The Federal Liberal government has recently tabled a new budget with many new tools and plans to help make homes more affordable and “…make every Canadian a homeowner in any neighbourhood they want” as per Chrystia Freeland. Is this too little too late and will it have real impact in such hot markets like the Greater Toronto Area? Or is it too little too late? Or just too little?
Banning foreign buyers over the next two years.
Tax Free First Home Savings Account (TFFHSA) contributions of $8000 per year and up to a total of $40,000 for individuals under 40 years old. - Contributions to this account will be tax deductible similar to that of a RRSP account. The earnings in this account would be tax free and be used towards the purchase of a first home. Unlike the Home Buyers Plan this amount does not need to be paid back. Unused amounts after the age of 40 years old get converted to RRSP.
$1.2B to build 6000 units of affordable housing units over the next 2 years with 25% of these units women focused housing projects.
Proposed Increased taxation to Property Flippers that hold a property for less than 1 year.
Home Buyer’s Bill of Rights (address blind bidding process)
Doubling first time Home Buyer’s tax credit to up to $1500
Domestic Investors & Foreign buyers made up 25% of all residential real estate transactions in Ontario from Jan to August of 2021 as per data published by Teranet (Ontario’s online property search and registration system). It is hard to say what proportion of that 25% makes up Foreign Buyers therefore I’m not sure how much impact the banning of foreign buyers in our residential real estate market will have.
The TFFHSA is definitely a great idea however it is a tool that does not immediately help those who wish to buy a home today. If an individual were to be able to stash away $8,000 per year, it would take that individual 5 years before they would be able to maximize (contribute up to $40,000) the full amount of this savings too towards their first home. In addition they would be able to combine this with the Home Buyers Plan which leveraging their RRSP contribution of up to $35,000 towards their home. The HBP does stipulate the amounts need to be repaid back in to the RRSP over a period of 15 years. These plans are great tools to help individuals save towards their first home but this implies that the individual would have to have the means to save. In a time when inflation is increasing at its fastest pace in more than a generation this may seem hard to do for many individuals.
The federal government plans to put aside $1.2B to build 6000 homes over 2 years. Which if divided out equally across all provinces and territories, which accounts approximately 230 homes per province or territory every year. It is unlikely this number will be an equal distribution and more likely distributed based on need however, this number won’t be enough to help enough families in need. If the government’s hope that this additional supply will also help with lowering prices in such hot markets as Toronto it will most definitely not. At the time of writing this article the Greater Toronto Area showed over 365 sales/day of homes in the month of March 2022. In essence the number of homes the government plans to build represents less than 1 day worth of supply that change hands in a large metropolitan like Toronto.
Proposed increase taxation for property flippers that hold a property for less than 1 year. This may seem like a good idea to tamp down on greedy property owners who want to make a quick profit but will this really deter investors from driving up prices?
A popular method of flipping that has gained lots of traction over the last decade has been assignment sales. I have to admit I don’t know have hard objective evidence to say this has been a driving factor for price increases but from my anecdotal experience I have seen many more of these transactions happening, which lead increasing prices of homes before final construction competes and often before the homeowner takes final possession. An assignment sale involves the sale of a contract of an existing buyer has with a home builder. The new buyer or supposed end user would pay the price as negotiated in the sales contract in addition to the amount paid to purchase the contract from the initial buyer. The end user therefore would have paid hundreds of thousands more than the initial purchaser. This happens without any real property titles changing hands. I call this paper flipping, which would likely not even be addressed by this new taxation for property flippers.
This increased taxation will only discourage those home renovator/flippers who can manage to flip their properties in less than a year. In Toronto where any type quality or substantial renovation/remodel takes much planning, permits and finding of skilled trades people would like to take a minimum of a year, thus really not impacting these investors either. Most if not all investors I’ve sold to and have completed the sale have managed to keep their properties for more than a year despite in many instances having a negative cash flow in their investment. Many have banked on and profited on the expectation of increasing home prices in order to profit.
The Feds also plan on introducing the Home Buyer’s Bill of Rights which will have to be negotiated with each province to address practices like the blind bidding for buyers. There is little doubt this practice contributes to higher home prices in hot markets, but in the end if there are more buyers than sellers the price will ultimately increase regardless of the type of bidding process (simple concept of supply & demand).
I’m not sure many home buyers even consider what credits are available at tax filing when they consider purchasing a home. Thus doubling of the tax credit at tax filing may be helpful in putting some money back in to the pockets of some buyers; it would not even be in the consideration of any homebuyer as it likely does not improve affordability.
The only way I can see homes becoming getting within reach of more people would be to restore affordability by stalling prices of homes until income catches up. Likely addressing all investors in whole would likely be a more effective measure in helping affordability rather than a narrow few investors, perhaps increasing tax on all investors and banning assignment sales. Unfortunately I’m not sure many people have the answer to achieving this not even across our many levels of government. In addition, higher interest rates are expected, further eroding affordability.
In conclusion, many of these proposals by the federal government may seem like a good idea to make homes more affordable but I highly doubt it will make much impact in the immediate term and it will certainly not help buyers buy in any neighbourhood they want. In essence, perhaps these proposals are just too little.