TD Bank’s economics arm has published a report outlining the effect it expects the Canadian government’s recently announced changes to mortgage and tax regulations to have on the country’s housing market.
Chances are, the measures — that include sealing a tax loophole foreign homebuyers could use to skirt capital gains taxes when they sell properties and tougher mortgage stress tests — will take a toll on home sales through the year’s final months, suggests Diana Petramala, a TD economist, in the report.
This could help clip Canadian home sales over the final months of this year by as much as 10 per cent, Petramala estimates. “Homebuilding activity will likely follow suit,” she adds, highlighting an implication for Canadian home construction.
Petramala’s comments follow the Canada Mortgage and Housing Corporation’s latest monthly release of data on housing starts across the country, which showed Canadian home construction trended upwards in September.
Canadian homebuilders are now on pace to break ground for 221,000 housing units this year, according to the latest seasonally adjusted annualized rate from CMHC.
Record immigration and population growth among the 25-to-34-year-old demographic, which are peak years for forming a household, have driven the heightened pace of home construction seen over the past two years.
But in the wake of the policy measures, which Canada’s Minister of Finance Bill Morneau first announced last week, TD now expects homebuilders to break ground on about 180,000 units next year.
“From a regional perspective, most markets are likely to see a moderation in construction activity,” says Petramala. “In addition, the normalization in housing activity in Vancouver is likely to temper new home construction in the city.”
Unsold housing inventory in the Atlantic Region, Quebec and the Prairie provinces are projected to continue to moderate residential construction in those markets.
Ontario remains “the sole market where new home construction has not picked up along with the surge in existing home sales over the last year.”