Last week, the federal government announced their new budget and with it, proposed many new initiatives targeting the housing market. As housing affordability and availability have become ever-increasingly hot topics in Canadian politics, the Liberal government wants to implement a diverse set of initiatives to increase supply, reduce demand, and make home-buying more accessible to Canadians. The budget laid out the government's plan to invest over $10 billion in housing initiatives in the next five years, let's take a look at some of these new initiatives and what they could mean for you.
Cracking down on foreign buyers and speculators
One of the biggest new developments proposed in the 2022 budget is a ban on almost all foreign buyers in an attempt to lower demand and upward pressure on prices. The two-year ban would make good on an election promise from the Liberals that many thought would never materialize.
While the impact of foreign buyers on home prices in Canada is contentious, it does make for a convenient way for the government to take pressure off the market and win favour with voters without affecting Canadian homebuyers’ ability to enter the market. However, this represents only 5% of the real estate market.
Another measure proposed would target anyone who buys and sells a home within a 12-month period, the majority of whom are house flippers. Under the new guidelines, they would see all profits taxed as business income, preventing some tax loopholes that have been abused in the past.
Measures to increase supply
Much of the budgeted money for new housing initiatives is set to go towards measures to increase housing supply in Canada. $4 billion of the funds will go towards the Canada Mortgage and Housing Corporation’s (CMHC) Housing Accelerator fund to create 100,000 new housing units in the next five years. Along with other programs, the government hopes to increase new home developments up to 400,000 a year in order to keep up with the needs of a growing population.
Assistance for home buyers includes a new tax-free home savings account
Another new addition to the Liberal housing strategy is a new Tax-Free First Home Savings Account (TFFHSA) designed to help first-time homebuyers to save for a down payment. The new account would allow homebuyers to save up to $8,000 per year up to a total of $40,000. For those buying together, each partner can save in their own account.
Similar to a regular tax-free savings account (TFSA), money within the home savings account would incur no taxes when withdrawn and contributions are tax-deductible. For Canadians looking to save for their first home, especially those buying as a couple, this new account can help to provide some much-needed support as prices continue to rise. Additionally, the budget offered other support for new homebuyers such as doubling the First-Time Home Buyers’ Tax Credit and extending the First-Time Home Buyer Incentive into 2025.
The government also expressed interest in the creation of a Home Buyer's Bill of Rights that would, among other things, put an end to blind bidding, increase transparency in home sales, and enforce a legal right to a home inspection before purchase.
Will new measures be effective?
Overall, the new proposed housing initiatives will have varying degrees of effect on the housing market. Things like a foreign buyers' ban and cracking down on house flippers will likely have only a moderate effect on the overall course of the market. Initiatives to increase supply will prove useful if they are actually able to hit their targets, though every new home is badly needed. Finally, consumer-oriented changes such as a Homebuyer’s Bill of Rights and a new tax-free home savings account will present the greatest benefit to the average Canadian.
Although any of these new measures still have to pass legislation and their actual impact will need to be proven, many Canadians will welcome efforts towards a more balanced and affordable market.
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