The latest budget announcement demonstrated that Canada is clearly focused on making housing more accessible to all, and addressing what matters most to homebuyers- affordability.
Given the real estate supply and inventory crisis we’ve been facing, the budget announcement should be welcomed by all homebuyers across the country, especially as it’s geared towards increasing the housing supply.
The Government’s focus on driving a more balanced, sustainable market in the future will also provide some much-needed relief to homeowners’ concerns as well.
There are many opportunities for both homebuyers and owners here worth discussing.
Let’s look at how Canada plans to help homebuyers and homeowners going forward:
Direct Support For Homebuyers and Homeowners
First Time Homebuyers Tax Free Home Savings Account (FHSA)
The FHSA would allow first-time homebuyers to save up to $40,000 with contributions capped at $8,000 per year. Any investment growth within the account is also tax-free.
It may not make homes more affordable but it will help borrowers get into the market faster and lower the cost of borrowing for many.
Unlike the HBP, borrowers will not need to pay the FHSA back. Money can also be transferred out of the FHSA into an RRSP or TFSA if the individual decides not to purchase a home.
It may not help buyers get into pricey markets like Toronto or Burlington but it will certainly help those get into more affordable cities like Hamilton, Calgary, Halifax, Kingston, London, Belleville, Guelph and Peterborough.
- Assisting Canadians to save and set themselves up for homebuying.
- First-time home buyers will be able to save faster – tax-free on the way in and can earn investment earnings on the money.
- Sizable savings for higher-tax bracket earners
- Ability to transfer those funds into an RRSP or RRIF if you don’t buy, using the FHSA as an additional pre-tax investment instrument.
Doubling First Time Home Buyers Tax Credit to $10,000
The Government will double the home buyers’ tax credit amount to $10,000, which would provide up to $1,500 in tax relief to eligible homebuyers.
This is a non-refundable credit that will come into effect for homes purchases on or after January 1, 2022, that will reduce the amount of taxes you owe by $1500, up from $750. Spouses or common-law partners can also split the credit if they choose to.
- Tax help for first-time homebuyers who are already grappling with all of the new expenses of homeownership in their first year.
Home Accessibility Tax Credit Up To $20,000
An increase to the annual limit of the home accessibility tax credit to $20,000 up from $10,000 starting in 2022. `
This includes renovating a qualifying principal residence or co-op home that will allow the individual to gain access to, or to be mobile or function within the dwelling, and to reduce the risk of harm.
- Support for seniors by assisting homeowners with aging in place.
- Improve housing to meet the needs of an aging population.
New Multi-Generational Tax Credit
Starting in 2023, a refundable renovation tax credit would be made available for eligible expenses when creating a secondary dwelling unit to allow a senior or a person with a disability to live with a qualifying relative.
This would include any work or goods that were paid for or performed on or after January 1, 2023. The credit value would be the lesser of 15% of the eligible expenses or 15% of $50,000.
The second unit can be located inside the property or inside a garage, above a laneway or in a coach house.
- Provide independent living for a family member and bring families closer together
- Option to make extra money to pay off the mortgage
- More homes will be freed up for young borrowers to purchase.
- Provide first-time homebuyers with another option – live with parents and inherit the family home.
$500 For People Struggling With Housing Affordability
The budget is proposing a one-time $500 payment to “those facing housing affordability challenges.
While the specifics and start date have yet to be worked out a total of $475 million has been allocated in 2022-23 for this. More details to come regarding eligibility later this year.
A nice gesture, but really that’s all it is – an extra $500 for FHSA to put toward their new tax savings account.
- Jumpstart your FHSA
Increasing Supply and Affordable Housing
$10BN on Housing Affordability over the next 5 years
Goal of doubling the current construction rate of homes.
There’s no doubt that the biggest problem is supply. The Government estimates Canada will need 3.5 million new homes by 2031 to address the growing population and the current housing affordability crisis.
In response, they’ve planned to double the rate of construction by investing Billions of dollars to increase housing supply, add affordable units and expand co-op development. Their budget details an additional 100,000 homes, 6,000 new co-op units, and approximately 10,000 more affordable units, among other things.
It is now up to the Government and municipalities, builders, and industry professionals – in both the public and private sectors – to come together to execute these initiatives and guide home buyers in the right direction.
The funds being allocated is a good start, but it will be up to the Provincial and municipal governments to quickly address any hurdles they currently face – labour shortages, supply constraints, and NIMBY – and then put their plans into place. Fortunately, the New Accelerator Taskforce has already made its recommendations for cutting red tape, speeding up approvals and encouraging more development that the Government will be using as a playbook to jumpstart the programs.
- Increasing density will result in more suitable options for first time home buyers to purchase in city centres
- More supply for all housing types equals more options for move-up buyers, downsizers, and young families.
- More balanced market with stabilized prices
- Healthier building cycle. Less red tape = more incentive for developers to build = more supply.
Ban on Foreign Homeowners
People who are not Canadian citizens or permanent residents will be banned from acquiring non-recreational, residential property in Canada for two years.
Although Stats Canada pegs foreign buyers as representing only 5% of the overall market across the country, we have seen regulations toward foreign investors have an impact before.
In 2016, foreign buyers accounted for nearly 30% of real estate transactions in British Columbian neighbourhoods of Burnaby and Richmond. This was an issue as many of these investors will sitting on vacant property, hoarding for appreciation. When the foreign home buyer tax came into effect, those numbers dropped significantly to less than 2% by 2017.
The tax announcement caused all investors to pause, not just foreign investors, and in 2017 when the Ontario provincial government enacted a 15 percent tax on foreign homebuyers in the Golden Horseshoe we saw the market cool and supply rise as investors exited.
With rock bottom interest rates over the past 2 years, we’ve seen investors return and prices rise quickly. But with rising interest rates along with an expansion of the 15% tax in Ontario to 20% now for the entire province, we can expect to see more supply come to market and an impact on prices, especially in larger cities with the foreign buyers ban.
In major cities like Toronto, Vancouver and Montreal, the highest offer usually comes in from a foreign buyer, so we can definitely expect to see a change in pricing in these hot investor markets.
- More options for homebuyers, especially move-up buyers in major cities and certain markets.
- More options for homegrown investors. Typically Canadian investors purchase to rent not to leave vacant. More rental units create a more stable market.
- More stabilized price increases will make it easier for owner-occupied borrowers to purchase as interest rates rise.
Canadians who sell a home or rental residential property that they’ve held for less than 12 months will see profits from a sale taxed as business income.
The anti-flipping tax would apply to any residential properties sold on or after Jan 1, 2023. The properties would be fully taxable as business income and not eligible for the capital gains inclusion or the principal residence exemption.
Those who sell the home due to certain life circumstances, such as death, disability, the birth of a child or new job or divorce, are exempt.
The new tax has the potential to cool down investment purchasing and add more supply for the owner-occupied market. This will be good news for first-time home buyers.
However, it could also reduce the total number of quality stock for the middle-class market – causing millennials to buy fixer-uppers they really can’t afford to fix. Fortunately, there are lender programs for those looking at homes that need improvement that can roll in some of the renovation costs into the mortgage.
- More options for owner-occupied buyers, especially first-time homeowners.
- Lender programs such as Purchase Plus Improvements can assist homeowners with renovating homes by rolling in the renovation costs into the mortgage.
Assignment Sale Tax
No more GST/HST exemptions for new home assignment sales, starting May 7th, 2022.
A home that is resold to another buyer before the home is constructed or occupied will no longer be eligible for a GST/HST exemption. All assignment sales of newly constructed or substantially renovated housing will now be subject to GST/HST.
Taxing assignment sales will prevent investors from scooping up property tax-free and making a quick profit on the “flip”.
- May reduce investors creating more opportunities for owner-occupied buyers at more reasonable prices.
- Homebuyers who intend to live in the home will enjoy the appreciation between the time the Purchase and Sale agreement is drafted until the property is ready for move-in, as opposed to the investor benefiting from this amount.
Balancing the Scales & Adding More Protection
Home Buyer Bill of Rights
A Home Buyer Bill of Rights will be tabled with a focus on banning blind bidding and adding a legal requirement for property inspections.
The Government is also looking at ways to make the process of buying a home more fair, open and transparent.
A ban on blind bidding could help cool the market as buyers would finally have full transparency into the details surrounding other people’s bids on the property. This could ensure that people are not making exorbitant offers over-and-above the highest bid, raising comparable prices far higher than they would be.
Adding a requirement for property inspections will ensure that homebuyers have another layer of protection. This legal requirement could give buyers the peace of mind they need that their purchase is sound and give them an option of backing out if serious issues are found.
- More transparency = more stabilized pricing = more opportunity for first-time home buyers to save money to get into the market.
- Protections for all buyers – if the property inspection is not up to par you don’t have to go through with the sale.
- Help stabilize the market and provide more balanced growth
What Else Would We Have Liked to See in the Budget?
Over the past decade, the regulators have continuously tightened lending and mortgage policy. This was designed to control the market from getting further out of hand (than it already is) and ensure Canadians were protected from future risk.
This has taught us that:
- Affordability discussions and risk have been challenges we’ve been addressing for over a decade, this conversation is nothing new.
- If the market was to become unhealthy or severely unbalanced where potential homebuyers were no longer able to enter the market, the regulators already have the tools they need to move the needle back in the other direction.
I don’t know if we are there yet.
And while not all of these measures are going to fix all of the housing woes, it’s a good start. There is still room for the Government to make adjustments if need be.
Have questions? Pineapple brokers are here to assist you with all of your homebuying and refinancing needs. Reach out to one of our brokers today to discuss your current situation and how these changes will impact or benefit you.