Federal Budget Housing Measures Miss the Target

Everything You Need To Know About the Housing-Related Measures in Budget 2022

Affordable Housing Measures

There are a number of factors that are making housing more expensive, but the biggest issue is supply. Put simply, Canada is facing a housing shortage. Increasing our housing supply will be key to making housing more affordable for everyone.

Canada constructs about 200,000 new housing units in any given year. While annual construction has increased in recent years, it is not enough to address affordability challenges and keep up with the housing demands of a growing population. To meet these housing needs, we will need to double our current rate of new construction over the next decade. 

The federal government recently announced this year’s budget which outlines 29 new housing-related measures which will receive funding over the next five years. It includes measures like increased tax credits and a new tax-free savings account that are intended to help buyers in today’s tricky market. The budget also includes policies designed to address the supply shortage, but it will take quite some time to see the effects of these measures. This is where the budget falls short and misses the target. Here are some key housing-related measures from the Federal Budget 2022: 

Building Affordable Housing

  1. $4 billion over five years towards the Housing Accelerator Fund to speed up construction approval times, and update zoning rules to build 100,000 new homes by 2025
  2. 15% Multigenerational Home Renovation Tax Credit which would provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability. Starting in 2023, this refundable credit would allow families to claim 15% of up to $50,000 in eligible renovation and construction costs incurred in order to construct a secondary suite.

Helping Canadians Buy Their First Home

  1. Budget 2022 proposes to introduce the Tax-Free First Home Savings Account that would give prospective first-time home buyers the ability to save up to $40,000. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA. Tax-free in, tax-free out. The government intends to work with financial institutions to ensure that a Tax-Free First Home Savings Account could be opened and contributed to in 2023.
  2. Support for rent-to-own projects. Budget 2022 proposes to provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. Rent-to-own arrangements can help alleviate that barrier by providing more time and support to renters on the path to homeownership, and by allowing them to live and grow in their homes.
  3. Doubling the First-Time Home Buyers’ Tax Credit. proposes to double the First-Time Home Buyers’ Tax Credit amount to $10,000. The enhanced credit would provide up to $1,500 in direct support to home buyers. This measure would apply to homes purchased on or after January 1, 2022.

Protecting Buyers and Renters

  1. Common practices like blind bidding or asking buyers to waive their right to a home inspection can make the process of buying a home even more stressful for many Canadians. The government will take steps over the next year to develop and implement a Home Buyers’ Bill of Rights and bring forward a national plan to end blind bidding and ensure a legal right to a home inspection. 

Curbing Foreign Investment and Speculation

  1. Taxing assignment sales. Budget 2022 proposes to make all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/HST purposes, effective May 7, 2022.
  2. A two-year ban on foreign buyers was also outlined in the 2022 budget.
  3. An anti-flipping tax. Effective January 1, 2023, any person who sells a property they have held for less than 12 months (currently less than 6 months) would be considered to be flipping properties and would be subject to full taxation on their profits as business income.

Where The Budget Falls Short

According to RBC economist Robert Hogue, the direct market impact of a temporary ban on foreign purchasers “will be minimal,” given that non-residents own less than two percent of the housing stock in most markets.

Hogue also points out that “large housing packages introduced by British Columbia in 2016 and Ontario in 2017 caused market participants to pause (briefly) while assessing the implications. Minister Freeland’s housing budget has the potential to do the same.” 

Real estate market statistics in March pointed to a modest move to a slightly more balanced market. The sales-to-new-listings-ratio (SNLR) across the GTA for detached homes was down month over month—more new listings, fewer sales. This is typical for this time of year. 

Any time there have been new housing policy announcements (think mortgage stress test in 2018) consumer confidence is temporarily shaken and there is a corresponding “blip” in the market. Sellers who just bought a house in a strong seller’s market only a week earlier fear the worst when there are fewer or no showings and no offers on their property. Buyers sit back and wait to see how it all plays out thinking the market will crash. What we all come to realize very soon after these announcements are made, and we know this because it happens time and time again, is that the fundamentals of basic economics are too strong and will offset any significant changes to the market for the long term.

Focus: Ontario

So how do increase supply quickly to meet current demand—not in 10 years from now? Let’s shift the focus to the demand side for a moment. Where is all this demand coming from? Put simply, Immigration. If we reduce the number of people who require housing, we reduce demand. We’re not opposed to immigration in any way, shape, or form. I am an immigrant myself. How about some measure of this cup is full, it runneth over. Why don’t we encourage immigration to other parts of the country where there is affordable housing? Good things grow (ow, ow) in other provinces too, not just in Ontario. How about we help grow the economies of our other provinces?

As it is, Ontario’s population rose by 175k between Q4-2020 and Q4-2021—boosted by record numbers of immigrant admissions—but nearly 108k people moved to other provinces and territories in the calendar year 2021—the most since 1981. Why? In an environment of fairly synchronized pandemic-era regional rates of economic growth and job creation, differences in lockdown stringency explain some—but not all—of the outflows. The magnitude and range of destinations sought by Ontario out-migrants likely also reflect housing affordability challenges built up over the last few years, combined with increased telework.

How about instead of tax penalties, the federal government considers incentives that aren’t just for first-time homebuyers—incentives for people to immigrate to other parts of Canada?

Outlook

It remains to be seen how different this “blip” is from past shifts in the real estate market because although they’ve been short-lived in the past, what is different this time around is that interest rates have started to go up and inflation is at a 30 year high. Money is still cheap as far as mortgage financing is concerned but economic uncertainty and an underlying threat to world peace may tip the scale for a little while longer than what we’re used to.

How Storey Collective Can Help

We examine GTA home sales each month to advise buyers and sellers on how best to secure and sell properties in the Greater Toronto Area. 

If you’d like advice on how to make the most of the housing market during a particular season, get in touch with Storey Collective for a free phone consultation.