Federal Budget 2025 Impact on Housing

Ottawa Expands Capital Investment to Support Housing, Construction and Affordability

The Federal Budget 2025 passed the House of Commons by a narrow margin on November 17, setting in motion a multi-year investment plan to raise construction capacity, support housing supply, and improve affordability through stronger wage growth and lower financing costs. The government has avoided sweeping new housing programs, instead reinforcing a structural balance-sheet shift already underway toward long-term capital investment, modular construction, and targeted financial tools designed to reduce lending costs and accelerate building timelines.

The budget commits $89.7 billion in net new spending over 5 years after $56 billion in savings from public service and program changes. It projects a deficit of $78.3 billion for 2025–26, gradually declining to $56.6 billion by 2029–30. Unlike earlier frameworks focused on annual program spending, this year’s budget adopts a capital budgeting approach, classifying large outlays as long-term investments. Capital spending is expected to rise from $32 billion in 2024–25 to nearly $60 billion by 2029–30 as major infrastructure, housing and trade-related projects move forward.

For Canadian households and mortgage borrowers, the most significant developments are not new subsidies but improvements in financing conditions, expanded liquidity for rental construction, calibrated population growth, and a focus on raising average wages through productivity-driven investment.

A Reinforcement of Canada’s Existing Housing Strategy

Housing remains one of the most significant components of the federal capital plan, with roughly $25 billion in new measures and about $130 billion in total commitments over 5 years. Most of these initiatives build on previously announced programs, including the flagship Build Canada Homes initiative, which consolidates the Housing Accelerator Fund, Apartment Construction Loan Program (ACLP), federal-lands strategy, and office-to-residential conversion programs into a single national delivery model.

Build Canada Homes is backed by $13 billion over 5 years. It positions the federal government to coordinate financing, project sequencing and industrialized construction through a new agency focused on cross-department alignment. The program emphasizes modular and factory-built methods to reduce timelines by up to 50% and lower construction-phase emissions by about 20%.

The initial target remains 4,000 affordable housing units in 6 cities, delivered on federal land, with the expectation that private and institutional partners will scale additional projects. While the government describes the initiative as the most ambitious plan since the post-war housing build-out, industry groups note that support fell short of earlier campaign pledges. Funding is smaller than the $11.8 billion committed during the election, and municipal development charge reductions, initially promised at 50%, were revised to “substantial” reductions funded at $1.2 billion per year.

Economists and builders caution that rising construction and development costs, declining construction profitability, and labour force shortages continue to limit the pace of new housing starts. Several associations expressed concern that supply growth remains heavily focused on rental projects, while ownership-oriented building lags.

Limited New Measures, but Important Structural Changes

Federal Budget 2025 introduces a few new housing-specific measures, but several structural changes influence affordability. The Canada Mortgage Bonds (CMB) program will expand from $60 billion to $80 billion annually starting in 2026, with the additional liquidity dedicated to financing multi-unit rental buildings (MURB). This move provides liquidity at a time when monetary policy is tightening, reducing commercial funding costs and supporting more competitive pricing for insured multi-unit projects such as apartments, seniors’ residences and student housing.

Bond markets reacted calmly to the budget, with 5-year Government of Canada (GoC) bond yields briefly dipping after the announcement, supported by strong investor demand. Canada’s deficit path is viewed as manageable relative to other G7 economies. Stable bond yields help limit volatility in fixed mortgage rates and create more predictable renewal or refinancing conditions for households.

The new legislation will also increase CMHC’s guarantees-in-force limit to $1 trillion and raise the protected limit for insured mortgages to $500 billion. These changes strengthen the financial framework underpinning mortgage markets, ensuring lenders have reliable access to insurance and securitization tools.

This year’s budget reconfirms the GST exemption for first-time buyers purchasing new homes valued at up to $1 million, with a partial reduction for homes valued at up to $1.5 million. Government estimates suggest up to 40,000 households may benefit annually, though independent projections suggest uptake could be closer to 10,000. Some analysts question whether the measure will reduce home prices or whether builders may absorb a portion of the tax benefit.

Program Retirements and Realignments

Several legacy housing programs will be discontinued to streamline federal spending. The Canada Secondary Suite Loan Program (CSSLP), initially designed to provide up to $80,000 in low-interest financing to homeowners adding rental units to their homes, will not proceed. The Canada Greener Homes Grant and related retrofit programs are also being wound down.

The Underused Housing Tax (UHT) will be eliminated beginning in 2025, while filing requirements remain in place for 2022–2024. This change reduces the administrative burden on domestic property owners and aligns federal housing tools with programs already in effect at the provincial and municipal levels.

Infrastructure and Trade Investments with Housing Implications

Beyond housing, the budget allocates $115 billion in new infrastructure spending over 5 years as part of nearly $1 trillion in projected capital investment. A new $51 billion Build Communities Strong Fund (BCSF) will direct long-term infrastructure support to provinces, territories and municipalities over the next 10 years. Upgrades to ports, rail corridors, Arctic transportation networks, and digital infrastructure aim to strengthen supply chains, helping stabilize construction material costs and providing tariff relief to affected industries.

These investments intersect with affordability through more predictable pricing for building inputs and improved logistics for the development sector.

A Shift in Population Growth Strategy

One of the most notable changes in this year’s federal budget is the explicit linkage between population growth and housing capacity. Permanent resident admissions will be set at 380,000 annually from 2026 to 2028, while temporary resident inflows will be reduced significantly. The government notes that lower population growth has contributed to recent improvements in housing affordability indicators.

A 180-degree shift from the previous emphasis on zoning and municipal permitting reform as the primary affordability tools. The new approach acknowledges that housing completions cannot expand indefinitely during periods of price softness and declining construction confidence. Aligning immigration levels with construction capacity is framed as a requirement for sustainable affordability rather than a reduction in Canada’s long-term openness.

Wage Growth and Household Financial Supports

A key housing and mortgage affordability claim in the budget is the projection that investment measures could raise average wages by $3,000 annually. While the estimate depends on productivity improvements and private-sector uptake of investment incentives, higher incomes directly affect debt-service ratios on mortgage qualifications.

Other personal finance changes include a temporary top-up to non-refundable tax credits, a one-time $150 payment to recipients of the Canada Disability Benefit, a refundable tax credit for personal support workers, and adjustments to student financial assistance that restrict grants to public and non-profit institutions. These measures provide targeted support but do not materially shift overall affordability conditions.

The budget also increases the amount Canadians can immediately access after depositing a cheque, introduces automatic tax filing for low-income households beginning in 2026, and confirms the removal of the luxury tax on private aircraft and vessels.

Economic Capacity Changes

The federal public service will gradually be reduced to about 330,000 employees by 2028–29 through attrition and revised retirement rules. This change aligns with the government’s plan to reallocate resources from operating spending toward capital investment. New incentives are also in place to attract researchers and high-skilled workers amid changing US immigration and research policies.

These labour-market adjustments indirectly affect the housing market by influencing income stability, employment growth, and the availability of skilled trades, construction, and Science, Technology, Engineering and Mathematics (STEM) workers.

How The Federal Budget Shapes Borrowing and Housing Affordability

For homebuyers, expanded CMB issuance and potential wage gains contribute to a more supportive liquidity environment. While housing prices remain elevated in many regions, improved financing conditions can help ease entry barriers for first-time buyers.

Homeowners renewing their mortgages face a landscape in which inflation is projected to moderate and borrowing costs may stabilize further over the coming year. The combination of stronger income prospects and more predictable rate trends can help reduce renewal-related financial stress.

Homeowners looking to refinance may benefit from more competitive interest rates, particularly within insured and insurable segments supported by enhanced federal guarantees.

As the Bank of Canada monitors the budget’s impact on demand, productivity and inflation, the timing of future rate adjustments will depend on how effectively investment measures translate into economic capacity. With the budget now passed, the focus shifts to implementation and whether the planned investments meaningfully influence construction activity, affordability trends and long-term housing stability across the country.

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