Federal Plans To Help Home Buyers

 On April 7^th the federal government unveiled the 2022 budget in front of the House of Commons; it contained over $10.1 billion in initiatives designed to support the Canadian housing market. 

Deputy Prime Minister and Minister of Finance Chrystia Freeland said, “Housing is a basic human need, but it is also an economic imperative. Our economy is built by people, and people need homes in which to live. But here’s the problem – Canada does not have enough homes. We need them, and fast. This budget represents perhaps the most ambitious plan that Canada has ever had to solve that fundamental problem.

 

 

 

 

 

 There are three main thrusts to the initiatives:

 

1.     Crack down on speculative real estate investment

2.     Invest in increasing housing supply

3.     Helping home buyers

 

Let’s dig into each of these areas to better understand the plan.

1.  Crack down on speculative real estate investment 

Ban on Foreign Buyers

The government announced the implementation of a two-year ban on residential property purchases by foreign buyers in order to curb speculative real estate investing. The idea is to protect residential housing stock for Canadian buyers to purchase. Some exceptions include those purchasing a primary residence, permanent residents, foreign workers, refugees and students. The ban will have to be debated in the House of Commons before legislation can be passed.

Anti-flipping or Speculation Tax

Beginning in January 2023, homebuyers must keep properties for at least a year before re-selling or they will face tax implications in the form of a tax on the profits of the sale. The idea is to curb the fast flipping that drives prices up disproportionately and has a negative effect on affordability. There will be exemptions in cases of death, disability, birth of children, new job or divorce. Before this legislation passes, it will be debated.

 

To target investors who buy and sell in the new build market, a change to taxation was announced. Beginning May 7, 2022, all assignment sales will be taxable with GST/HST.

2.  Invest in increasing housing supply

The biggest issue in the Canadian housing market is lack of supply. Canada produces the lowest average per capita housing supply of all the G7 nations at just 424 units per 1,000 people. Some of the budget has been allocated towards boosting supply.

Housing Accelerator Fund

$4 billion over 5 years has been earmarked for the Canadian Mortgage and Housing Corporation (CMHC) to support and speed up municipal planning, residential development permits and approvals processes. The goal is to double housing construction by 2030, and to create 100,000 new housing units within five years.

Rapid Housing Initiative

The Rapid Housing Initiative is not new, having been established in 2020 to try to alleviate lack of affordable housing, but a third phase will be funded. The program delivered 4,700 new affordable units in 2021 and will deliver another 4,500 this year. With the additional funding from this budget, another 6,000 new affordable units will be produced with a quarter of the funding slated for women-focused housing projects.

Other Initiatives

Other proposed initiatives include creating more housing for vulnerable Canadians including the homeless, expanding co-op housing projects, supporting housing in northern communities and a tax credit for those adding suites for a senior or disabled adult. 

43.     Helping Home Buyers

Tax-Free First Home Savings Account

This new tax-free account would allow prospective buyers to save up to $40,000 in savings towards their first home purchase. Modeled on a hybrid of RRSP and TFSA, contributions to the Tax-Free First Home Savings Account would be tax-deductible and withdrawals would be non-taxable.

First-Home Buyers’ Tax Credit

The budget proposes doubling the tax credit to $10,000 giving home buyers up to $1,500 in direct support.

 

The government also announced that it will be tweaking the First-Time Home Buyer Incentive program and investing in rent-to-own initatives.

Home Buyers’ Bill of Rights

As part of the proposed “Home Buyers’ Bill of Rights” the government will consider a ban on “blind bidding.”  Essentially, blind billing means not knowing what other buyers are offering in a competitive home buying scenario. Because bidding is “blind” buyers often end up paying quite a bit more than they needed to in order to secure the winning bid, driving home prices up unnecessarily.  More transparency in the process is expected to help curb excessive inflationary home prices.

 

The Home Buyers’ Bill of Rights would also include the right to have a home inspection which many buyers presently choose to waive to make their offers more attractive to a seller with a number of other offers on the table.

 

 

The consensus among economists seems to be that, while good ideas, these measures won’t have an immediate impact on housing affordability, but will improve the situation over time. What will likely have a faster impact, are the anticipated interest rate hikes. On April 13, The Bank of Canada raised its target for the overnight rate by 50 basis points, the largest single increase in 22 years. Most economists are predicting another couple of interest rate hikes, expected to bring the overnight rate to 2% this year.