Housing-focused budget targets foreign buyers, promises to double the pace of home building

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Canada’s housing affordability crisis is a central focus of Thursday’s federal budget, with the Trudeau government unveiling plans to curb foreign buyers, help first-time homebuyers and double the pace of new home construction over 10 years.

The Liberals have been under pressure to propose bold new housing measures after their other policy actions failed to cool the market or significantly help young Canadians find affordable housing.

The typical home price across the country has jumped 52 per cent, to $868,400, over the past two years, the Canadian Real Estate Association says, while shortages of rental apartments have spread to smaller cities, creating new urgency for policy-makers.

It is unclear what kind of impact the budget measures will have on taming prices, and economists have already warned that some of them will have a negligible effect.

The government has said foreign investors and speculators are buying homes that should be available for Canadians but that a lack of supply is the main reason prices have skyrocketed. The budget estimates Canada needs 3.5 million new homes by 2031 for a growing population.

About 200,000 new homes are built every year. In a bid to double that level, the government is planning a new $4-billion housing accelerator fund to speed up construction of 100,000 housing units in cities and rural areas over the next five years. The fund would be available to municipal governments, including smaller ones in Atlantic Canada, and not just major centres such as Toronto and Vancouver.

Chrystia Freeland’s 2022 federal budget is a political instrument as much as an economic ledger

Benjamin Tal, deputy chief economist with the Canadian Imperial Bank of Commerce, said he does not think Canada has the capacity to double construction because of a shortage of construction workers and skilled trades. “Giving municipalities more resources to provide permits without making sure that developers have the labour to act on them will significantly limit the effectiveness of that policy,” he said.

The budget promises an additional $1.5-billion to extend the government’s rapid housing initiative to build social housing units; an extra $2.9-billion for a program to repair old affordable housing units; and hundreds of millions of dollars for measures such as affordable housing in the north and energy-efficient homes.

Most of the new policies were unveiled during last year’s election campaign. That includes banning foreign non-residents from buying homes in Canada for two years – although the plan provides exemptions for those with work permits and international students on a path to permanent residency.

There is no publicly available data showing foreign buyers played a major role in the pandemic’s real estate boom. The most recent numbers indicate that in 2020, non-residents owned 2.2 per cent of homes in Ontario and 3.1 per cent in British Columbia, according to the Canadian Housing Statistics Program.

Additionally, the budget targets two types of home flippers with new taxes: buyers who sell their homes within 12 months of purchasing them; and new home construction buyers who sell the right to buy the preconstruction property, also known as an assignment sale.

The budget put aside $5-million to develop a homebuyers’ Bill of Rights to bring more transparency to the buying process. That will include ending the practice of blind bidding, where competing buyers do not know what the others are offering to pay.

The government gave many other real estate investors a pass. The budget repeated the Liberal Party message that “small, independent landlords,” or real estate investors who invest for themselves, did not drive up home prices and stayed clear of any changes to down-payment requirements on investment properties. Some banks ask for a 20-per-cent down payment on an investment property.

The budget did not immediately impose a new tax regime for large real estate investors. Instead, it proposed to examine the role of large corporate players with an eye to announcing changes by the end of the year. The Liberals have previously accused real estate investment trusts (REITs) of buying up rental housing and increasing rents. The budget did not call out REITs by name. REITs are exempt from paying tax on their net income if they pay it to unitholders. Other big real estate investors, such as Canadian pension funds and private equity firms, are also exempt from taxes on their net income.

“There is a concern that this concentration of ownership in residential housing can drive up rents and house prices, and undercut the important role that small, independent landlords play,” the budget said.

Among its other changes, the budget proposes to extend anti-money laundering and anti-terrorist financing requirements to all mortgage lenders, not just the banks.

It also includes measures that economists have said will stoke demand in an already frothy market.

That includes creating a new tax-free savings account for first-time homebuyers to save up to $40,000 for a down payment, as well as doubling to $10,000 the first-time buyers’ tax credit, which provides a tax rebate on closing costs such as land transfer taxes. As well, the budget extends the federal shared equity program that allows buyers to get an interest-free loan from the government.

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