OTTAWA -- One of the federal government’s many budget promises is a new annual tax that would apply to vacant or underused property in Canada that’s owned by foreign investors.

If the budget passes in Parliament, the Liberals say the one per cent tax will be instituted on January 1, 2022 and would reflect their commitment to make housing more affordable for Canadians.

“Houses should not be passive investment vehicles for offshore money, they should be homes for Canadian families,” said Deputy Prime Minister and Finance Minister Chrystia Freeland delivering her budget speech in the House of Commons on Monday.

The tax on foreign owners was first signalled by Freeland in the government’s fall economic statement in November 2020 and would require non-Canadian citizens or permanent residents to file a “declaration” about the use of their property, “with significant penalties for failure to file.”

In a recent BMO report, economists Robert Kavcic and Benjamin Reitzes argue Canadian policymakers must act fast to address soaring housing costs amplified by record-low interest rates and pent-up demand.

“While development policy has created supply-side issues for a decade or more, and affordability for younger households is always a policy concern, the acute issue today is market psychology,” the report reads. “The action needed today is one that immediately breaks market psychology and the belief that prices will only rise further. That would dampen the speculation and fear-of-missing-out that those expectations are creating.”

They recommended a host of policy measures including hiking interest rates, the implementation of a formal offer system to replace blind bidding, introducing different taxes, and increasing the supply of single-detached housing.

While the budget doesn’t include these steps or others to cool the housing market, it does propose mechanisms to make affordable housing more accessible, namely for the most vulnerable.

Starting in 2021-22, and spanning seven years, the government promises to deliver $2.5 billion to the Canada Mortgage and Housing Corporation to support the Rapid Housing Initiative, the Affordable Housing Innovation Fund, the Canada Housing Benefit, and the Federal Community Housing Initiative.

Among other proposals, Ottawa will also reallocate previously announced funding of $300 million to the Rental Construction Financing Initiative to support the conversation of vacant commercial property into housing.

“As the demand for retail and office space has changed due to COVID, some landlords, particularly in major urban cores, are facing higher vacancies. This is an opportunity for property owners and communities to explore converting excess space into rental housing, enhancing the livability and affordability of urban communities,” reads the document.