Six Thoughts on the Conservative Housing Plan

Let's make this a series

Our bonus Friday post, Ten Thoughts on the Liberal Housing Plan, proved to be quite popular, so we thought we would follow up with some thoughts on the Conservative housing plan. This will be a shorter piece, as the Conservative Housing Plan is substantially shorter, though they may release additional planks during the campaign.

1. The Conservative plan is quite short and touches on similar themes to the Liberal Plan

The Conservatives have released five housing-related priorities:

• Cut the GST on new homes

• Use federal land for housing

• Create incentives for municipalities to accelerate homebuilding

• Increase the number of skilled trades workers

• Capital gain deferrals for made-in-Canada investments

The Liberals also promise in all of these areas, so the difference is in the details and the ability to implement successfully. Of course, details and implementation are crucially important. The Liberals also make a number of promises that do not have an equivalent in the Conservative plan, but the fact that the two plans share some priorities suggests that the two parties have somewhat overlapping views of the causes of and solutions to the housing crisis.

2. The Conservative GST housing pledge is far bolder and far more expensive than the Liberal version

The promise:

We will axe the sales tax on new homes, saving families up to $65,000 on the purchase of a home and $3000 on yearly mortgage payments while spurring a massive new homebuilding boom.

We discussed this one in our post on the Liberal platform and in an October 2024 piece for the Hub. Because the GST only applies to new homes, it acts as a tax on development (or, if you prefer, a development charge), so reducing that tax “spurs on” homebuilding, as noted in the Conservative promise.

The Liberals have also made a platform commitment regarding the GST. The Conservative GST pledge differs from the Liberal one in four important ways:

1. It applies to homes worth up to $1.3M, whereas the Liberal plan is only for homes under $1M.

2. The Liberal plan is limited to first-time homebuyers; the Conservative plan is not.

3. The Liberal plan retains the primary residence restriction in the existing GST New Housing Rebate; the Conservative plan does not.

4. The Conservative promise has a much higher fiscal cost, and is financed by the elimination of the Housing Accelerator Fund and other government programs.

These points are worth examining one at a time.

1. 1.3 vs. 1: In large parts of the country, the $1M vs. $1.3M distinction is not terribly important. In the Greater Toronto and Greater Vancouver areas, there are very few family-sized homes under $1M, so the Conservative offer is far more useful in those regions. Note that both the Liberal and Conservative plans have a “fiscal cliff”, that a home priced a dollar more than the threshold receives no rebate.

2. First-time restriction: The Liberal first-time buyer restriction massively limits the effectiveness of the program. The more restrictive the rebate, the fewer new homes that will be built. The Conservative offering will do more to help seniors downsize into newly built homes, freeing up larger homes for the next generation of families. The Liberal plan may also have the unintended consequence of causing potential first-time homebuyers to rent apartments, rather than buy them, so they don’t use up this benefit for when they want to purchase a larger home. The Liberal plan does nothing for young families who want to move out of small condos to larger, newly-constructed homes.

3. Primary residence restriction: We were surprised that the Conservatives would eliminate this, but we are told they will. Mike had it confirmed to him via text from the Conservative war room. It is an unexpected choice. It is true that the broader the rebate eligibility, the more homes will be built. However, there are also reasonable concerns that a broad eligibility will lead to more cottages being built and more new homes being bought by investors rather than by primary residents. There are reasonable arguments on both sides for eliminating the primary residence restriction, so we are a bit surprised to see the Conservatives take the more controversial of the two options.

4. Elimination of the Housing Accelerator Fund (HAF). We discuss this in greater detail in point #6. Our general view is that the HAF is a highly flawed program, but it should be reformed, not eliminated. Arguably, this is the position that the Conservatives themselves are taking.

3. Federal land: To lease or to sell?

The promise:

We will sell off 6000 federal buildings, thousands of acres of federal land to build new homes.

The Liberals and NDP are also proposing that homes be built on public land, including land where government buildings already exist. The federal government is already doing this, as part of the Canada Public Land Bank. However, unlike the current program that leases the land to homebuilders, the Conservatives are proposing to sell the land outright.

There are merits to both approaches. With the Conservative approach, the federal government receives an immediate payment for that land, which it can reinvest in other priorities. The Liberal approach forgoes the immediate payment, which gives the government more control over how the land is used. It also allows the federal government to gain from the appreciation of that land over time, avoiding a Highway 407 type situation where a government sells an asset which becomes substantially more valuable over time.

4. Do what we say, and you get a cookie vs. we won’t give you a cookie unless you do what we say

The promise:

We will incentivize municipalities to speed up permits, free up land, and cut housing taxes so homes can be built faster.

This is exactly what the federal Housing Accelerator Fund (HAF), a program that the Conservatives are proposing to scrap, is meant to accomplish. The HAF provides municipalities with money in exchange for implementing a series of specified reforms and requires those municipalities to achieve homebuilding targets. Due to poor implementation, the general public has no idea what the HAF does or how it works. The Liberal government signed dozens of different unique deals with municipalities, which they have not made publicly available, nor have they publicized the housing targets and how close each municipality is to hitting theirs, which Mike has referred to as an “absolute governance and transparency mess”. The Liberals have acknowledged these failings; see item 8 on our analysis of the Liberal housing platform.

There is substantial merit to the Conservative idea of retaining the HAF's philosophy but modifying the details. Which makes it a bit strange that the Conservative communications are that they will “scrap” the HAF, rather than reform it, as they would introduce an HAF-like instrument.

Pierre Poilievre’s private member’s bill C-356 laid out the Conservative approach; MMI’s Mike and Cara wrote a short analysis of the bill for the Hub. Unlike the Liberal approach, the Conservative approach does not require municipalities to undertake any specific reforms; rather, they need to achieve a specific housing target. In other words, “we don’t care how you get there, just get there”.

However, as we discussed in the Hub piece, the Conservatives' actual targets are poorly thought-out and would only apply to a handful of cities. Limiting the incentives to some cities undermines their effectiveness, a problem shared with the Liberal government’s Canada Housing Infrastructure Fund.

In short, the Liberal and Conservative “federal cash for municipal reforms” plans are both highly flawed implementations of a good idea. And they are more similar than either party would care to admit. The Liberals are framing their policy as a carrot: “Do what we say, and you get a cookie,” and the Conservatives are framing their policy as a stick: “We won’t give you a cookie unless you do what we say.” Either way, municipalities need to reform if they want that cookie.

5. Adding skilled tradespeople

The promise:

We will bring more Boots, not Suits, backing 350,000 positions for trade schools and union halls to train red-seal apprentices to build homes, and we will bring back the $4000 apprenticeship grant that the Liberals plan to eliminate.

We don’t have much to say on this one. The Liberals have also made a series of commitments to increase the number of skilled trades workers. The record of these types of federal initiatives leading to an increase in employment in the skilled trades is mixed at best, as most of the bottlenecks to growth are wholly within provincial jurisdiction.

6. Capital gains promise is a recycled 2006 Conservative promise

The promise:

We will unlock billions of dollars in the private sector by allowing anyone who reinvests in Canada to defer tax on capital gains to invest more in home building.

The Liberals have also pledged to use tax incentives to facilitate home building (see thought #10 in our analysis of the Liberal platform). However, the Conservatives' proposal is far more wide-ranging and would facilitate investing in all kinds of new assets, not just homebuilding.

We had thought this promise sounded familiar. Kevin Milligan identified where we had heard it before. As it turns out, the 2006 Conservative platform made a similar promise:

Eliminate the capital gains tax for individuals on the sale of assets when the proceeds are reinvested within six months. Canadians who invest, or inherit cottages or family heirlooms, should be able to sell those assets and plough their profits back into the economy without taking a tax hit. It is time government rewarded Canadians who reinvest their money and create jobs.

As you will no doubt recall, the Conservatives won that election. They did make a good-faith effort to try to implement it, but then Finance Minister Jim Flaherty quickly came to realize that the promise was so open-ended as to be unimplementable. Prior to the Budget 2008, Steven Chase of the Globe and Mail wrote:

Prime Minister Stephen Harper's 2006 campaign pledge to give Canadian investors a big capital gains break has turned out to be the runt of the litter when it comes to election promises.

The pledge has failed to make it out of the Conservative's campaign platform and into law over the two years since the Tories took power.

Meanwhile, however, nearly every other Conservative fiscal promise has been fulfilled, including $12-billion in cuts to the goods and services tax.

Finance Minister Jim Flaherty is offering little hope of delivering on this promise in the 2008 budget, expected as early as the week of Feb. 26.

The problem, Mr. Flaherty has acknowledged recently, is it's proven “difficult and complicated” to enact the capital gains pledge.

That's a euphemistic way of admitting what experts have long warned: that the pledge is too vague, open-ended and costly to translate into law.

I don’t see any reason why this promise would be any easier to implement in 2028 than it was in 2008. However, programs that defer capital gains taxes when, say, an investor sells off an old strip mall and reinvests the proceeds into building apartments have merit. The Conservatives would be better served by targeting their capital gains incentives, like the Liberals have. There is room to improve on the Liberal offerings, so the Conservatives would be better served to take the Liberal ideas and expand them, rather than trying to adopt such an open-ended program.

Final thoughts

There are still over three weeks to go in the campaign, so hopefully, the Conservatives will release additional housing policies. If they do, we will write about them. If you want to encourage us to write more of these, please give the piece a like and subscribe if you haven’t already.