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Following Prime Minister Justin Trudeau’s resignation yesterday, now seems like a good time to look at the potential impact of a Federal Election on our Real Estate Market in 2025.
Here in Kelowna, the Real Estate market has been quite fragile, as we balance affordability pressures, inventory challenges, and evolving Provincial regulations.
The fear of not knowing whether the new Government policies & incentives will affect them positively or negatively may cause some Buyers and Sellers to ‘pause’.
Are these fears rational? Let’s take a deep dive into the potential Strengths, Weaknesses, Opportunities, and Threats (SWOT) posed by an election this Spring.
Strengths: The Positive Forces in Play
1. Policy Incentives Could Fuel Demand
Let’s start with the current Canada Housing plan
- Build more Homes
- Make it easier to rent or own a Home
- Helping Canadians who can’t afford a home.
I expect the current Housing and Homelessness Crisis to be a key Election issue. Further policies aimed at first-time homebuyers & increased funding for affordable housing projects would be positive news.
First-time buyers have already had some good news with the recent mortgage changes, which included increasing the upper price threshold to qualify for mortgage insurance and the availability of 30-year amortization products.
Realistically, however, the real driver for our Real Estate Market is likely to be the improved interest rates.
2. Spring Surge Could Bolster Market Activity
Spring is typically the hottest season for Kelowna Real Estate, and an election during this period could amplify activity as election periods often fuel optimism because they bring the prospect of favourable policy changes.
Capital gains Tax changes are currently on hold. With the Prorogation of Parliament on January 6, 2025, a new session of Parliament will not begin until March 24, 2025. Therefore the Liberal government proposal that two-thirds of any individual’s Capital Gains over $250,000 annually will be taxed, compared to the previous rate of one-half, is now on hold. Putting this in perspective, I have not seen evidence that this has affected many Sellers’ listing decisions recently.
Overall, I do not expect these Election Factors to affect the Kelowna Real Estate Market unduly. I do expect that the improving weather, and greater choice of inventory during normal a Spring Market will have more of an influence.
Weaknesses: The Challenges Ahead
1. Market Uncertainty
Elections often introduce a sense of uncertainty, but the looming threat from U.S. President-elect Trump of a new 25% tariff on all imported goods could have an even greater impact.
These tariffs could affect key industries in B.C., such as construction and manufacturing, by increasing the cost of imported materials. This would likely ripple through our housing market, driving up the cost of building supplies and impacting affordability.
This could also affect fixed rates which are driven by bond yield pricing, which has already held sturdier amidst strength in the U.S. economy and inflation pressures.
We are already aware the Bank of Canada intends to slow the pace of interest rate reductions in 2025.
I, therefore, regard this as much more of a potential disruptor than the actual election.
2. Short-Term Rentals
With short-term rental regulations already in the spotlight, an election could delay clarity on provincial rules. This could leave investors in Kelowna’s condo market in limbo, potentially softening demand.
Opportunities: Where the Market Could Shine
1. A Chance to Address Affordability
The election presents an opportunity for the Political Parties to tackle housing affordability head-on. Measures like easing borrowing restrictions or incentivizing purpose-built rentals could align with Kelowna’s needs, boosting confidence in the market.
Housing advocates, such as the Canadian Housing and Renewal Association (CHRA), have been consistently putting forward sound and reasoned proposals to address the housing crisis. These include increasing federal investment in affordable housing and offering tax credits to spur development. Implementing such ideas could significantly alleviate affordability pressures in Kelowna.
Whether this actually happens is another matter. While it is tempting, the last thing a new Government can afford to do is stoke the Real Estate Market too much and set off inflation again.
2. Focus on Healthy & Sustainable Housing
Kelowna’s is already working hard to promote a Healthy Housing Policy This is likely to ‘dovetail’ well with the Federal Government policies, whichever Party is in power.
This can only be a positive for both Real Estate affordability, focusing on building what is needed and improving the number of Rental properties.
Threats: The Risks on the Horizon
1. Rising Interest Rates
While this is not something a new Government would want to implement. Here are some of the things that may give them no choice.
- Rising Inflation Pressures: If inflation rates rise faster than expected, the Bank of Canada might increase interest rates to control inflation. This could happen due to higher consumer spending, increased wages, or supply chain disruptions that raise the cost of goods and services.
- Strong Economic Growth in Key Sectors: If sectors like technology, real estate, or energy show robust growth, it might push the Central Bank to raise rates to prevent the economy from overheating.
- External Economic Factors: Global economic conditions, such as a strong U.S. economy or changes in international trade policies (e.g., tariffs imposed by the U.S.), could influence Canadian interest rates. If these external factors lead to higher costs for imports or inflationary pressures, the Bank of Canada might adjust rates accordingly.
- Fiscal Policy Changes: A new government might introduce fiscal policies that boost spending significantly, leading to increased demand and inflation. In response, the Central Bank could raise rates to temper economic activity.
2. Political Gridlock Could Stall Action
A close or contentious election outcome could lead to legislative gridlock, delaying critical decisions on housing. For Kelowna, where the Real Estate Market remains somewhat delicate, this could mean more of the status quo—and not in a good way.
3. Federal Government Immigration Policy
The immigration policies of Canada’s major political parties can certainly influence Kelowna’s real estate market. Here’s an overview of each party’s stance and the potential implications:
Liberal Party of Canada:
The Liberal Party has traditionally supported high immigration levels to address labour shortages and promote economic growth. However, in October 2024, the Liberal government announced a reduction in immigration targets for 2025–2027, aiming for more sustainable growth. This plan includes controlled targets for temporary residents, such as international students and foreign workers, as well as permanent residents.
Impact on Kelowna Real Estate:
A reduction in immigration could lead to decreased demand for housing, potentially easing the current housing shortage and stabilizing prices. However, it may also slow economic growth if labour shortages persist, affecting the local economy and housing market dynamics.
Conservative Party of Canada:
The Conservative Party has advocated for moderating immigration levels to ensure infrastructure and housing supply can keep pace with population growth. They emphasize the need for sustainable immigration that does not exacerbate housing shortages or inflate real estate prices.
Impact on Kelowna Real Estate:
A more restrictive immigration policy could reduce immediate pressure on housing demand, potentially leading to a cooling of the real estate market. This might improve affordability but could also result in a slower rate of economic and population growth in Kelowna.
New Democratic Party (NDP):
The NDP generally supports robust immigration levels, focusing on family reunification and humanitarian considerations. They advocate for policies that ensure immigrants have access to affordable housing and social services, emphasizing the need for federal investment in housing infrastructure to accommodate population growth.
Impact on Kelowna Real Estate:
Sustained or increased immigration without corresponding investment in housing could exacerbate demand pressures in Kelowna’s real estate market, potentially driving up prices. However, if accompanied by significant federal investment in affordable housing, it could lead to the development of new housing projects, alleviating some market pressures.
Final Thoughts on the Impact of a Federal Election
Having reviewed this ‘SWOT’ analysis on the Impact of a Federal Election, my view is that the following will have the most impact on the Kelowna Real Estate Market, not a Federal Election.
- The direction of interest rates.
- The looming threat of new US tariffs.
- The seasonal optimism of the spring market
- The potential surge of pent-up demand from 2024.
While elections often generate headlines and speculation, the underlying market dynamics, particularly improving interest rates, are likely to be the real game-changers.
The possibility of rate hikes and economic policies from political parties will certainly influence the broader economic landscape. For now, however, the improving rates and buyer activity signal a market in the early stages of recovery.
My advice is to keep informed and seek professional guidance. Whether you’re looking to buy, sell, or invest, now is the time to strategise and position yourself advantageously.
Let’s connect to discuss how you can navigate these shifts and seize the opportunities before the election buzz intensifies!
