The Liberal government promised new incentives and tax credits for first-time homebuyers in its 2022 federal budget, as well as measures to curb rising home prices that remain untouchable for many Canadians.
Christopher Alexander, president of RE/MAX Canada, says measures like the multigenerational home renovation tax credit and doubling the first-time home buyers’ tax credit will encourage people to enter the market, but supply will remain an ongoing issue for first-time homebuyers looking to purchase any property type, including condos.
“Condos in particular, have been the go-to for young couples and professionals looking to enter the market at a reasonable price-point,” he says. “However, the incentives and tax credits are increasing demand in a market that is not only the most popular entry-point for aspiring home-buyers, but also absorbing the demand from those unable to purchase semi-detached or detached properties.
“Although the government’s pledge to build 100,000 new homes in the next five years may ease some pressure in the long-term, the incentives and tax credits do not address the supply challenges that have been and will continue to be at the core of our fast-rising property values.”
The budget also proposed a two-year ban on foreign home buyers to help cool the market. “In reality, these measures will only impact a small segment of homeowners,” Alexander adds. “We anticipate that this measure and others related to it, will have little to no effect on real estate prices across the country.”
The government earmarked $10 billion for residential construction to correct the housing crisis, which includes the Housing Accelerator Fund to incentivize cities and towns to modernize and build more housing units over the next five years. But much remains unclear, and industry advocates feel the supply won’t come fast enough.
In an earlier statement, RESCON President Richard Lyall, expressed his concern over a lack of specifics in the demand-sided budget on how these measures will increase housing stock.
“We are critically short of housing and demand is only going to increase due to immigration and population growth, so it’s critical that we pull out all the stops to boost supply,” he said. “Ontario is short about 25,000 housing units a year so more measures are needed but there is a lack of specific information on how these funds will put a dent in the problem and substantially boost housing.”
RE/MAX’s latest report, Unlocking the Future: A Five Year Outlook, found the number of employees and workers in the trade industries, specifically construction, won’t be enough to build the amount of real estate needed to meet the targets, says Alexander.
“The targets set by the government to welcome over 400,000 new Canadians each year, would be a great opportunity to increase the number of trade skilled workers in the market, which would contribute to closing the supply gap,” says Alexander.
In Ontario, more than 92,000 construction workers will retire by 2030, according to RESCON. With the projected volume of work, the industry will need to hire, train and retain more than 100,000 more workers by the end of the decade.
Housing can’t come fast enough as prices are expected to continue rising beyond 2022. In the Greater Toronto Area alone, the average home price is currently $1.3 million, a year-over-year increase of 18.5 per cent.
“The Canadian housing market has historically given homeowners great long-term returns and solid financial security,” says Alexander. “In order to maintain this, as we look ahead, it’s crucial that governments and policy makers take a thoughtful and collaborative approach that addresses our core issue of affordability and incentivizes Canadians, with regards to interest rates, immigration and taxation.”
He says it’s crucial for the government to consider the effect that multiple cooling measures, along with rising interest rates, will have on the market.
“In fact, the outcome may have greater consequences than intended and likely create a pent-up demand, like we saw in the Ontario Fair Housing Plan of 2017 and the market explosion during 2020,” he adds. “However, despite this and our housing supply issue, if economic decision-makers make pragmatic decisions in collaboration with the government, it is likely that the housing market will remain stable, albeit expensive over the next five years.”
Just a few of the promises to increase home ownership opportunities in Budget 2022 include:
A tax-free first home savings account
Budget 2022 plans to introduce the Tax-Free First Home Savings Account that would give prospective first-time home buyers the ability to save up to $40,000 beginning in 2023.. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA.
Doubling the first-time home buyers’ tax credit
The First-Time Home Buyers’ Tax Credit would double to $10,000. The enhanced credit would provide up to $1,500 in direct support to home buyers. This measure would apply to homes purchased on or after January 1, 2022.
An extended and more flexible first-time home buyer incentive
The First-Time Home Buyer Incentive allows eligible first-time home buyers to lower their borrowing costs by sharing the cost of buying a home with the government. Budget 2022 announced an extension of the First-Time Home Buyer Incentive to March 31, 2025. The government is also exploring options to make the program more flexible and responsive to the needs of first-time home buyers, including single-led households.
A multigenerational home renovation tax credit
A Multigenerational Home Renovation Tax Credit would provide up to $7,500 in support for the construction of a secondary suite for a senior or an adult with a disability. Starting in 2023, this refundable credit would allow families to claim 15 per cent of up to $50,000 in eligible renovation and construction costs associated with these projects.
Supporting rent-to-own projects
To help develop and scale up rent-to-own projects across Canada, Budget 2022 proposes to provide $200 million in dedicated support under the existing Affordable Housing Innovation Fund. This will include $100 million to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units. Examples of eligible projects, which must include safeguards and robust consumer protections, could include the repair and renewal of housing for rent-to-own purposes, innovative financing models, and programming that assists rent-to-own participants in preparing for homeownership.
Banning foreign buyers from purchasing Canadian homes
To make sure that housing is owned by Canadians instead of foreign investors, Budget 2022 proposed 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.
Refugees and people who have been authorized to come to Canada under emergency travel while fleeing international crises would be exempted. International students on the path to permanent residency would also be exempt in certain circumstances, as would individuals on work permits who are residing in Canada. 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.
Putting limits on property flippers
There will be new rules to ensure profits from flipping properties are taxed fully and fairly. Any person who sells a property they have held for less than 12 months would be considered a “flipper” and subject to full taxation on their profits as business income.
Exemptions would apply for Canadians who sell their home due to certain life circumstances, such as a death, disability, the birth of a child, a new job, or a divorce. The measure would apply to residential properties sold on or after January 1, 2023.
