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Immigrants with construction skills could be sought to build new housing, says report

In a report looking at scenarios that may blunt Canada's hot real estate market, RE/MAX, CIBC and the Conference Board of Canada say Ottawa should accept more immigrant tradespeople, raise interest rates and launch a capital gains tax.
real-estate
A Leger poll found 61 per cent of Canadians believe real estate is the best long-term investment.

Roughly half of Canadians say they are worried taxation, rising interest rates and the possibility of an economic recession could complicate their search to buy a home. 

That's according to a new survey from Leger, commissioned as part of a collaborative report from the realty firm RE/MAX, the Canadian Imperial Bank of Commerce and the Conference Board of Canada. Released this week, Unlocking the Future: 5-year housing report is the first in a series of studies looking at "what if" scenarios around economic policy, climate change and the future of work.

The report answers the anxieties of potential homeowners with three paths to tame a volatile real estate sector — one facing uncertainty over rising interest rates, inflation and economic growth. 

Under the first policy scenario, the report says raising interest rates four times a year until 2027 could “stabilize” Canadian housing prices. 

“The enemy of the housing market is not high interest rates — that is good for the economy in fact. It is the pace at which those rates increase that is a big risk to housing,” CIBC Capital Markets deputy chief economist Benjamin Tal said in a report summary.

Tal emphasized the need for consistent rate hikes until inflation is dampened.

He said the interest rate hikes would leave those who bought homes in the past two years more vulnerable once they go to renew their mortgage because they locked in their interest rates at historic lows. 

Homeowners looking to soon renew their mortgage from four to five years ago, on the other hand, will see some of the most immediate benefits, as their rates would be substantially lowered.

Introduce too many rate hikes a year, and “we could very likely fall into recession,” warned Tal.

“This would obviously upend the economy, employment and housing,” he said.

One-third of new homebuyers in 2021 purchased a home with financial support from family. That’s twice as many such homebuyers as compared to 2016, according to CIBC Capital Markets.

A 'BLUNT BLOW' PROMISE OF CAPITAL GAINS TAX

The second scenario meant to dampen housing prices comes in the form of a capital gains tax on primary residences, which the report says would deliver a “blunt blow” to the market.

The idea, according to CIBC tax and estate planner Jamie Golombek, would be for the federal government to roll out a pro-rated capital gains tax based on years of ownership. There could also be incentives for listing a home in the short term, he said.

One consequence: such a capital gains tax would likely depreciate older homeowners’ retirement funds and provide less money for those looking to transfer wealth to younger generations.

Since the federal Liberals came to power in 2015, the benchmark price of homes in Canada has doubled, according to the Canadian Real Estate Association.

So far, the Liberal federal government has stated it does not intend to implement such a tax and the NDP has no such specific goal in its confidence and supply agreement.

ADJUST IMMIGRATION POLICY

In a third and final sceanrio, the report says immigration could play a pivotal role in delivering labour to Canada's construction industry to help build up its housing stock. 

Instead of focusing Canada’s immigration policy on an economic and social profile — such as education, French or English language skills, and previous Canadian work or study experience — the report recommends aligning the acceptance of newcomers with national labour market demands. That could mean bringing in more people skilled in construction trades. 

Canada accepted roughly 405,000 immigrants in 2021, but what is not often mentioned is that 70 per cent of those were already established in Canada, said Tal. In 2022, the report states half of all newly accepted immigrants will already have been established in Canada.

About 90,000 workers are expected to retire from Canada's construction industry over the next decade, according to BuildForce Canada. In what the report describes as a “missed opportunity,” last year, Ottawa failed to accept skilled trade immigrants to fill those projected losses even as “all regions across Canada are experiencing a deep labour shortage.”

“Canada’s system excels at selecting immigrants who have a high likelihood of long-term economic success. However, the system could improve by selecting more immigrants to fit specific, chronic labour market needs,” says Iain Reeve, immigration researcher for the Conference Board of Canada. 

The report found more research needs to be carried out to understand how immigrants impact housing demand.

According to Statistics Canada's 2016 Census, immigrants account for 41 per cent of Vancouver’s population and 37 per cent of all residential property ownership.

Recent immigrants (under five years) in Vancouver accounted for 5.9 per cent of the population and five per cent of all detached family home ownership.

As for foreign buyers, the report states tax measures such as B.C.'s 20 per cent foreign buyers' tax has its limits. The report did not analyze what impact a ban on foreign buyers — proposed by the Liberal Party of Canada during the 2021 election campaign — would have on the market.

A Leger poll found 61 per cent of Canadians believe real estate is the best long-term investment; the report does do not expect this to change over the next five years.

The online poll surveyed over 1,600 Canadians between March 4 and 6. It carries a margin or error of plus or minus 2.43 per cent.

gwood@glaciermedia.ca