Opinion: Federal government's new plan to tackle housing has little substance

Low-density housing (Shutterstock)

Written for Daily Hive Urbanized by Bryan Yu, the chief economist of Central 1.

Canadians hoping for the federal government to throw down the gauntlet in the name of housing affordability were disappointed with Budget 2022.

After watching the runaway freight train of a housing market, where Canadian home values have risen 50% over the course of 24 months, there was little in the way of substance when it came to arresting market momentum.

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This is not entirely surprising, and it was a pipe dream that a downturn would be engineered. There was little chance that capital gains on principal residences would be touched. Moreover, the government has made clear that it would not punish small mom-and-pop investors over the past year. There was no tax on secondary properties.

What was included in the housing budget?

Housing supply and affordability remain a massive challenge, reflected in high home prices and low rental vacancy rates, and the government addressed this challenge. Out of $10.2 billion related to housing policy spending, it included $4 billion over five years towards a Housing Accelerator Fund through CMHC to create 100,000 units of housing. Other measures include funding for the Rapid Housing Initiative for affordable housing and measures for rental housing.

Rather than tempering the market, a new savings vehicle was created to help buyers get into the market, a mix between an RRSP and TFSA.

The new Tax-Free First Home Savings Account allows homebuyers to save up to $40,000 to allocate to a home purchase. Contributions are tax-deductible, and withdrawals, including investment income, grow tax-free. The First-Time Home Buyers’ Tax Credit was doubled to $10,000, providing up to $1,500 in support. While a helpful savings vehicle, only $8,000 can be allocated each year, limiting the value for those wanting to purchase immediately.

Fear of the foreign buyer was invoked in the budget with the announcement of a two-year ban on foreign purchasing. That said, with exemptions for permanent residents, recreational properties, some students, and those with working visas, this does not have much in the way of teeth.

Moreover, foreign buying during the pandemic has been minuscule at less than 1%, suggesting a minor impact on the market and more window dressing. Policies were also proposed to tighten up taxation on short-term home flippers and assignment sales, but this looks to reflect greater enforcement than any real changes to tax law.

From my perch, the federal budget provided little to no relief for potential homebuyers but does set the stage for additional affordable supply in the future and provides some tax-free help on savings.

Nonetheless, this will do little to move the needle for potential buyers trying to get into the market. Buyers wanting lower prices will likely see an opportunity as the Bank of Canada hikes rates but may still be shut out of the market with higher rates.

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