold unless prices come down meaningfully? There's a number of different ways. The first is to recognize that not everyone is wanting to carry a mortgage at every part of their life.

A big part of the solution is going to be driving more supply. We got to build more homes, including more rental supply. And that actually does a couple of things. One, it creates opportunities for people who are happy to rent to be able to find a place that fits within their monthly budget. But when you create those opportunities for more people to go into the rental market, there's fewer people who are seeking to buy homes by going up and getting a mortgage. Now, that's not the whole solution. We also need to address the measures that are going to make it easier to own a home. Part of that is going to be creating an opportunity for more people to be able to save up for that down payment with new tax-free opportunities, both the first home savings account, which now has more than 750,000

young people have signed up in order to put money away for the down payment, but also changes to the rules around how you can withdraw from an RRSP by stretching out, in addition, the amortization period for people who are getting into that first new home. We can reduce the monthly cost of carrying a mortgage, even though the total value of the principal is the same. There's no silver bullet here. We need to create different opportunities for people to get into different kinds of homes, whether that's to rent or to buy. But we think that we can do it. It's just going to take a lot of work, and it's going to take a little bit of time.

But we think the measures that we've released in the plan are going to help us get there. I want to come back to some of what you talked about there, some of the measures you have that might make it easier to get people inside homes. But let's do rentals right now, purpose-built rentals. And my understanding is that purpose-built rentals really plummeted decades ago because it just wasn't profitable for developers. And there is a measure that you're announcing now that a lot of policy wonks had wished you had adopted years ago. And that is an accelerated capital cost allowance for apartments. And I'm sure that those words might have some people, their eyes glossing over, and it might mean very little to them. So it just, I wonder if you could explain to me what it is and why it is literally the first thing in your plan. Yeah, thanks for the question. And I think it deserves some

exploration. So let's start by identifying the problem before we explain the solution. A major part of the problem that we're dealing with in the housing market in Canada is that we don't have enough homes for people who would like to be in one. One of the reasons that we don't have enough is that for years, it's become very expensive to build. And more recently, it's become that much more expensive. The cost of materials and supplies have gone up. The cost of land, the cost of labor has gone up. The rate of interest has increased. One thing that we can do that will help bring more supply on is by changing the equation to make the math work for the people who are going to build homes in the market. One of the main things we can do there is to reduce taxes. So previously, we removed the GST from purpose-built

rentals that created immediately a 7% decrease in the cost of these new construction projects. A lot of provinces piggybacked on that rule change to make it even more affordable. The capital cost allowance allows us to take another step in that direction to combat the increase in price that we've seen over the last number of years. What it effectively does is allows a builder to write down the cost, or rather the value of the building that they've constructed, which makes a huge difference in those early years, which allows them to press go on a project that otherwise would have sat on the shelf. There are hundreds of thousands of homes that have been

permitted for construction in this country that aren't going ahead because the math that worked a few years ago when the application was made no longer holds. And if we change that equation, we expect more to come online. So the GST rebate was something that I actually spoke to the prime minister about in the fall. And now this accelerated capital cost allowance, people have been asking you guys to do this for years. Actually, the liberals campaigned on the GST rebate in 2015. So why has it taken so long to bring stuff like this in? So we looked at in 2017 when we adopted the national housing strategy what policy outcomes were we trying to drive at the particular point in time and the national

housing strategy disproportionately focused on more affordable housing for low-income households across Canada which we still need to focus on, by the way. There was decades of a lack of investment at the federal level to build up the affordable housing supply we needed. But when it came to market housing, what we saw at the time was unique challenges, mostly in Canada's largest urban centers, around apartment construction that could be centrally located and be built quickly. When we actually engaged with the sector at the time, what we heard was low-cost financing that would allow the federal government through what was then the Rental Construction Financing Initiative would actually unlock more supply than an across-the-board GST cut.

Why not do both, though? Why not do both at the time? At the time when we had campaigned on a series of different commitments and had looked at different financial models for the money that we were going to spend, not just on housing, but across a range of different issues, we wanted to make sure that we were remaining on a responsible fiscal track. At the same time, we met the social priorities that Canadians were telling us were most important. As we've come out of the pandemic in particular, we're seeing the housing crisis impact people across a much broader

size of the income spectrum, and not just in big cities, but in small communities in every region of the country. So this is the moment we've decided, despite the fact that it may be primarily the jurisdictional responsibility of other levels of government. We want to play a leadership role. So when we're talking about building more supply, building more homes, you have the $6 billion infrastructure fund. And in order for the provinces and the municipalities to get a lot of the money, they have to do certain things, right? Like basically there are strings attached. So for example, allowing fourplexes, a three-year freeze on development charges. And a number of provinces have already pushed back on you.

They do not like to be told what to do. Alberta is telling Ottawa to stay out of its backyard. Federal politicians, and the prime minister in particular, should do his job and stop trying to do my job. And if these are the right policies to build homes, why not let the provinces adopt them on their own volition? The provinces are not adopting them on their own volition, with the notable exception of British Columbia. So we're going to say, that's fine. We're not going to make you do it. That's clearly a question of your jurisdiction. But we're going to create incentives for you too. So if you want us

to put money on the table for water and wastewater projects that are going to expand housing infrastructure, you got to make sure that it's easier to build the homes that we're trying to enable. And by the way, keep the costs of maintaining that infrastructure lower for municipal taxpayers by avoiding urban sprawl. If we're putting federal money on the table, which comes from Canadians, by the way, I think that Canadians deserve to see that there's a return on that investment in the form of policies that are actually going to help alleviate the housing pressures that they're feeling. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem.

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just search for Money for Couples. You mentioned earlier non-market housing, right? I want to talk about that for a little bit. So we have seen people forced into tent encampments across Canada. We have lost units affordable to the lowest income Canadians 11 times faster than we built them, according to one Carleton analysis. That's a striking statistic. And I know that the plan, as you mentioned, does have some measures to increase non-market housing. So what we're talking about is non-profit subsidized housing, right? But it pales in comparison to the tens of billions of dollars that you're putting on the table for for-profit housing. So why not do more for the Canadians struggling the most here? So keep in mind when you say tens of billions of dollars in for-profit housing, the vast majority of that is loans that actually get paid back.

So the cost to the taxpayer is not tens of billions of dollars when we finance all of the construction costs of a new build. Because in addition to the grants that we put on the table for non-market housing, there's also financing opportunities that go into some of those programs that would grow that number. The other part that you've got to understand when you group into that tens of billions figures, you're also dealing with public infrastructure like water and wastewater or transit systems that serve the general public but do enable more private sector housing. So when you actually look at the comparative investments and private for-profit development, so to speak, the number would be much lower than you've suggested because so much is paid back and so much goes towards public projects. But you're absolutely right to point out that we need to do more on non-market housing. To put this

into perspective, of the 16.5 million homes that exist in Canada, about 4% exist outside of the market and are reserved for low-income families operated by governments or non-profits. The average for OECD economies is about double that, at 8%. So we need to do more to even catch up to the average. This plan puts another billion dollars on the table, in addition to the billion that was in the fall economic statement, in addition to the supports that were offered through the national housing strategy. This is going to help build out new stock, but we can't just look at the need to build more because you've precisely identified a major problem when you point to the rapid loss of existing low-cost units that are on the market today that fall into a state of disrepair and can't be used,

or that are renovated and offered at higher rents in the market beyond the reach of low-income Canadians. That was the justification for an acquisition fund that's going to allow non-profits to buy those units up. We also have to help communities that are dealing with very real challenges here and now around homelessness. So we're also topping up funding through the Reaching Home Program, which supports communities directly, and we'll be incentivizing communities to adopt a housing-first approach to eliminate encampments, to find durable solutions for people who are living them in their community. We have to do all of these things if we're going to eliminate homelessness in Canada, which I think is the target that we must aim for. So what would you say to some experts

who look at your plan and they feel that it's prioritizing the for-profit side and not the non-profit side? Yeah, my argument is that we need to do both. We absolutely have to solve the non-market housing challenges and rapidly grow non-market supply in this country as a function of the total number of homes in this country. And we also need to solve the crisis that's playing out in the market. I think we owe an obligation to Canadians across the income spectrum and different regions to address these challenges. Personally, I always want to start by saying, let's solve the needs of the most vulnerable. But you're starting to see in Canada a potential impact, not just on an individual household level, but across communities and on our national collective productivity. Because when young people are choosing not to move to a city

that would provide them with an incredible opportunity because they can't afford rent, we all lose out. And given the collective impact of the housing crisis, particularly on a generation of young people who've been priced out of the market, I think we have a responsibility as we seek to address the needs of the most vulnerable to also create a fair shot at success for people who have so much talent to give, but are unable to give it because they can't afford a place to live in the community where the opportunities for themselves and their families exist. So now I want to move on to some of the measures that you've designed to make it easier to own or rent a home. So you've mentioned 30-year mortgages allowing first-time homebuyers to borrow more from their retirement savings. But I want to talk about your renter's

bill of rights, which is a little late on details right now, but it does include a push to make rent payments count towards a credit score. And I wonder if you could just talk to me a little bit more about the mechanics of that, because if my landlord gets to report on whether I'm paying rent on time, doesn't that give them even more power over me? I guess the concern I've heard from some people is that this allows an even greater amount of leverage for landlords. Yeah, and I can provide some comfort in that regard, because if you design the policy in a way to achieve that outcome, it could have that impact, but we've made a different choice. We're going to start by doing two very specific things that will create an opportunity

for tenants to use their rental history to build credit, but not necessarily disclose the information without their consent to landlords for the same purpose. So the two things that we're going to do is, one, we're amending the Canadian Mortgage Charter, which will provide recourse through financial institutions by allowing people to understand this is something that they can actually ask for. So somebody who's dealing with a financial institution can say, I would like this information reported to my credit bureau for the purpose of building my credit score. The second one, which I actually think is going to be where the real difference is made, is by embracing consumer-directed finance or open banking, as some people call it. This will allow someone to use services provided by a fintech. There's actually a great Canadian

example called Borrowell, who does this very thing right now, but has difficulty actually implementing on a wide scale basis because of some of the rules that make it difficult. By embracing consumer directed finance, we're going to allow people to make the decision to say, I would like you to report this to my credit bureau and very easily and automatically information about the withdrawals from your account tied to rent will be reported to your credit bureau and help grow your credit score. So to start out, this is something that we're doing that will enable renters to have their rental history go towards their credit should

they choose, but it's not something that will happen automatically without a person's consent. In the bill of tenant rights, there's also a part where you want the price history of apartments to be revealed. So I guess ostensibly tenants can negotiate price. Minister, is that how you think rent is working in this market? Do you really think that tenants get to negotiate their rents right now? Does it matter? It does matter. And the reason it matters is because we're not always going to be dealing with such a supply gap that exists today. Look, I will recognize we are not where we need to be as of yet, and we need to do more to correct the imbalance between supply and demand, which is empowering the landlord in that relationship as compared to the tenant. As we do more to address the supply gap, transparency in pricing history is going to put renters in a better position. Now, this is not the only thing that

we need to do. We also need to establish a floor of protections under people by negotiating with provinces what specific recourse tenants can have in the event something should go wrong with their landlord. But transparency of information in markets makes them more efficient. And when we correct, and as we get closer to correcting the supply gap, the transparency in pricing history is going to put renters in a better position than they are currently. I want to talk to you about investors. So, look, researchers have raised doubts about whether a lot of the measures that you're putting in place around supply can help with addressing this issue of investors. So in Ontario, they've now replaced first-time purchasers as the biggest group of buyers and almost doubled their share of home purchases since 2011. So look, I know what

you're going to say, that your plan says that banning foreign buyers and also big corporate investors is in is in your plan right but what about the huge amounts of Canadians that are just snapping up multiple homes to try and profit because you know my understanding is someone from Toronto is that a big thing that's happening here is that people are just using their existing homes uh for which they have a tremendous amount of equity in as sort of an ATM to buy new homes and then to rent that home. And it's like this sort of like this wild circle of people with homes in the city just making more and more money and nobody else being able to get in. Look, I can tell you coming from a small town, Nova Scotia, we've seen this phenomenon play out in a way that has never happened in my lifetime during the pandemic, particularly when interest rates were incredibly low.

precisely the fact that people disproportionately from Ontario had either leveraged equity in their home or sold their home at a very, very high price and bought up a lot of the stock that exists in my community today, which has created a serious inflationary pressure. So you've got to realize that it's a challenging exercise to undertake. The measure to move forward with restricting access by large corporate investors to buying up single-family homes is something we're going to consult on to figure out how we can do that in the most productive way. If it leads us down a path where we realize there's more to do to address the very specific set of circumstances you've mentioned, we're not in a way that doesn't discourage somebody who's, for example, buying up an old single-family home for the purpose of converting it to a multi-residential property, which would be a very positive thing. So we have more work to do to figure out specifically what we're going to do here. But we also see that the measures around short-term rentals is going to make a difference

because a lot of the people who buy houses through the very mechanism you've described are buying it not to live in and not even to rent out for the long term, but to rent it out for a few days at a time instead of providing it to a family for the long term. So if somebody wants to buy another home to rent it out to someone in their community, that's not something we're trying to prohibit. But if somebody's going to buy it up purely to hold on to it and hope that its value appreciates over time. That's not a productive use of investment in the housing sector the same way that adding new supply is. So there's some more work to do on the areas where we've signaled we are going to do further

consultation. But in the meantime, I think some of these measures is going to help free up some of the supply that already exists. I know we're a little tight on time. So I will note that there are experts that would still say that allowing people to buy homes in order to rent them currently expects home prices will keep rising and reach 20% higher in 2026. So we're in, that's the context that we're operating in. And, you know, as an example, you say the now $4.4 billion Housing Accelerator Fund will fast track permits for 750,000 homes in the next decade, but only 125,000 in the next three years. So I just use that as an example for how long this could take. If you could level with

Canadians here, even in the best-case scenario, even if everything goes great with your plan, how fast can you reasonably bring us out of an affordability crisis? Look, it's a challenging question because the answer for different people in different parts of the country and different life circumstances is going to be different. So with every affordable housing project that opens, the housing crisis for the individuals who move into permanent safe housing will come to an end, but not for society more broadly. We think we can get to a place where we can cure the supply gap by 2031. But every day we get closer through the measures that we implement, it's going to get a little bit better.

Now, day to day, month to month, there may be certain headwinds that come as a result of factors outside of the control of a given government, including interest rates, for example. But we do think we can steadily make progress over time. Some of the measures that we put in place, we expect to have a very quick impact. The measures around mortgage fraud and around short-term rentals have the opportunity in a short period of time to actually relieve some pressures. The measures around home construction, when we're dealing with apartment buildings, that sometimes take three years just for the construction of a new building, obviously will take a little bit more time. So we've put ourselves on a pace where we think we can get to an incremental 2 million homes, which will more than address the supply gap that exists today by 2031. I'm not going to tell people we can fix a problem that's grown over decades in a matter of a few months.

That wouldn't be honest and no one would believe me. But I don't think people need to believe in a promise from me. I'm asking them to look at the actual plan that we've tabled. This is the most comprehensive set of reforms in generations in this country, designed specifically to help people who've been priced out of the market and disproportionately help a younger generation of people who've been priced out of the market. I'm one of the few cabinet ministers who's still in his 30s. And I can tell you, everybody at home my age and younger that I talk to is consumed with this issue. I owe it to them and I owe it to people my age and younger right across the country to do everything that we can to solve the housing crisis. And I think this plan gets us there.

So, I think we're pretty similar in age and, you know, everyone that I'm around is consumed with this issue as well. So if you don't mind, I'll ask one final question before we go. What might you say to one of those people listening right now who's hearing you and might be thinking to themselves, I like a lot of what is in this plan. This sounds like a good plan, but they don't trust your government to actually do it because they feel like they've heard too many broken promises from do it because they feel like they've heard too many broken promises from you guys they feel like you have been the ones in charge when the price of homes got completely out of control it was already very high when you came to power and what would you say to that person who might be thinking that the only reason you're tabling this plan now is because, frankly,

your poll numbers have tanked and people, especially young people, are leaving you in droves. So the first thing that I would say is don't believe me or someone else because of what we say during the press conference. Take a look at the policy measures that we're proposing. Read about what people who know about housing policies have to say about what we have on offer and about what our political opponents have on offer. And you'll find that there is one party who's actually tabled a plan that has the potential to solve the housing crisis, and it was released on Friday. I think that a dose of skepticism in a democracy is actually a very helpful thing. And if people approach policies not based on who's posting what on Twitter, but what the policies actually say and whether they're going to help them, we'll all be better off.

But finally, this is not an academic concept for me. There are friends of mine and family members of mine who are struggling with very real housing challenges. I want to help them as much as I want to help everyone in this country. And I believe when we do, it'll make a difference. There's people who are close to me that have been told just months after they had their fourth baby that their rent is being increased by $1,200 because their landlords need to refinance the mortgage. Instead of taking time to be with their newest child, they're talking about going back to work full-time so they can afford to keep a roof over the heads of their kids.

There are people I have grown up with my entire life who had extraordinary potential, who ran into challenges with mental health and addictions, who have spent time living in and out of encampments. And they deserve to be treated like human beings with dignity and respect, not as political problems to be solved. There are people very close to me who want to be able to live in the community where they grow up so they can raise their kids in the same community where their parents raised them. I don't think that's too much to ask. And I think we've put a plan, not just words, a plan on offer that will help us get where we need to be to help those people and people like them across the country. So this is a personal exercise in trying to support people I know who've been impacted, not because they're close to me, but because I know that they represent the stories of young

people in every part of this country. And I think we can do more to help. So you don't have to take my word for it. Do an analysis of the plan on your own. And I hope you see yourself in it. Okay. Minister Fraser, I want to thank you very much for your time. I know you've gone over with us.

So we appreciate you doing that. Thank you. Of course. Anytime. I'll look forward to our next chat. All right. That is all for today. I'm Jamie Poisson. Thanks so much for listening. Talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.