The long-awaited Federal Budget has arrived, and Canada’s housing crisis is a front-and-centre focus.
Finance Minister Chrystia Freeland has tabled the 2022 budget in the House of Commons and -- unlike last year’s, which centred squarely on pandemic economic recovery -- today’s tome encompasses some of the sharpest housing measures ever from the federal Liberals, who face the heady challenge of taming soaring housing prices, boosting supply, and addressing investor speculation.
- Canada to Ban Blind Bidding As Part of Home Buyers’ Bill of Rights
- Federal Government Launches New Tax-Free First Home Savings Account for First-Time Buyers in Budget
- Ban on Foreign Buyers to Be Included in Federal Budget
This budget is the first spending commitment announced since the government formed a supply-and-confidence agreement with the federal New Democrat Party, in exchange for no election call until 2025. Over $100B in spending is to be rolled out -- proceeds from the recent windfall garnered by rising oil prices -- as the feds eschew attempts to balance the record deficits resulting from COVID-19 relief efforts in favour of new stimulus. The economy contracted 17% during the pandemic, stated Freeland in the budget's reading -- the deepest recession since the 1930s.
Part of that sum -- $10B over five years -- is to be doled out in efforts to create new housing supply. There are also new taxes and restrictions on the docket, bringing to fruition a number of promises the Liberals made at campaign time.
That housing affordability has eroded significantly since the party took power in 2015 as been a stick in the fed’s craw, and a sore point for voters. According to the Canadian Real Estate Association, the average national home price hit an all-time high of $816,720 in February, a 65% increase from the $494,000 recorded the same month seven years ago.
While steep home prices are even more acute in the nation’s largest markets -- hovering at $1.3M across all home types in both the Greater Toronto and Vancouver regions -- steep sellers’ market conditions over the course of the pandemic have also driven prices to new highs in smaller cities and rural markets across the nation. Today’s budget is looking to alleviate some of these pressure, with new slew of housing measures.
A Ban on Foreign Buyers
As reported yesterday, the federal government will be implementing a two-year ban on residential property purchases made by foreign nationals. However, this will not extend to those who are purchasing a primary residence in Canada, permanent residents, foreign workers, or students. Refugees and others coming to Canada under emergency travel measures would also be exempt. As the new policy will require legislation, it must still be up for debate in the House of Commons -- once passed though, it will give the government judicial powers to penalize non-compliance.
"To make sure that housing is owned by Canadians instead of foreign investors, Budget 2022 announces the government’s intention to propose restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non- recreational, residential property in Canada for a period of two years," states the Budget.
The government will also continue to monitor the impact that foreign money is having on housing costs across Canada and may come forward with additional measures to strengthen the enforcement of the proposed ban if necessary. Non-resident, non-Canadians who own homes that are being underused or left vacant would be subject to the Underused Housing Tax once it is in effect.
Prior to the Budget's release, Fred O'Riordan, National Tax Policy Leader at EY Canada, told STOREYS that it's a surprisingly severe measure from the federal Liberals, and, with such a blanket approach, likely to overlook important nuances.
“That’s a blunt instrument, and you want to be careful as a government when you’re going that far," he says. "To put the shoe on the other foot, I don’t think Canadians would be too happy if the United States put a ban on non-resident purchasers of real property, that they want to buy in Florida, say, or others. But the example that came to mind for me is, what about a Ukrainian who wants to purchase a residential property in Canada, whether it be a condo or a house, but doesn’t want to immediately occupy it, because they want to stay in Poland. Unless there’s some accommodation of that in the budget documents, and I would be surprised if there is, then that individual would not be able to do that.” [the budget did address this situation through an exemption for persons fleeing an international crisis].
“I know that the non-resident proportion of home ownership is not that high -- even in hot markets. It’s a factor, but is it serious enough that you’re going to ban all foreigners from purchasing? It’s a head scratcher in some ways, in that sense.”
A Home Buyer’s Bill of Rights
The Liberals have officially kicked off the process to establish a Home Buyer’s Bill of Rights that will include the much-debated ban on blind bidding, along with buyers’ rights to a home inspection, transparency on past sold prices and title searches, and a publicly-accessible beneficial ownership registry. The Minister of Housing and Diversity and Inclusion Ahmed Hussed will be engaging with provinces and territories over the next year in consultations to bring the proposal to reality.
A Crackdown on Money Laundering
As there has been an uptick in mortgages issued by businesses and lender that are not regulated under the national anti-money laundering and anti- terrorist financing rules that financial institutions must abide by, the real estate industry has become increasingly vulnerable to money laundering.
To help prevent financial crimes in the real estate sector, the federal government is announcing its intention to extend anti-money laundering and anti-terrorist financing requirements to all businesses conducting mortgage lending in Canada within the next year.
Non-Flipping and Speculation Taxes
An oft-pointed to culprit behind soaring housing prices are real estate speculators, who buy and sell properties rapidly to capitalize on the rising market, sometimes selling higher within months and without any substantial improvements made to the property. As of January 1, homebuyers must keep their properties for a minimum of 12 months or be subject to full taxation on their profits as business income. There are exemptions, however, for circumstances such as death, disability, birth of a child, new job, or divorce. Canadians will also be consulted leading up to debate to pass the legislation.
The government will also start taxing "assignment sales" - the trading of real estate that has yet to be occupied, or even built - by making them subject to GST / HST as of May 7, 2022.
As with previous budgets, the question has been raised on whether changes would come to current capital gains exemptions, or whether the capital gains inclusion rate for investors would be increased. Canadian homeowners enjoy one of the most lucrative tax shelters for their property gains via the capital gains exemption on primary residences, and it has been speculated upon often whether removing this benefit would be effective in cooling the market. The suggestion is widely unpopular, and, as expected, was not put into place today.
O'Riordan says that while actual removal of the exemption would be "political suicide", there's a reason it's raised each year at budget time.
“There are rational reasons for why they might want to consider the increase, without being for or against that. Personal [and] or corporate taxes are integrated and there’s been a disconnect in terms of rates, and obviously the government is looking for additional revenue, so if they can get them on a capital gains, they would be tempted to do that, so we’ll see," he says.
A Boost for New Supply
The feds are unveiling a plan that would double housing construction by 2030, with a focus on increasing supply for middle-class buyers via a Housing Accelerator Fund. This will include $4B in incentives over five years to aid municipalities in accelerating their residential development permit and approvals process, with the goal of creating 100,000 units within five years. This will help jumpstart Canada's housing output -- we produce the lowest average housing supply per capita of the G7 nations, at 424 units per 1,000 people.
"To fill the gap that already exists—and to keep up with our growing population over the next decade—Finance Canada and the Canada Mortgage and Housing Corporation estimate that Canada will need to build at least 3.5 million new homes by 2031. To reach that number, significant steps have to be taken today," the Budget states.
The Housing Accelerator Fund will have a flexible single application system, and will still allow municipalities to access other related programs. The federal government will ensure that the program also takes into account smaller and rural communities that are growing quickly, like those in Atlantic Canada and northern Ontario.
There will also be an additional $1.5B infusion of cash for the third phase of the Rapid Housing Initiative, which was established in 2020 to alleviate the pressing affordable housing need during the pandemic. This follows previous $2.5B investment in the program, which delivered 4,700 new affordable units in 2021, and is on track to produce 4,500 this year. This new funding is expected to create at least 6,000 new affordable housing units, with at least 25 per cent of funding going towards women-focused housing projects.
Support for First-Time Homebuyers
There are a few measures announced for first-time homebuyers, such as the introduction of a Tax-Free First Home Savings Account, which will combine the tax-sheltering benefits of an RRSP and TFSA; savers under the age of 40 will be able to stash up to $40,000 tax-free within the account; it is estimated that the Tax-Free First Home Savings Account would provide $725 million in support over five years.
They’ll also make the First-Time Home Buyer’s Incentive equity sharing program’s requirements more flexible in order to make it feasible for buyers in the nation’s priciest markets and improve uptake.
"To help more Canadians purchase their first home, Budget 2022 announces an extension of the First-Time Home Buyer Incentive to March 31, 2025, and that the government is exploring options to make the program more flexible and responsive to the needs of first-time home buyers, including single-led households," the budget states.
Doubling the First-Time Homebuyer's Tax Credit
The First-Time Home Buyer's Tax Credit will be boosted to $10,000, to provide up to $1,500 in direct supports to home buyers, applying to homes purchased on or after January 1, 2022.
Additional Rent-to-Own supports
To help develop and scale up rent-to-own projects across Canada, Budget 2022 proposes to provide $200M in dedicated support under the existing Affordable Housing Innovation Fund. This will include $100M to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.