The government tabled Canada’s 2022 Federal budget late last week. The 280-page document outlined everything from natural resources to dental care and everything in between. However, this budget centred on housing as its main priority right off the top, dedicating the entire first chapter to the issue. Here’s what it means for you.
For Home Buyers
There is a lot of good news for those who want to buy their first home. The Canadian government has announced the creation of the Tax-Free First Time Home Savings Account, which would allow individuals to put up to $8,000 aside each year completely tax-free to be used towards purchasing their first home. This would work similarly to a TFSA and would be tax-free going in and tax-free coming out to buy a property to live in. This, along with doubling the home buyers’ tax credit to $10,000, should provide an additional $1500 in expected relief.
It’s hard to say what the impact of this program will be. On the one hand, giving individuals incentive to save towards buying a home and the subsequent tax refunds is helpful. On the other hand, there is the risk that this will raise the base price of housing, as everyone buying their first home will have up to $40,000 or more in their pockets. This may subsequently price some people further out of the market.
The other big piece of news for homebuyers is the plan to create a Homebuyers Bill of Rights, which should cover items such as blind-bidding, the right to a home inspection, and more. The details of this are still unknown but should help reign in the bidding wars that are all too common nationwide.
Finally, for those in their home but with plans to expand, the feds introduced measures to allow individual homeowners to build additions to their homes for family members. Individuals can claim 15% of up to $50,000 on the cost to develop a secondary suite for family members to live in. This will not apply to those looking to build a secondary suite to rent out to non-family members.
For Renters
The government has introduced a one-time $500 payment to those facing challenges securing affordable housing. The government will announce details of this plan at a later date but will likely help people put the money together for their security deposits or the first month’s rent.
For Investors
There was some major news on the investment side. The Federal Government is moving to restrict non-Canadians from purchasing residential properties for two years. This would apply to foreign businesses and non-Canadian citizens or permanent residents on purchases of non-recreational property. This would be on top of the 1% Underused Housing Tax expected to come into force soon.
This attempts to stop individuals abroad from purchasing houses, particularly in Toronto and Vancouver, and driving prices up. Many believe the increased pressure on the market from foreign investors is a significant contributor to the high prices in the Toronto and Vancouver markets. This creates a ripple effect as people who are priced out of those cities leave for other markets like Calgary, causing prices to increase in other cities.
It will be interesting to see if this has the intended effect of decreasing prices. We estimate that if it does, the impact won’t be enormous. While this item is getting the lion’s share of attention, a CMHC report found that foreign buyers account for less than 5% of residential ownership in Toronto and Vancouver.
Additionally, the budget announced measures to target house flipping and the practice of purchasing and re-selling homes with or without additional renovations. Individuals who hold a home for less than 12 months must treat the proceeds of the sale as business income and pay taxes on that amount. This has a significant impact on the profitability of this venture. Typically the key to flipping is timing, so holding the property for longer than a year likely does not make sense financially.
What do the changes in the 2022 Federal budget all mean?
The overarching theme of this budget is that the Federal Government intends to take a much closer look at housing and its role as an investment. Between measures to make homeownership more attainable, increasing the overall housing stock, and working to ensure individuals use homes as homes, not investments.
The government has also promised a comprehensive review of housing as an asset class, which primarily impacts large corporate landlords but may create further changes to homeownership structure as an investment down the road.
This should not be cause for heartache or sleepless nights. The objective of the whole budget appears to be to ensure that buyers are following the rules. Renters should be able to afford to rent, and investors should be able to afford to invest. There is enough room in the market for everyone to theoretically be able to coexist happily. While the changes in this budget may appear ominous, our take is investors or renters do not need to be nervous. As always, time will tell as to how this looks.
If you need further advice on this, don’t hesitate to get in touch with Amhurst Property Management directly.
