In the April 7th release of the 2022 Federal Budget, Ottawa highlighted housing affordability on page one as the primary focus of the new spending plan. With housing prices across the country increasing by 62% between Jan 2020 to Feb 2022 Canadians are calling on all levels of government to cool the red hot real estate market. Ontario has seen some of the largest increases in pricing in areas like London, Windsor-Essex and Niagara where prices have all exceeded 80% growth in the past two years. While the Ontario Provincial government released plans last week, Ontarians and home buyers from across the country are hoping for more from the Trudeau government to combat the dream of owning a home becoming increasingly out of reach. The federal government outlined in A Plan to Grow Our Economy and Make Life More Affordable, a doubling the pace of home construction, a tax-free way for new home buyers to save, a temporary ban on foreign buyers and a tax on property flippers amongst other initiatives.
Ottawa promising to double the amount of new homes built
At the heart of the housing price boom are a few key arguments, one is the need for more supply. With the sales-to-new-listings (SNLR) being firmly in a sellers market for the majority of the pandemic with points of historically low supply, weary home searchers will tell you there is just not enough out there to buy. Fundamentally, Canadians need access to a larger supply of various home types to meet the needs in both urban and rural areas of the country. In the past 10 years approximately 1.9 million homes have been constructed in Canada. With this budget, the government has ear-marked $10 Billion across various initiatives to help double those targets. Most notably, $4B for the CMHC to create 100,000 new units, an additional $1.5B to new affordable housing units, $3B for repairs to existing units. While the influx of new homes may have an important and positive long term impact, it won’t be a quick fix for those in the market for a home today.
More supports and tax breaks for first time home buyers
The strain on supply is an important factor that has led to some of the fastest growth in home pricing in Canadian history. The Trudeau government hopes to help young Canadians to fulfill their dreams of home ownership with a new tax-free savings account for first time home buyers. Starting next year, Canadians will be entitled to contribute up to $8,000 per year to a Tax-Free First Home Savings Account program up to a lifetime limit of $40,000. While this is a welcome program to those who can afford to save; with rising inflation, some economists say that this program will be out of reach for a segment of the population for the foreseeable future. It is difficult to save with the strain of increased prices across other areas like gas and food. With the ability to save more money tax-free, there is risk that this program will not deter price growth but rather potentially increase prices as buyers may have more in their coffers for down payments available. With the introduction of this program coming next year, this is also not an immediate quick fix for today’s competitive market conditions.
Foreign buyers not welcome here, at least for the next two years
Like many provincial jurisdictions, Ottawa is taking aim at the foreign buyers by limiting speculation through a proposed two-year ban on purchases of residential real estate by people and companies who aren’t citizens or permanent residents. Minister Freeland also outlined the enforcement of tax on “flippers” or anyone buying or selling a property within a year to be fully taxed on their profits.
Any immediate cooling effects
Many are encouraged that more levels of government, including the Federal level, are attempting to tackle the sky-high housing prices and lack of available inventory. However, for those facing acute issues right now with inflation, saving and supply in key markets, it makes it difficult to have a significant impact in the short term. Analysts are now expecting rising interest rates to have the most immediate effect on slowing the price growth in most major markets across the country. The Bank of Canada is expected to announce additional rate hikes next week.
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