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BUDGET 2022: There’s no place like home for the budget

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There are so many moving parts in the housing industry that sometimes it’s hard to keep them straight. With her last budget on Thursday, Finance Minister Chrystia Freeland introduced measures affecting almost all of them, without really knowing how everything will turn out.

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His grand plan is quite simple. This is to dampen the price dynamics of the sector enough to ensure that home ownership remains within reach for most Canadians. The political urgency is great. Over the past four years in Ottawa, for example, average home prices have climbed 90% to $854,000, reflecting the national trajectory.

The catalysts for the meteoric rise in home values ​​are well known. These include a shortage of available listings (which have sparked bidding wars), the influence of foreign buyers and corporate investors, and historically low interest rates.

To address the first two catalysts, Freeland offers incentives to stimulate the supply of residential units while discouraging activities that drive up prices.

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The federal government will contribute $800 million annually to the Canada Mortgage and Housing Corporation, which will help municipalities accelerate the planning and construction of new homes. The goal is to add 100,000 units over the next five years, or 20,000 per year, which represents a net increase of 8-10% over current trends.

In the Capital Region, this would translate to somewhere between 1,100 and 1,300 additional units per year, with about three-quarters on the Ottawa side.

In a region with more than 600,000 homes, this is a start. But it is unlikely to do much to rein in price increases, especially when the government, at the same time, is increasing demand for housing in myriad ways.

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Freeland noted Thursday that the government intends to increase the number of permanent residents in Canada to 451,000 by 2024, from 405,000 last year, adding that the majority of them will be skilled workers. This would certainly increase the demand for housing.

More directly, Freeland unveiled several tax incentives intended to make life easier for first-time buyers. One is a tax-free home savings account available to those who have not lived for at least four years in a home they own. Individuals, starting next year, can contribute up to $8,000 a year to a maximum of $40,000 — and apply the proceeds toward the purchase of their new home. There is a limit of such a property in a lifetime.

Individuals can also apply $35,000 from their Registered Retirement Savings Plan toward the purchase of their first home, but must pay it back within 15 years.

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It is useful, but only at the margin. Consider that in the first two years of the pandemic alone, average home prices in Ottawa soared nearly $300,000. Which makes the prospect of saving for a down payment completely deflating for potential first-time home buyers who can’t rely on relatives or partners.

What about fiscal measures that aim at least to curb the excesses of industry? These will likely be popular but, again, it’s unclear how effective they will be.

The government has said it will impose a two-year ban on foreign purchases of non-recreational residential properties. The precise mechanism of the ban or the timing of its introduction was unclear. Foreign buyers, who represent a small minority of the total number of buyers, would be most influential in Toronto and Vancouver — the most popular destinations for immigrants.

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Freeland also said it would target home buyers – defined as those who sell a property after less than 12 months of ownership – by subjecting them to more onerous taxes. Exceptions would be made for people who sell their home after less than a year, following a death in the family, birth, new job or divorce.

A new bill of rights for homebuyers is also promised, in particular an initiative to end blind auctions. This latter practice has been a great annoyance to buyers who sometimes find that they have bid heavily on the asking price because they had no idea where they stood in the bidding process.

A bill of rights – which would also include the right to a pre-sale home inspection and access to full historical price data for properties under consideration – will require discussions with the provinces for at least the next year.

The most effective shock to house prices in the end may turn out to be rising interest rates. The Bank of Canada has already signaled that these will arrive in 2022. A Liberal budget that results in projected deficits of $58 billion this year and $44 billion next year will only contribute to inflationary pressures and reinforce the Bank’s determination to raise rates. It is therefore likely that borrowing to buy a house will cost more next year than that.

This would certainly dampen the price dynamics of the real estate sector.

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