Ottawa housing intervention could jeopardize crucial ‘cash cow,’ National Bank warns

Monday Aug 22nd, 2016


A new report from National Bank Financial is cautioning policymakers that crimping demand for housing could hit federal and provincial coffers.

In the report, economists Warren Lovely and Marc Pinsonneault warned governments and regulators shouldn’t take hasty action when it comes to changes to the industry responsible for $120 billion, or 17 per cent, of government revenues in this country.

“From a fiscal perspective, housing is something of a cash cow for Canadian governments,” they wrote. “With so much at stake—economically and fiscally—policy makers would be wise to tread very careful. This is one cash cow you don’t want to tip over.”

Lovely and Pinsonneault noted the impact of a weaker housing market would be felt not just in property tax revenues, but in the aftershocks emanating from other aspects of the economy.

“There’s actually a good deal more government revenue tied to the jobs, income and spending thrown off by Canada’s housing market,” they wrote. “Housing is, after all, one of the most important economic sectors in the country, a source of employment for about a million and a half Canadians and the catalyst behind a sizeable chunk of overall consumer activity.”

According to the report, the robust housing activity and home price appreciation in the nation’s two hottest housing markets has caused revenues to exceed expectations in recent years.

“In both B.C. and Ontario, the combination of elevated resales and rapidly rising property values has vaulted land transfer tax revenue well above plan,” they wrote. “The country’s heretofore robust housing market has churned out a mountain of revenue for Canadian governments—some more than others.”

Lovely and Pinsonneault said policymakers should target increasing supply, which could boost economic growth and, in turn, revenue for all three levels of government.

“This high-level fiscal analysis argues for focusing on housing supply shortages rather than tackling affordability worries via policies that could seriously undercut demand,” they wrote. “Pursuing the latter path risks opening up a gaping hole in Canada’s consolidated budget balance.”

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