Sean's Market Insight Volume #12

Justin Trudeau’s Housing Policies: Success or Setback?

During his nearly nine-year tenure as Prime Minister, Justin Trudeau’s government took several bold steps to address Canada’s housing affordability crisis. Key initiatives such as the Housing Accelerator Fund (HAF), Canada Builds Initiative, and changes to mortgage regulations were aimed at easing the pressure on housing markets across the country. However, while these measures were designed to boost supply and make housing more affordable, their effectiveness remains a topic of debate.

The Housing Accelerator Fund, launched in 2022 with $4 billion, aimed to speed up housing development by reducing red tape and encouraging municipalities to build more homes. However, the impact on affordability has been limited, as the program primarily focuses on boosting housing supply rather than directly addressing price reductions. Similarly, the Canada Builds Initiative, announced in 2024, promised to provide $600 million to support innovative construction techniques, but again, it faced challenges in significantly lowering housing costs.

In addition, changes to mortgage regulations, such as raising the insured mortgage cap and offering 30-year amortization periods, provided more options for homebuyers, but did little to address the underlying issue of high housing prices. Despite these efforts, the housing market remained strained, with rising mortgage rates and limited inventory making homeownership out of reach for many Canadians. By January 2025, public dissatisfaction with the government’s handling of the housing issue led to Prime Minister Trudeau’s resignation, signaling that the housing affordability crisis is far from over.

Trump’s Return: What It Means for Canada and Its Housing Market?

With Donald Trump’s return to the U.S. presidency, Canada’s housing market could face a new set of challenges and opportunities. As Trump’s policies take shape, they could have a ripple effect on the Canadian economy and housing sector.

One of the primary concerns is the potential reintroduction of trade tariffs on Canadian goods such as lumber and steel. If this happens, homebuilding costs in Canada could rise, leading to higher prices for new homes and renovations. Developers may face increased expenses, potentially slowing down construction projects and further exacerbating the housing supply shortage. As a result, competition in the resale market could intensify, making homes even less affordable for prospective buyers.

Additionally, Trump’s policies could influence U.S. inflation rates, which would likely keep the Federal Reserve's interest rates high. This, in turn, could limit Canada’s ability to lower its own interest rates, maintaining high mortgage rates and making homeownership more expensive for Canadians. A weaker Canadian dollar, caused by economic uncertainty in the U.S., could also push inflation higher, delaying potential rate cuts by the Bank of Canada.

On the flip side, political uncertainty in the U.S. may lead some wealthy investors to turn to Canada’s real estate market as a safer investment. This could drive up demand, particularly for luxury properties in cities like Toronto and Vancouver, further inflating home prices. While this influx of foreign investment could stimulate the real estate market, it could also make homes even less affordable for Canadian buyers.

BoC Forecasts Further 100 Basis Point Rate Cut by End of 2025

The Bank of Canada (BoC) has been navigating a delicate balancing act as it works to stabilize the economy and curb inflation. Following a series of interest rate hikes aimed at controlling inflation, the BoC recently announced its sixth consecutive rate cut on January 29, 2025. This marks a shift in policy, signaling a more dovish approach as the central bank seeks to stimulate economic growth and make borrowing more affordable.

Looking ahead, the BoC’s economic projections suggest that it could lower interest rates by an additional 100 basis points by the end of 2025. If this happens, the key interest rate could drop to around 2%, providing relief to homeowners and prospective buyers who have struggled with higher mortgage rates in recent years.

Lower interest rates would make mortgages more affordable, potentially increasing demand for homes and stimulating the housing market. However, the broader economic context will play a role in determining whether this policy change will have a lasting impact on housing affordability. While lower rates may ease some financial pressure, they won’t address the fundamental supply issues that have driven up prices in major Canadian cities.

Mississauga Follows Vaughan’s Lead in Reducing Development Charges, Boosting GTA Housing Market

In a move that could help ease housing pressures in the Greater Toronto Area (GTA), the City of Mississauga has followed Vaughan’s lead by reducing development charges. These fees, which are paid by developers to fund infrastructure such as roads, parks, and public services, have long been a significant cost in building new homes and commercial properties.

By cutting these charges, Mississauga aims to make it more affordable for developers to build new housing projects, particularly in a market where high costs have led to limited supply. The move is seen as a way to stimulate the construction of new homes, including affordable housing, and alleviate some of the competition in the resale market, where prices have been rising due to high demand and low inventory.

Vaughan’s decision to reduce development charges earlier has already been hailed as a positive step for the housing market, and Mississauga’s move is expected to have a similar impact. This reduction could encourage more residential projects, bringing additional supply to the market and potentially lowering prices. Furthermore, the initiative could stimulate the local economy by attracting more investment in construction and infrastructure.

If other municipalities in the GTA follow suit, these efforts could have a broader, collective impact on the region’s housing market. While the reduction in development charges alone won’t solve the GTA’s housing affordability crisis, it is a step in the right direction towards making housing more accessible and sustainable in the long run.

Conclusion

As the Canadian housing market continues to grapple with high prices and low supply, recent developments suggest that both policy adjustments and external factors will play crucial roles in shaping the future of real estate in the country. While Justin Trudeau’s housing policies faced mixed results, the potential consequences of Trump’s return to the U.S. presidency could add further complexity to Canada’s housing landscape. At the same time, the Bank of Canada’s interest rate cuts offer hope for more affordable mortgages, and the decision by municipalities like Mississauga and Vaughan to reduce development charges may provide some relief for both developers and buyers. Ultimately, a combination of policy measures, economic conditions, and regional efforts will be required to tackle Canada’s ongoing housing affordability crisis.

Sources:

• BNN Bloomberg
• CBC News
• Statistics Canada
• Bank of Canada
• Storeys
• Yahoo Finance
• National Post
• Toronto Star
• Financial Post
• Urbanation Report
• CMHC Report
• RBC Microeconomic Outlook
• TRREB
• City of Toronto