Pragmatic policy across interest rates, immigration and taxation could deliver a stable, albeit expensive Canada housing market through to 2027
RE/MAX Canada launches chapter one of Unlocking the Future: 5 Year Outlook Report in partnership with CIBC and The Conference Board of Canada
This series of reports, done in collaboration with relevant area experts, will be issued through 2022 and will leverage specific “what if” scenarios related to economic policy decisions, climate change, the future of on-premise work and technology, and how they may impact the housing market in Canada
The Canada housing market reflects more than just a commodity or an investment that is measured month-over-month or quarter-over-quarter. And while it is a key economic indicator, the vast majority of existing and prospective homeowners see their home as a long-term financial, as well as emotional, investment.
5-Year Housing Market Outlook
Unlocking the Future, Chapter One examines economic scenarios across interest rates, immigration policy and taxation, in cooperation with Benjamin Tal, Deputy Chief Economist and Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC; and The Conference Board of Canada. This chapter concludes, with caveats, that despite economic headwinds, the housing market in Canada is more stable than many perceive and is likely to sustain stability over the next five years. Though housing prices in Canada will likely remain expensive, price growth may be less extreme than that experienced in the last three years.
This report, as well as the ones that follow, tries to provide something that will help Canadians take a longer-term view of their investments by taking into consideration possible hypothetical outcomes based on historical learnings, and current and near-future market conditions. The intention is to have Canadians come into this idea “sandbox,” but keep in mind RE/MAX Canada and its collaborators on this report are not trying to predict the future, but rather just model some different versions of it for the collective benefit of Canadians.
“Extraordinary housing activity over the past two years has caused a great deal of uncertainty and anxiety among many Canadian homebuyers, sellers, and those who aspire to enter the market. To help ease some of the worries and concerns that come with today’s social and economic volatility, we wanted to give Canadians more long-term context and clarity ─ to be more informed ─ about their most precious possession and one of their most valued assets,” says Christopher Alexander, President, RE/MAX Canada.
Alexander adds, “as a scenario-based exercise, chapter one also looks at the scenarios that could potentially ‘upset the applecart’ should the Bank of Canada overreach in fighting inflation, politicians fail to tie immigration policy to our labour market needs, or our governments seek to rein-in deficits with aggressive new taxes. While we anticipate it could be a stable five years ahead, it’s by no means assured.”
- Interest rate increases at a reasonable schedule of four times a year would create a stable and more relaxed housing market over the next five years.
- Current immigration policy is focused significantly on accepting new Canadians on the basis of their economic and social capital characteristics (i.e., education, French/English language skills, and previous Canadian work or study experience). However, the policy could be more clearly linked with national labour market demands, especially relating to construction trades, potentially addressing housing supply issues driven by skill shortages.
- While the deployment of taxes such as the foreign buyer’s tax has been front and centre over the last few years as a tactic to calm Canada housing market prices, removing the exemption on capital gains for principal residences could have a greater impact on market disruption.
According to a Leger survey commissioned by RE/MAX Canada as part of the report:
- Over the next five years, Canadians said taxation (50 per cent), rising interest rates (46 per cent), and the possibility of an economic recession (42 per cent) rank as their top three worries when it comes to buying a home.
- Thinking ahead five years, 37 per cent of Canadians say their preferred community would be suburban, while 30 per cent want to live in an urban environment, and 27 per cent say rural.
- 61 per cent of Canadians agree that real estate is the best long-term investment they could make (which they don’t see changing over the next five-years), however, rising property-related taxes (64 per cent), rising interest rates (58 per cent) and a possible capital gains tax (55 per cent) are factors that would cause barriers or concerns when it comes to buying a home in that time frame.