The Canadian government unveiled its 2023 Fall Economic Statement on November 21. It is an annual fiscal report that provides an update on the state of the Canadian economy. It also outlines the government’s plans for future spending. The report focused on Canada’s housing affordability and supply crisis. In it, the government announced new funding for the creation of more affordable housing and purpose-built rental units. New rules regarding the mortgage stress test were also unveiled.
The initiatives will lead to the creation of more housing in some of the country’s most expensive regions. It is aimed toward those who plan to buy a home or rent a property in the near future. Here’s what you need to know about the 2023 Fall Economic Statement: The Canadian Mortgage Charter Since interest rates started to rise in early 2022, many variable-rate mortgage holders have faced fast-rising monthly payments. In some cases, negative amortization is the result as interest payments outpace mortgage principal. Thousands will also have to renew their mortgage at much higher interest rates in the next two years compared to the ultra-low rates offered during the pandemic. To provide Canadians with mortgage relief options, the federal government has adopted new measures for financial institutions.
- Permitting temporary extensions of mortgage amortizations
- Waiving fees that would have previously applied for relief measures
- Dropping the requirement for insured mortgage holders to requalify under the insured minimum qualifying rate (stress test) when switching lenders at the time of their mortgage renewal
- Requiring lenders to contact homeowners four to six months prior to their mortgage renewal to inform them of their financial options
- Giving homeowners at risk the ability to make lump sum payments to avoid negative amortization, or sell their principal residence without any prepayment penalties
- Waiving interest on interest in the event that mortgage relief measures result in a temporary period of negative amortization
New funds for affordable housing
In an effort to encourage more homes built faster, billions of dollars in spending have been pledged towards the creation of affordable and purpose-built rental housing. For non-profit, co-op, and public housing providers an additional $1 billion will be allocated over three years.
Through the Affordable Housing Fund this is intended to have more than 7,000 new homes built by 2028. The Co-operative Housing Development Program will also receive nearly $310 million in new funding.
Incentives for apartment builders
To encourage the creation of much-needed rental housing, the Economic Statement outlines new funding for home builders. Starting in 2025-2026, the federal government says it has committed an additional $15 billion in funding for the Apartment Construction Loan Program. This provides low-cost financing to builders and developers. This top-up will support the creation of more than 30,000 additional new homes across the country. It will bring the government’s total goal to 101,000 new homes by 2031-2032.
Tax limitations on short-term rentals
With the demand for long-term housing options so high across Canada, the federal government is placing stricter measures on short-term rentals. It is hoped this will encourage property owners to list their homes for sale or to lease for longer periods. The Economic Statement introduced $50 million in funding over three years to support municipal enforcement of restrictions on short-term rentals. In addition, for provinces and municipalities that ban short-term rentals, there will be another change. Income tax deductions for expenses incurred on short-term rental income will be denied. This will also apply to short-term rental owners who are not compliant with provincial or municipal licensing, permitting, or registration requirements.
If you want to know more about the 2023 Fall Economic Statement, read the full report here.