Canada’s Economic Action Plan: Housing
October 18, 2009
As in most of the countries worldwide, Canada has implemented a special set of policies to cope with the economic slowdown. This is known as Canada's Economic Action Plan. With 90% of the initiatives of the fiscal year 2009-2010 being implemented, it is time to have a closer look at it, focusing on the Canadian housing sector.
Economic Action Plan is a group of hundreds of smaller projects providing fiscal stimulus to our economy. Reaching around 4.2% of Canadian GDP, it is one of the biggest stimulus packages around the world, surpassing even what is spent in the USA.
The plan is divided into six sections:
- Reducing the Tax Burden for Canadians
- Helping the Unemployed
- Building Infrastructure to Create Jobs
- Creating the Economy of Tomorrow
- Supporting Industries and Communities
- Improving Access to Financing and Strengthening Canada’s Financial System
Reducing the tax burden
Probably the most important part of the Plan is tax reduction. The tax reduction initiatives related to the housing market are:
- Home renovation tax credit: $2.5 billion (for the year 2009-2010)
- Increase in Home Buyers’ Plan withdrawal limit: $15 million
- First-time Home Buyers’ Tax Credit: $175 million
These three tax reduction initiatives have already been smoothly implemented and millions of Canadian citizens already benefit from some of these. First-time Home Buyers’ Tax Credit was one of the economic stimuli (however not the most important), that fuelled a very fast real estate rebound that we witnessed from this spring all over the country. Furthermore, the home renovation credit has helped people to raise the value of their property and strengthen their position in the very competitive environment of the resale housing market and improved the overall quality of housing stock.
Stimulating property construction
In spite of the fact that some realtors specializing in resale homes are not too excited about new construction, in the long term it is definitely crucial for a healthy real estate environment and also for real estate agents themselves. Notwithstanding the previously mentioned tax reliefs, which encourage private home ownership and stimulate the construction industry and thus the whole economy, construction has also been stimulated by direct spending on thousands of projects.
There are around 7,000 housing and infrastructure projects spawning from the plan, of which more than 4,000 have already begun. These also involve approx. 300 social housing projects, which have a budget of about $1.025 billion in the fiscal year 2009-2010. But the actual overall budget for this sector is in excess of $9.5 billion.
These actions are indeed interesting for realtors because of the impact on the local real estate market. Infrastructure projects influence the value of property in neighborhoods in their proximity (more details about such influence can be found in our recent article about MoveOntario). Social housing broadens the supply of homes and influences both the resale and rental market, introducing more affordable housing for low income social groups.
This is especially important mainly for realtors that specialize in directly influenced neighbourhoods lying within the effective proximity of a particular project. However, there is also more global impact on the labor market – construction projects provide thousands of jobs and improve the financial situation of the workers, thus raising their ability to finance their own homes.
GTA and the City of Toronto
The Toronto area is at the forefront in a number of such projects. Simply look at the project map and it will reveal hundreds of various projects in the GTA area. Many of them are community or education focused, such as the Cabbagetown Youth Centre or the Knowledge Infrastructure Program at Ryerson University.
Nevertheless, the largest part of the budget has been spent on direct housing construction and renovation. Both Federal and the Ontario government have signed joint investment contracts worth more than $1.2 billion to build new and renovate existing social housing in Ontario, with 50% coming from the Action Plan budget. The City of Toronto itself is about to receive $220 million earmarked for at various projects. Among the highest profile upcoming renovation projects are: Les Centres d'Accueil Heritage, Toronto Community Housing Corporation and the Mimico Co-op.
Effectiveness of the Plan
The Real estate market is among the first which rebounded from the recession and is one of the driving forces of our economy. Most realtors believe that it was the monetary policy which helped to kickstart the real estate market. However, fiscal stimulus plays its own role. There may be further arguments about the pros and cons of the package, especially in relation to threats to the overall macroeconomic stability of the country in the future. However, the real estate sector and construction related industries are among the biggest beneficiaries of the Canada Economic Plan actions. Although the plan is very expensive, we can say it has a positive effect on the real estate sector and we know that a healthy real estate market in an indication of a healthy national economy.
Action Plan in Ontario
Canada’s Action Plan in Ontario
Canadian Housing Market – Bullish Or Bearish?
A New Plan for Ontario
Canada Economic Indicators In January
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