The federal government outlined its plans to tackle sky-high housing costs in Thursday’s budget – including a temporary ban on foreign buyers, a crackdown on speculators, a pledge to double the pace of building new homes and a new tax-sheltered way for Canadians to save to buy a home.
The government is moving forward with something it launched during the election campaign last year: a first-ever tax-free home savings account. The budget offered some rudimentary details.
Starting next year, Canadians will be eligible to contribute up to $8,000 per year to the accounts, allowing them to save and invest funds to buy a home in the most beneficial way. from a tax point of view. Currently, Canadians can use anything from a savings account to an RRSP or TFSA to save for their first home, but all come with a number of tax restrictions.
RRSPs provide a tax refund when people contribute, but any money withdrawn under the existing home buyers’ plan must be replenished later without the tax relief. Conversely, Canadians who use their TFSA to save for a home can grow those funds tax-free, but they don’t get the tax relief when they make the investment.
The new program adopts the most attractive parts of these two programs by giving savers a tax refund for their contributions and also allowing those savings to grow without being taxed on the gain. It’s “tax-free in, tax-free out”, as the budget says.
The program has a maximum lifetime contribution limit of $40,000, and the government estimates that the tax-free home ownership savings account program will cost about $725 million in tax revenue.
Finance Minister Chrystia Freeland said the government sees this as money well spent.
“We will make it easier for our young people to get their first keys,” she said of the government’s various housing initiatives, which she described as “perhaps the most ambitious plan that Canada has ever had”.
WATCH | Buyers say they hope the budget helps them:
The new account may be great news for savers, but it won’t do much to improve affordability for those with no money to spend.
“I think it’s going to be huge,” said Jamie Golombek, head of the tax and estate planning team at CIBC. “But if you don’t have the money, this plan does nothing for you.”
Paul Kershaw, associate professor at the University of British Columbia and head of the Generation Squeezed think tank, says the scheme risks driving up house prices even further by making it easier to buy for those who can already save.
“The more we facilitate this acceleration in the accumulation of the next installment, the more likely we are to increase house prices,” he said in an interview. “While the budget recognizes that there is a crisis, it fails to recognize that our country is truly addicted now to high and rising home values.”
The budget once again targets some older housing boogeymen who have already been blamed for the high prices: pinball machines, speculators, blind auctions and foreign buyers.
The government is proposing a two-year ban on purchases of residential real estate by people and businesses who are not citizens or permanent residents.
Refugees, some international students and people with work permits would be exempt from the policy. Notably, the ban would not include recreational properties, such as cabins, cabins and other vacation homes.
It’s a populist policy that will certainly resonate with many, but previous iterations of these plans haven’t had much of an impact. R Statistics Canada report found that less than 5% of homes in Toronto and Vancouver were owned by non-residents.
John Pasalis, founder and chairman of Toronto-based real estate company Realosophy, says the move may not do much, but it’s still a step in the right direction to ensure that people who buy homes do so primarily to live in, not just as financial investments.
“I don’t think foreign buyers are themselves the dominant buyers in the market,” he said in an interview. “They’re not the cause of rising house prices or rapidly rising house prices, but it’s still good policy to put forward.”
The budget also includes a commitment that anyone buying and selling property within a year “would be considered flipping properties and would be subject to full taxation of their profits”. Government officials say it’s mainly a matter of applying existing tax rules.
The government has also committed to introducing a homebuyer’s bill of rights which would include, among other initiatives, the end of blind auction — the practice in many Canadian jurisdictions that requires potential buyers to make their offers without knowing what others are offering.
WATCH | Canadians say housing affordability is a crisis:
It’s an idea that even real estate agents turn to; The Canadian Real Estate Association announced ahead of the budget that it plans to implement a pilot program this year to display real-time tracking of offers on property listings.
“This opportunity is timely and well suited to our market,” said Jeff King, CEO of the Real Estate Board of Greater Vancouver, in a press release this week.
Supply side spending too
All of these initiatives target the demand side of the equation. On the supply side, the budget laid out an ambitious plan to build lots of homes, and fast.
Canada is currently building around 200,000 new homes a year – a rate the government says is well below needs. So Ottawa has earmarked about $10 billion for various initiatives to put the shovel down.
There’s $4 billion over five years for a CMHC-run housing accelerator fund that hopes to create up to 100,000 new units, and half a billion to expand co-op housing.
There is also $1.5 billion for new affordable housing, in addition to existing commitments, and nearly $3 billion is earmarked for repairs. Together, these two commitments could create 10,000 new units and repair over 17,000 units in need of repair.
There is also a one-time payment of $500 for Canadians “facing housing affordability issues”, although the government does not specify who this might apply to.
There is also a tax refund to encourage Canadians to renovate their homes, worth up to $7,500, to build an accessory suite for a senior or disabled adult.
The hope is to double the rate of home building to 400,000 new homes a year – enough to dent the more than three million new homes the government predicts will be needed over the next decade.
That might sound great to those who have been banging the drum for years over a lack of supply, but Golombek suggested that a new savings account with the words “duty-free” in the name is likely to attract more people. ‘Warning.
“There’s not much in this budget for the average taxpayer, but for someone looking to buy their first home, the availability of this program will definitely be a way to kick-start those savings,” he said. he declared.