Federal Budget 2022 Highlights on Housing

Federal Budget 2022 Highlights on Housing

Irrespective of whether you follow Canadian politics or not, you are still likely familiar with the Federal Budget, which outlines the Government's plan to build a stronger and more resilient economy. What you may not know is that some pretty significant housing market proposals were announced in this year's Budget, which may affect your next property purchase.

In the Federal Budget for 2022, a strong focus is placed on making housing more affordable. In it, they quote, "Everyone should have a safe and affordable place to call home." which is a sentiment that many would-be homebuyers have been questioning in recent years as house prices have reached record-breaking levels. For example, ten years ago, the average cost of a home in Ontario was approximately $329,000. In 2021, the average house price across Ontario was $923,000. Over that period, average house prices have climbed 180%, while average incomes have only grown about 38%. Young professionals, budding families, and many Ontarians are finding it extremely difficult to buy a home in the province.

Due to an undeniable housing crisis and the pressures for leadership changes in the nation's housing market, the Government of Canada is preparing new strategies to help make homes more affordable.

There are two main factors that have created challenges for would-be homebuyers across the country, especially in its densely populated city centres.

  1. Housing shortage;
  2. Affordability

Canada is facing a housing shortage, and the key to making housing more affordable is to increase the supply.

To fill the existing gap and keep up with the growing population, Finance Canada and the Canada Mortgage and Housing Corporation (CMHC) estimate that the country will need to build at least 3.5 million new homes by 2031. In a given year, Canada constructs approximately 286,000 new housing units; this includes detached homes, individual condos, and other types of housing.

Based on the information found in the Budget, to meet the housing demand, the country will need to double the current rate of new construction over the next decade. Whether or not this is achievable is another question, but the Budget lays out the investments and strategies they have planned over the next few years to achieve this goal. One of these strategies promises to provide over $72 billion to fund the National Housing Strategy and other measures.

Another highly publicized strategy from the Liberal Government is an investment proposal of over $4 billion in a new Housing Accelerator Fund that aims to increase the annual housing supply in major cities by offering support and incentives to municipalities that speed up the time it takes to build homes. Municipalities can receive support from the Government if they speed up approval times, establish inclusionary bylaws and encourage new developments near public transit.

Now switching gears to the affordability side of things, the Budget also proposes introducing the Tax-Free First Home Savings Account (TFFHSA) to help first-time homebuyers get into the housing market. With this new account, first-time homebuyers can save up to $8,000 per year, with a maximum of $40,000 per person, towards purchasing their first home. If two people plan on buying a home as part of a household, each individual can contribute to their own Tax-Free First Home Savings Account.

Contributions to this account will be tax-deductible, like an RRSP, and withdrawals will be tax-free, similar to a TFSA.

Another well-needed upgrade proposed in the Budget is doubling the First-Time Home Buyers' Tax Credit amount to $10,000, providing up to $1,500 in direct support to home buyers. This tax credit will apply to homes purchased on or after January 1, 2022.

Budget 2022 also proposes introducing a new rule to ensure that 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 would be subject to full taxation on their profits as business income. Exemptions would apply to 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 Liberal Government believes that homes should be for people to live in and not traded or profited by housing speculators. This type of trading, also known as speculative trading, contributes to higher housing prices for Canadians. Speculative trading can include the resale of housing before it has been constructed or lived in. This is called an assignment sale. Currently, when a person makes an assignment sale, GST/HST may or may not apply, depending on the reason for purchasing the home. For example, GST/HST does not apply if the buyer initially intended to live in the home. This creates an opportunity for speculators to be dishonest about their original intentions and uncertainty for everyone involved in an assignment sale as to whether GST/HST applies. To address these issues, Budget 2022 proposes to make all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/HST purposes, effective May 7, 2022.

The most significant Budget proposal is one that's is a hot button topic in the housing market, and that is the topic of foreign investors. Many reports show that foreign investors are a small fraction of Canadian Real Estate purchases. However, one could argue that even a small fraction can make all the difference in such a tight housing market. Those who believe that there is a foreign investor "problem" will be pleased to know the Government's intention to ban foreign buyers from acquiring residential property in Canada for the next two years. If for nothing else, this ban might prove whether or not foreign investment is truly hurting the market.

In all, 2022's Federal Budget aims to 'cool down' the market while providing more affordable housing opportunities for Canadians. These strategies and investments can help stabilize the market in the coming year, which benefits both seasoned investors and first-time home buyers.

If you are thinking of purchasing an investment condo this year, our Online Investment Presentation is a great place to begin. It is available twice a week and will help you learn how to be a savvy buyer in today's marketplace, especially once the Federal Budget is approved.