By Peter Squire
Budgets are exercises in tough love. As a household, you only have so much cash to go around and therefore hard decisions have to be made on where you allocate your scarce resources. Provincial budgets are no different, except that they play out on a far greater scale with many complexities interwoven throughout a process that must also encompass crown corporations and other public funded entities beyond core government operations.
Clearly there are winners and losers in every budget, which is unavoidable. One burgeoning tax left intact since it was introduced in 1987 was the provincial Land Transfer Tax. Despite the best efforts of Realtors in Manitoba, and despite our government knowing that first-time buyers in particular would have a more difficult time entering the housing market with the new tougher mortgage rules and rising interest rates, this tax was left untouched.
The provincial government might at least have considered bringing in a modest first-time buyer relief program. Other provinces, such as Ontario and British Columbia, have recognized for years the importance of helping first-time buyers get a foothold into the housing market and have increased their initial first-time home buyer exemption thresholds to reflect rising house prices.
The challenge for homeowners is the constant rise in property taxes (municipal and school) as well as home operating costs. Now, with projected higher hydro bills and a new carbon tax taking effect on September 1 of this year, that will mean an additional 4.74 cents per cubic metre for natural gas heating and 5.32 cents a litre to fuel your car.
Some much-needed relief will come through the increase in the personal income tax exemption — far lower presently in Manitoba than in the provinces of Saskatchewan and Alberta.
There will be more to say on the provincial budget once there is more clarity. One question is how will the federal government’s commitment to create new rental housing units through providing more funding to CMHC’s Rental Housing Construction Initiative help Manitoba build more rental units, since the 2018 provincial budget is eliminating the Rental Housing Construction Tax Credit on January 1, 2019?
Another question mark is where will the increased affordable housing support of $8.9 million go, and how will it tie in or support the new injection of federal money in housing?
On a more local level, good news came to Winnipeg with the announcement of the construction of four new schools over the next two years. Waverley West in particular is getting both K-8 and 9-12 schools to meet the overwhelming demand for student spaces in that area.
Strong housing piece in Budget 2018
While it is not always apparent how important the housing sector is to the provincial economy, credit goes to provincial finance officials for doing a strong piece on housing in Budget 2018, Budget Paper A entitled “Economic Review and Outlook”. Following are some excerpts from this section on housing.
Residential investment is an important component of the provincial economy. In 2017, capital investment in residential structures was estimated at a record $4.4 billion, or 6.2% of total nominal expenditures in the province. These expenditures include spending on new housing construction, renovations and acquisition costs.
Rapid increases in home prices in some Canadian cities has brought housing affordability into sharper focus in Canada. In contrast, housing remains very affordable in Manitoba. Housing Trends and Affordability is a quarterly publication by Royal Bank of Canada (RBC) on housing affordability in Canada’s major cities. In its latest report, RBC notes affordability in Winnipeg remains roughly in line with its long term trends.
Housing affordability in Winnipeg is further illustrated by the low prices of housing in the city. According to RBC’s report, the average price of a single-family detached home and condominium apartment in the city are $314,900 and $246,900, respectively, making them the third most and second most affordable in their respective categories among the cities tracked by the report.
Manitoba’s new housing market picked up in 2017. With growing demand, supply responded with housing starts increasing by 41% in 2017 to 7,501 units, the highest since 1987.
The increase was partially motivated by the new City of Winnipeg impact fee, which advanced housing starts in Winnipeg. However, construction was strong not just in Winnipeg, but also throughout Manitoba. Total starts increased by 39% in Winnipeg and by 49% elsewhere in 2017.
Overall housing market on positive trend
The overall housing market in Manitoba has been on a positive trend since the early 2000s, but a number of factors led to a historical increase in new residential construction in the early years of the post-Great Recession recovery. Housing starts topped the 7,000 mark in both 2012 and 2013, the highest since the mid-1980s when the baby boom cohort purchased homes. The surge in 2012 and 2013 led to some overbuilding, especially in smaller cities and rural Manitoba, where absorption rates are slower. As a result, provincial housing starts fell in 2014 and 2015.
Factors driving new housing include record international immigration, echo boom cohort purchasing homes, low mortgage rates, demand for independent housing for seniors and general affordability of housing in the province compared to other regions of Canada.
Given the strong population growth and high number of sales every year, the increased housing supply will be absorbed, but the total number of starts are expected to decline in 2018 as construction returns to more balanced conditions. According to the forecast survey, housing starts in Manitoba should average 6,200 in 2018 and 6,500 in 2019. This is expected to lower housing investment spending in 2018.
A number of external factors, however, has elevated uncertainty in Manitoba’s housing market. To cool the Canadian housing market, the federal government, through the Department of Finance, the Office of the Superintendent of Financial Institutions (OSFI) and the Canada Revenue Agency, has imposed a number of measures.
These measures include stress testing all new mortgage applicants on their ability to service mortgages in a rising interest rate environment and restricting capital gains tax exemptions from the sale of a house to just one transaction per year for Canadian citizens and permanent residents. Furthermore, the move by the BoC to raise interest rates will increase the cost of holding a mortgage. The 0.75% increase in rates in the last nine months has already pushed up the benchmark 5-year conventional mortgage rate from 4.64% in June 2017 to 5.14% in January 2018.
The health of the local housing market has a significant impact on the economy of the province, and the implementation of the provincial budget. The continuation of Manitoba’s steady housing market and its positive trends can only benefit Manitoba.
For more details about the provincial budget visit www.gov.mb.ca/Budget2018