Heading into Thursday’s federal budget, it was no secret that measures aimed at addressing housing affordability would figure prominently.
The general consensus following the release of the budget was that the measures are unlikely to do much to improve the situation for first-time buyers struggling to purchase a home, particularly with average prices up over 50% since before the pandemic.
“All in all, while we believe these measures will help to provide some relief in the housing market, they will be challenged to meet the need for increased supply that plagued the Canadian real estate sector even prior to the pandemic,” economists from Desjardins wrote in a research note.
There were positive aspects, however, particularly related to the government’s commitment on the supply side of the equation, along with plans to end the practice of blind bidding.
In total, the federal government delivered over $10 billion in new housing-related spending spread over the next five years. The money will support initiatives aimed at increasing housing supply, assisting first-time buyers get into the housing market, protecting both buyers and renters, as well as curbing foreign investment and speculation.
The budget makes good on a number of Liberal Party campaign promises made during the last election, though noticeably absent was its promise to increase the insured mortgage cut-off from $1 million to $1.25 million.
Below are highlights of the key action items and some initial reaction.
Housing Accelerator Fund
Perhaps the marquee housing item is the $4 billion being dedicated to a new Housing Accelerator Fund, which has a goal of helping municipalities build 100,000 new units over the next five fiscal years.
“The fund will be designed to be flexible to the needs and realities of cities and communities, and could include support such as an annual per-door incentive for municipalities, or up- front funding for investments in municipal housing planning and delivery processes that will speed up housing development,” the budget states.
- “We are very glad housing supply is front and centre. This needs to be the top priority of all levels of government, and incentivizing lower levels to get digging and moving is what the federal government needs to continue doing,” said Paul Taylor, President and CEO of Mortgage Professionals Canada. He added that the fund “has noble goals, which we hope can deliver what it promises, and at a reasonable cost to taxpayers.”
- “These are important investments that tackle a structural shortage—with the Budget pointing to 3.5 million homes needed over the next nine years—and it is encouraging to see that the federal government plans to use its weight to ensure concessions are made around zoning and other reforms,” wrote Scotiabank economist Rebekah Young.
- “…how the federal government will deliver on this remains vague on details,” noted economists from Desjardins.
First-Time Home Buyers’ Tax Credit Increase
The budget doubles to First-Time Home Buyers’ Tax Credit to $10,000, which will result in a benefit of up to $1,500 to support homebuyers.
- This initiative is “strongly supported” by Mortgage Professionals Canada.
Tax-Free First Home Savings Account
This new account will allow prospective homebuyers to contribute up to $40,000, which will be tax-deductible. Withdrawals and returns will be tax-free as long as the funds are being used for the purchase of a home.
- “We are pleased to see the government is moving forward with the campaign promise to create a First Home Savings Account, one of MPC’s three recommendations,” noted MPC’s Paul Taylor. He added that the association sees “real value and benefit to the concept, as it will help aspiring Canadian homeowners to prudently save and grow their money, an essential element to sensibly achieving homeownership.”
First-Time Home Buyer Incentive extension
The government has extended the First-Time Home Buyer Incentive (FTHBI) program to March 31, 2025 from its original expiration of September of this year. The three-year shared-equity program, administered by the Canada Mortgage and Housing Corporation (CMHC), has so far seen underwhelming uptake. Figures reported this week show that, as of December, the government has approved just $270 million in mortgages of the $1.25 billion program. The government added that it’s exploring options to make the program “more flexible and responsive” to the needs of first-time buyers.
- MPC’s Taylor was critical of the FTHBI’s shortcomings, including, “known administrative costs, very limited eligibility criteria, and other potential taxpayer burdens.” He added that, “MPC continues to believe that allowing for 30-year amortizations for insured mortgages is the superior, more accessible, simpler, more practical, and fairer overall solution for Canada’s aspiring first-time home buyers.”
- Commenting on the previous three measures (First-time Home Buyers’ tax credit increase, Tax-free First Home Savings account and FTHBI changes), Scotiabank’s Young said, “Underpinning demand, these potentially work against affordability objectives, and run the risk that it reinforces regressivity in home-buying.”
Temporary ban on foreign home purchases
The government plans to prohibit foreign buyers, including commercial enterprises, from purchasing non-recreational residential property in Canada for a period of two years.
- “Key details and an implementation date are still to be determined, but it seems as though large corporate buyers from outside the country would be the main target,” economists from BMO noted.
Taxation for property flippers
For those who plan to sell a property that they’ve held for less than 12 months, the government will apply the full tax rate on their profits as business income, starting in 2023. There will be exemptions for certain life circumstances, including death, disability, a new job or divorce.
“We will prevent foreign investors from parking their money in Canada by buying up homes,” said Finance Minister Chrystia Freeland during her speech. “We will make sure that houses are being used as homes for Canadian families, rather than as a speculative financial asset class.”
- “This is a worthy measure that addresses a legitimate issue, but one wonders if the 12-month period will just hold back re-listings a little bit longer than otherwise would be the case, especially in a rising-price environment,” the BMO economists said.
Home buyers’ bill of rights / end of blind bidding
The government announced it will follow through with its election promise to end the practice of blind bidding as part of the development of a Home Buyers’ Bill of Rights, which will be created in conjunction with the provinces. The budget indicated this bill of rights could also include ensuring a legal right to a home inspection and ensuring transparency on the history of sale prices on title searches.
- “Among the most notable items is a ban on blind bidding, but that will have to filter down through provincial real estate bodies, and could take a number of years to organize,” BMO economists noted. “There is also mention of a right to have a home inspection, but that too will be complicated to implement.”
Several other noteworthy measures include:
- Imposing GST/HST on all assignment sales, effective May 7, 2022. The tax will be applied to the purchase amount, net of the initial deposit.
- A $500 one-time payment to those facing housing affordability challenges.
- $200 million will be dedicated to “develop and scale-up” rent-to-own projects across Canada.