The Federal Government unveiled an updated budget this past week, and it included a wide range of housing policies. While many of these were good headline grabbers, some of them will never see the light of day, and others lack any real substance. Let’s dissect some of them further.
Foreign Buyer Ban
The media took this one and ran with it. A two year ban on foreign buyers across the nation. It made for great headlines until you read the fine print. Unlike most of the Governments housing policies, this one has no official start date. In fact, here’s the exact wording they used in the budget, “To make sure that housing is owned by Canadians instead of foreign investors, Budget 2022 announces the government’s intention to propose 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.”
They intend to propose. In other words, we might never see this get passed through parliament. Even if it is passed, it is loaded with loopholes. It exempts International students on the path to permanent residency and individuals on work permits who are residing in Canada. Foreigners are still allowed to buy primary residences, just not investment properties. Evidence out of BC and Ontario is that foreign buyers taxes, as they are currently set up, have not made housing any more affordable. In BC, foreign buyers accounted for just over 1% of total transactions last year, per the BC Government. An outright ban, as its currently designed, would have little to no impact on the housing market, and that’s probably by design.
No Property Flipping
Another headline grabber. Starting January 2023, any home bought and resold within a 12 month period will be taxed as business income, and will not qualify for primary residence exemption. 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. Again, loaded with loopholes. It’s also worth adding that CRA already flags homes that are bought and resold in a short period of time. People with a track record of doing flips are typically flagged by CRA and are fully taxed. This policy simply adds clarification and is not really anything new.
Housing Accelerator Fund
Budget 2022 proposes to provide $4 billion over five years. It include support such as an annual per-door incentive for municipalities, or up-front funding for investments in municipal housing planning and delivery processes that will speed up housing development. This policy is well intentioned as I think we can all agree more housing supply is needed. However, how do we allocate this $4B? Last time I checked there was also a supply shortage of skilled labour, and supply chain bottlenecks. Adding a few more city staff to speed up a condo development permit might reduce wait times from 36 months down to 32 months- that isn’t going to move the needle. Let’s not forget this government has also ramped up immigration targets which is basically counter-intuitive in alleviating a housing supply crunch.
There was also the creation of a first time home buyer savings account, a small upgrade from the existing RRSP option, and tax clarification on flipping pre-sale assignments (in which GST/HST was already applicable).
In other words, all of these housing policies simply dabble around the edges and there was nothing of real substance. The media headlines looked great though, a foreign buyer ban and a home flipper tax makes for good politics.
Three Things I’m Watching:
1. Per the BC Government, foreign buyers accounted for just over 1% of total transactions last year. (Source: BC Government, Steve Saretsky)
2. Rising mortgage payments will take a bite out of housing demand. (Source: Ben Rabidoux)
3. Rising yields on 10 year treasuries suggests financial turbulence might be nearing. (Source: Jack Scott)