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Steve Lafleur: The federal government’s new tax-free home savings account won’t increase housing affordability


Based on the Trudeau government’s recent budget,Making Housing More Affordable there’s some good news and some bad news on the housing policy front. The good news is that Ottawa explicitly recognized that Canada needs more housing units, in-line with evidence that Canada is dead last in the G7 in terms of the number of housing units per person.“Canada has the lowest number of housing units per 1,000 residents of any G7 country. The number of housing units per 1,000 Canadians has been falling since 2016 owing to the sharp rise in population growth. An extra 100 thousand dwellings would have been required to keep the ratio of housing units to population stable since 2016—leaving us still well below the G7 average.”–may-12-2021-.html The bad news is that Ottawa is throwing fuel on the fire by stimulating the demand side of the housing market. 

Prices in housing markets, like all markets, are set by supply and demand. A sharp increase in the quantity of housing units built should put downward pressure on housing prices. By contrast, an increase in the demand for housing units should increase the price of housing. Given the rapid escalation in housing pricesTeranet–National Bank House Price Index not only in Vancouver and Toronto but in other parts of the country that used to be somewhat immune to rapid price appreciations, it’s pretty clear Canada needs more housing units. 

The Trudeau government, unfortunately, is targeting the demand side of the market in two main ways.

First, a two-year freeze on foreign homebuyers, which is unlikely to move the needle on the demand side since most people who buy homes in Canada are Canadian (in other words, not foreigners) or are exempt from the ban (foreign students, for example).

Secondly, and most importantly, a new Tax-Free First Home Savings Account, which will actually increase housing demand. The account is essentially a hybrid of a Tax Free Savings Account and an RRSP. Contributions to the account are tax deductible (like an RRSP) but withdrawals are tax exempt (like a TFSA). This means that savings for home down payments will be more tax friendly than retirement savings. In other words, the federal government is incentivizing people to allocate more money to the housing market precisely when it’s running hot. 

The new savings account also means that, at the margins, some people will contribute money to down payments that they might otherwise put into a TFSA or RRSP. In other words, it will encourage people to concentrate more of their assets into housing rather than diversifying their assets by investing in bonds and equities. It’s not clear why we should want people to be more reliant on high housing prices to fund their retirements. 

Of course, this new account might seem appealing to some people locked out of the housing market. But adding more participants to bidding wars doesn’t help buyers in the end—it helps sellers by allowing people to bid up prices even more. Giving more money to 10 people bidding on nine houses doesn’t make a tenth house appear.

To be fair, the federal government has a limited set of tools at its disposal to deal with housing prices. But those tools do exist. For instance, there have been proposals from the Conservative Party to tie infrastructure spending to increasing housing density.The conservative case for federal intervention in housing And even this latest federal budget includes a Housing Accelerator Fund aimed at cutting through red tape and local NIMBYism. One proposal is a stick, the other is a carrot. But they both show how Ottawa can help boost the housing supply. That isn’t to say that we should let municipal and provincial governments off the hook—these two levels of government have a great say in the amount of new housing that gets built. But we shouldn’t pretend that Ottawa is a passive victim of circumstances either.

In the end, however, the only thing that will really move the needle on housing affordability is building more homes. While the Trudeau budget includes measures that will hopefully encourage more supply, they’re undermined by new policies that encourage more demand. Throwing water with one hand and gasoline with the other isn’t likely to put out the fire. 

Steve Lafleur is a senior policy analyst with the Fraser Institute. 

J.L. Granatstein: Canada has pressing national interests. We should spend to defend them


Few Canadians think of the country’s national interests. Even our governments scarcely ever base policy on them, but interests exist nonetheless, and they are not hard to list.

  1. Canada must protect its territory and the security of its people.
  2. Canada must strive to maintain its unity.
  3. Canada must protect and enhance its independence.
  4. Canada must promote the economic growth of the nation to support the prosperity and welfare of its people.
  5. Canada should work with like-minded nations for the protection and enhancement of freedom and democracy.

The first of these interests is the basic duty of every nation: defend the people and territory of the state against all threats, domestic or foreign. The fifth interest states that Canada has interests abroad, interests that have led Canadians to fight wars that led to tens of thousands of deaths and injuries to its young men and women. The other national interests, while not directly linked to defence, also point to the need to bear in mind that not all Canadians have been eager to join in wars; Québécois’ support for the Great War and the need for conscription was unenthusiastic, to say the least. The fourth interest similarly suggests that relations with the United States must be carefully considered as the government works to keep the economy working well.

The federal government’s April budgetA Plan to Grow Our Economy and Make Life More Affordable makes clear that national interests were not much in mind in Ottawa even as the Russian invasion of Ukraine brought the world closer to war. Yes, Finance minister Chrystia Freeland did make a gesture toward the national interests, stating that “National defence is a fundamental responsibility of the federal government. In addition to protecting Canada from international threats and defending our sovereignty, the Canadian Armed Forces play an important role in making the world a safer place.”Chapter 5: Canada’s Leadership in the World This statement aside, the rest of her budget did little to demonstrate any serious intent to bolster the Canadian Armed Forces.

The CAF, in fact, can do very little to make the world a safer place. The RCAF has forty-year-old fighter jets and too few transport aircraft. The RCN’s ships, once technologically equal to those of any other navy, are now obsolescent. The Army lacks modern tanks, anti-tank weapons, and defence against aircraft, and there are no drones. There are insufficient numbers in the ranks in all three services, and much of the stockpiles of protective equipment, medical supplies, artillery, and obsolete anti-tank weapons are being shipped to help the Ukrainians.

Of course, there are old government pledges, ambitious and expensive plans to build new naval vessels and up-to-date fighters, but nothing will be delivered on time and on budget because the bureaucratic procurement system is completely broken. The Trudeau government issued a paper in 2017 that promised to boost defence spending from $18.9 billion to $32.7 billion in 2026-27. Even that figure, however, would not meet NATO’s call for member states to spend 2 percent of GDP on defence—at best it might reach 1.5 percent—and given the government’s promises of dental care, pharmacare, money for housing, and meeting the demands of the Indigenous population, there is scant chance of hitting even that 2026-27 target. As it is, the defence spending figures are pumped up with veterans’ pensions and other federal department spending, all amounting to some 20 percent of the purported current $24 billion defence expenditure.

To be fair, Ms Freeland did boost defence spending above the 2017 plan by $8 billion over five years. But that is a pittance, a drop in the military bucket. Estimates by the Canadian Global Affairs Institute pointed out that $17 billion more a year would be needed to reach the 2 percent goal, something the Trudeau government seems completely unable to contemplate.

The state of Canada’s military unfortunately is not something that disturbs most Canadians. A Leger poll after the April budget found that almost half said Canada was spending enough, while 18 percent said it should spend less. Only 34 percent wanted more defence spending.The 2022 Federal Budget and Cpc Leadership Race – April 13, 2022 

How can this be? We are watching a brutal Russian war unfold in Ukraine and seeing an aggressive China press forward in the Pacific. The possibility of a major global conflict is very real, Canada cannot avoid being involved should it occur, and Canadians somehow believe—like their government—that we need do nothing to prepare. Most likely think that Canada is a peacekeeper still, despite the fact that the Liberals have effectively removed Canada from military support to UN operations. Most apparently believe that the Americans will rescue us should we be attacked or that two oceans separate us from any conflict. Whatever the reasoning, the public supports the Liberals’ neglect of defence.

The policies and polling numbers notwithstanding, we still have national interests, and numbers 1 and 5, the defence of Canada, democracy, and freedom, still matter. But if neither the public nor the government believes in defence, we can rely only on good wishes and high hopes. Global Affairs minister Melanie Joly said recently that while Canada was not a military power, it was good at “convening.”“On Tuesday, Joly said Canada will continue working with international partners in helping protect Ukraine through aid and diplomacy, but suggested that was the limit of our capabilities. ‘Canada is not a nuclear power, it is not a military power,’ she told CTV Power Play host Evan Solomon. ‘We’re a middle-sized power and what we’re good at is convening and making sure that diplomacy is happening, and meanwhile convincing other countries to do more.'” This was twaddle, but we must hope she was correct. We could convene a meeting with the G7, the G20, and the UN to ask other nations to forget about us in any coming conflict. They won’t.

Leon Trotsky said that “You may not be interested in war, but war is interested in you.” Unfortunately, he was right.