So much speculation around changes to the capital gains tax exemption, changes to lending policies and much more prior to the Federal Budget being released. The headlines did not disappoint: Federal Government Plans To Intervene in Canada’s Red-Hot Housing Market.
Here’s what the Federal Government is proposing:
- 1% Foreign Ownership Tax on Vacant/Underused Properties
- $3.8 Billion earmarked to build, repair and support 35,000 affordable housing units
- $2.5 Billion going to CMHC
- $1.5 Billion towards the Rapid Housing Initiative which converts abandoned industrial buildings
- $1.3 Billion of previously allocated funds being reallocated to convert commercial space into rental units
Sounds like this should fix all the problems right?
The money slated to address the housing problem does not make a lot of sense. $3.8 Billion to create 35,000 affordable housing units? Another $1.5 Billion to add 4,500 additional units, and finally reallocating $1.3B to create 800 market-based rental properties? Do the math on those numbers.
To offset these expenditures, the Government has focussed its attention on the Foreign Owner who has kept their Canadian property vacant. This 1% tax will add $700 Million dollars in revenue for the government. FOR THE GOVERNMENT! This money is not to help Canadian with home ownership. Basically, this is a cash grab from foreigners that have invested in our Country. Foreigners that have already paid the government Land Transfer Taxes, Foreign Buyer Taxes, Annual Property Taxes, Taxes on Utilities, and Taxes on Services. Remember in 2017 when the Ontario Liberals declared war on the big, bad foreign buyer? A 15% tax was introduced to discriminate against a segment of buyers? Remember that? Realtors stated the percentage of foreign buyers was under 5%, which the government vehemently denied. The numbers were astronomical, and a foreign tax would solve all the problems the housing market was facing. They could not have been less informed about the housing market, or so we thought. This government sure does challenge for top spot in being uninformed.
The Housing market WILL NOT be fixed by a 1% tax that affects hardly anyone. First of all, this tax won’t kick in until January 2022, IF IT IS PASSED. There will be exemptions that will see the majority of these owners get around this tax. How does this 1% tax affect Joe Smith from Scarborough that keeps losing out on offers due to the lack of supply? Short answer is: It doesn’t.
What should the government have provided for in this budget? A hell of a lot more than provisions for 40,000 additional units. The Canadian Housing Market is in dire need of supply. Additional taxes won’t help anyone, except provide money to the government to waste on other things. The government had an opportunity here to really show Canadians that they would do something about the lack of inventory and rapidly appreciating price points. Not by raising interest rates, or choking off demand, that’s been done in 2017. How did that work out? Let’s get down to identifying the real problem with the market. SUPPLY is the issue, and adding taxes, raising interest rates, making it harder for Canadians to qualify for funding, these are NOT answers. The answer is to INCREASE SUPPLY, and by more than just 40,000 units. Make it easier for builders to attain approvals. Increase Housing Starts. Make it easier for Canadians to buy properties. Allow for Land Transfer Tax holidays, allow a forgivable portion of RRSPs to help with the downpayment and decrease mortgage amounts, So much more could have, and should have, been done.
If you want to promise Canadians that you will do something to help with affordability and home ownership, then allocate funds properly to do just that. Don’t just move money from one pocket to another to provide a perception of doing something when it won’t mean anything at the end of the day.
The Headlines may not have disappointed, however the budget certainly did. The Government basically said, “Here’s an opportunity for us to receive extra tax revenue, everyone else can fend for themselves.” The government has no clue what’s happening in the Real Estate Market. With that level of expertise, it’s no wonder they can’t fix it.