The federal budget's missed opportunity

by Neil Sharma on 21 Mar 2019

The federal budget appears to have missed a golden opportunity to address housing shortages in key markets that contribute to Canadians’ affordability challenges, and may even have amplified them.

“They’re all about increasing demand for housing without doing much to increase supply, and you don’t need to be an economist to know that if you increase demand without increasing supply, you’ll end up with higher house prices, which is the oppose of the intention,” said Sherry Cooper, Dominion Lending Centres’ chief economist.

Zoning bylaws have long been identified as a major reason housing delivery in Toronto and Vancouver cannot keep up with demand, and rather than address that issue, Cooper says the budget instead misses the mark.

“The government could have done things to increase supply, like changing the rules around zoning and the Greenbelt to open up more land,” she said. “They could even subsidize housing construction or eliminate some of the red tape and other delays in construction. There are other things that could have been done to incentivize the construction of new housing.”

Other housing measures included in the budget left much to be desired—namely answers. Through the First-Time Home Buyer Incentive, the Canada Mortgage and Housing Corporation will provide first-time buyers with up to 10% of the purchase price of new build, and 5% of a resale, but whether it’s through an equity position in the property or an interest-free loan is unclear.

“This is an important distinction because if the government is taking an equity position in a home, the amount that the homeowner would have to pay would grow as the value of the home increases,” said James Laird, president of CanWise Financial.

If that home enjoys equity surge, will CMHC be entitled to as much as a tenth?

“It may well be that you pay off 10% or 5% of the sale price as opposed to the purchase price, so we don’t know the details yet, but one needs to consider whether you’re also sharing appreciation—the equity you have in your home—when you sell it. Or, for that matter, even a loss.”

The RRSP Home Buyers’ Plan increased the maximum withdrawal amount to $35,000 from $25,000, but it has to be repaid within 15 years with one-fifteenth monthly payments. That makes Davelle Morrison chary.

“I generally recommend clients who don’t have to use an RRSP not to,” said the Bosley Real Estate broker. “The last thing first-time buyers need, between all their debt payments, is another monthly obligation.”

There was much speculation leading up to the budget announcement that 30-year amortizations would be reintroduced, but that didn’t happen. By reducing monthly mortgage payments, Morrison believes it would have been the single most helpful initiative the government could have introduced to help first-time homebuyers.

“Bringing amortizations would allow a first-time buyer—or any buyer—to spend less money each month,” she said, adding that the First-Time Home Buyer Incentive is negligible in markets like Toronto and Vancouver. “If you’re going to save up that 5% in a smaller market where it’s cheaper, you could just as easily do it yourself. What they’ve done is complicated when they could have just increased the amortization period.”

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