The affordability - or rather, the lack of housing affordability continues to be a concern for many Canadians. Younger generations are feeling priced out of the market, and many are losing hope that they will ever be able to own a home. In the Federal government's budget tabled in April 2022, $10 billion in funding over the next five years was announced to help alleviate the problem. Is it enough? How will the money help, and why exactly are homes so unaffordable?
How We Got Here
Canada has one of the lowest ratios of homes to people in any of the developed countries. In fact, we have the lowest number of homes per 1,000 residents compared to members of the G7. Yet we also have one of the highest rates of homeownership in the world. Developers are building new homes at a rate of about 200,000 per year. But experts say that number is about half of what is needed. So we have a low supply of homes and high demand. Mix in several years of low mortgage interest rates, and it's a recipe for sky-high housing prices.
The government's announcement includes a few tactics aimed at reducing demand while modestly increasing supply.
Restrictions on Buyers
Foreign ownership is often cited as a reason for driving up home prices. This is especially true in cities like Toronto and Vancouver, where non-residents may look to purchase homes for investment purposes. The government will propose a two-year ban on home purchases by non-residents to try to curb the problem. Though, in truth, foreign owners make up only about 3.8% of owners in British Columbia and 2.2% in Ontario.
The government also plans to make house flipping less profitable. Under the new regulations, anyone buying and selling within a 12-month period would be subject to full taxation on the profit from the sale regardless of whether the home is their principal residence.
Tax Break for First Time Buyers
There are already several tax breaks and implications for first-time home buyers. However, a new tax-saving scheme first proposed during the last federal election will soon be implemented. Starting in 2023, Canadians will be allowed to contribute up to $8,000 per year to a Tax-Free Home Savings Account. The account provides tax savings similar to RRSP contributions. The money can also be withdrawn tax-free to pay for a down payment.
Investments in New Housing
The government's announcement also includes funding to address the supply aspect of the housing problem. Money will go to a housing accelerator fund to build up to 100,000 new homes per year plus expand cooperative housing initiatives managed by CMHC. Even more money will be directed to creating 10,000 affordable housing units and repairing almost 20,000 more. Tax rebates for renovating a home to add a senior suite and money given to provinces and municipalities to increase the speed of the development of new houses round out the package.
All-in-all there is not much to the budget announcement that will immediately help solve the problem of high housing prices. However, There are signs though, that higher interest rates are beginning to cool the market. If you plan to buy a home this year, be sure to speak with a mortgage broker to help navigate the ins and outs of mortgages in Canada. They can help you determine how much you will be eligible to borrow and help determine how much you can actually afford. Your mortgage broker can give you advice on how much you'll need for a downpayment and which type of mortgage best fits your needs. Finally, a broker can help you shop around to find the lowest mortgage rate from among their extensive network of lenders.
Sources
https://www.cbc.ca/news/business/budget-housing-1.6412384
https://www.ctvnews.ca/politics/federal-budget-to-include-10b-housing-plan-8b-for-defence-1.5850968
https://www.ibisworld.com/ca/bed/homeownership-rate/15084/