Will New Government Initiatives Make Housing More Affordable?

The 2022 Federal budget contains a number of housing related items aimed at improving the affordability of housing. Let’s have a look at how well they might work:

A Home Buyer’s Bill of Rights. This includes a number of measures:

• A ban on ‘blind bidding’. In Ontario, legislation forbids realtors from disclosing the content of competing offers. We may only reveal how many offers are in play. Sometimes this can lead to a winning offer that is significantly higher than the next highest offer. The winners (and their realtors) don’t know this, of course, since they don’t know what was in the other offers. The losers know how far they fell short, but only after the deal is done and the selling price is made known. The winners might like to know  by how much they “overpaid”, and the losers might wish they had known what price they had to beat. An open bidding process would solve these problems. For example, the seller/listing realtor could make known the highest price on the table and give all bidders a chance to match or beat it. It wouldn’t be quite that simple, since there is more to the strength of an offer than the price, for example: are there conditions on financing, or inspection; what is the closing date and does it match what the seller wants; how big is the deposit and does the buyer already have a bank draft; does the buyer have pre-approved financing; and are there seller warranties or other stipulations. Will the disclosure requirement extend beyond price to these other considerations? Also, how & when will the bidding end? In my view, an approach like this might solve the transparency problem but could make the process even more stressful for buyers. Also, it seems unlikely to improve affordability. Competing buyers will bid the price up no matter how transparent the process. In any case, if the federal government bans blind bidding, our provincial regulating body must re-write the rules both to permit open bidding and to define the rules for the new bidding process. I wonder if buyers will be happy with the end result. Be careful what you wish for.
• A legal right to conduct a home inspection. When there are competing offers, it is rare that the winning offer has a home inspection condition. Many sellers/listing realtors provide inspection reports for buyers to review ahead of time. When this isn’t the case, most buyers do not conduct their own inspection, but this isn’t because the seller won’t allow it. Rather, it’s usually because the buyer doesn’t want to spend the money, as money is wasted if they don’t win the competition. I don’t see how the right to conduct an inspection will change anything.
• Increased transparency about sale prices of comparable properties. This information is readily available at no cost to both buyers and their realtors. I can’t see any value in this.
• The right to know when realtors are involved in multiple representation. These are situations where, for example, the same realtor is representing both the buyer and the seller. Our provincial legislation already requires this; it’s hard to see what an identical federal rule would add.
• A publicly available beneficial ownership registry. At present, corporations buying real estate are not required to disclose the corporation’s officers. This has made Canada a haven for money laundering, and this change is long overdue. I’m not sure it belongs on a ‘Buyer’s Bill of Rights’ list, however…
• Require mortgage lenders to fully disclose the range of options available, including the First Time Home Buyer Incentive (FTHBI). The FTHBI has been a failure, and this will give the feds a chance to force lenders to promote it to homebuyers. Again, it’s hard to see this as a ‘right’.
• Stop ‘renovictions’ by preventing rent increases beyond a normal change. This might seem to benefit tenants, however, it will certainly discourage landlords from making improvements when they cannot recoup their cost. Deteriorating rental stock and increased landlord/tenant disputes seem likely.
• Require lenders to offer up to 6 months’ mortgage deferrals in the event of job loss or other major life event. This is a horrible idea. It will probably lead to higher mortgage rates for everyone as well huge legal bills. After all, what is a ‘major life event’?
• The bottom line is that very little in the ‘Buyer’s Bill of Rights’ could lead to improved affordability for buyers. The title sounds great but the content is greatly lacking.

A First Home Savings Account (FHSA)

This new program will allow first-time buyers under the age of 40 to make tax-deductible contributions up to a total of $40,000, and to withdraw this money tax-free to use toward the purchase of their first home. The FHSA will combine the best features of an RRSP and a TSFA, and will definitely help first-time buyers to make that first step onto the real estate ladder. Unfortunately the maximum annual contribution of $8,000, will greatly limit the impact on affordability in the short run.

The Housing Accelerator Fund

The Canadian Mortgage and Housing Corporation (CMHC) will administer a $4 billion fund to encourage municipalities to cut red tape and encourage densification as well as public transit-oriented developments. The feds project that this will lead to 100,000 new housing units over the next 5 years. Even if successful, which is questionable, this is a drop in the bucket. The government itself estimates that we will need 3.5 million new homes by 2031, mainly because of forecasted immigration. Also, $4 billion is only $40,000 for each new housing unit, which may not even cover the increase in construction costs, given the inflation trend.

A 2 Year Ban on Foreign Purchases

We already have a foreign buyer tax in Ontario that has recently been extended from the GTA to all of Ontario and increased from 15% to 20%. Also, there have been few foreign purchases during the past 2 pandemic years, and  that certainly hasn’t kept prices from increasing at a historically high rate. It’s hard to see how an outright ban on foreign purchases will have any significant effect on affordability.

A New ‘Flippers’ Tax

Starting next January, anyone who sells a property they have owned for less than 12 months (with some exceptions) will have the profits taxed as business income. Normally such profits would be considered capital gains, and only half of the profit would be taxed. If it’s business income the full amount of the gain would be taxed. This is actually not a bad idea: if someone is in the business of flipping homes for profit, the profit should be taxed as business income. The 12-month time frame may prove to be too easy for flippers, however.

Assignment Sales To Be Subject to HST

When someone buys a pre-construction condo, they are subject to HST when the sale eventually closes. If they sell the purchase contract prior to closing (this is called an ‘assignment sale’), the new buyer ‘steps into the shoes’ of the original buyer, and will also be subject to HST on the original purchase price. However, no HST is payable on the difference between the original purchase price and the higher price paid by the new buyer. The new rule will change that. This is another overdue change and may reduce speculative ‘churning’ as well as provide another source of tax revenue for the feds. Again, however, this seems unlikely to have much impact on affordability overall.

Tweak and Extend the First Time Home Buyer’s Incentive to 2025

The FTHBI has been a total flop, and it needs more than just tweaking. It needs to be cancelled and completely reimagined.

$1.5 Billion for Affordable Housing and $4 Billion for Indigenous Communities

Depending on the details of how the money is to be allocated, this could actually create some new housing.

A $7,500 Tax Credit For Homeowners Who Create Second Suites for Family Members

This isn’t a bad idea, but why limit use of the second suite to family members if the goal is to create more living units? This will only lead to more red tape and government cost for enforcing compliance.

Overall, there’s quite a bit of ink and noise among all these initiatives… but probably very little actual impact on our housing affordability crisis. That’s a good thing, since the real estate market is already moderating and will continue to do so as inflation drives up interest rates. The last thing we need right now is an aggressive, late-to-the-party government program that jolts the market into a steep correction.