Canada has only seen higher interest rates for a month, and a mini-bailout is already in action. The Government of Canada (GoC) delivered its 2022 Budget with a heavy focus on housing. There is a whack of new policies, but what stood out is the number of demand inducement schemes. Some of Canada’s top economists previously warned it’s a bad idea to increase subsidies and leverage at this time. That didn’t stop the government from proposing them anyway.
The Tax-Free First Home Savings Account
First up is the Tax-Free First Home Savings Account, an account to save a deposit. It’s tax-deductible as the money goes in, and there are no taxes on using the funds to withdraw for your down payment. It’s kind of like an RRSP when the money goes in, and your TFSA when it comes out.
Contributions will be capped at $8,000/year and $40,000 in total for the first-time buyer. The government estimates it will cost taxpayers $725 million in lost tax revenue. Essentially taxpayers will be subsidizing down payments.
Does it make housing more affordable? No, this is a demand inducement scheme and more demand means higher home prices. In tight markets, the seller will always capture additional subsidies and leverage.
Doubling The First-Time Home Buyers’ Tax Credit
The First-Time Home Buyers’ Tax Credit will be doubled to $10,000. This will allow home buyers to carry higher housing costs more easily. Generally allowing buyers to absorb price increases more easily results in higher prices. It’s the same concept as low interest rates, which the Bank of Canada determined only increased home prices.
Extending The First-Time Home Buyer Incentive
Canada will extend the First-Time Home Buyer Incentive, and become your investor. The government can take a stake of 5% or 10% for a new condo, 5% for an existing home, or 5% for a resale mobile/manufactured home. The idea is they’ll be your silent partner, lowering your monthly payments. You then have to buy the government out later, with taxpayers sharing the gain or loss.
This is another incentive to purchase a home. It’s demonstrated poor uptake, and with good reason. If you believe home prices will continue to rise more than mortgage rates, why would you take the money? In that case, you’re asking for a really expensive loan.
This isn’t a comprehensive budget review but highlights the demand pressures Canada is trying to create. Most measures were expected, so it shouldn’t be too much of a surprise if you were paying attention. It is an odd take to create more inflationary pressures for housing when excess demand is the issue.
Why the tax -free home savings account rules discriminate people over 40 ?
And yes the government has been doing everything to prop house prises up for a long time 🙄
Because they know if you’re over 40 and haven’t bought a house before you’re waiting for the mother of all crashes and have deep pockets to exploit the home savings account to great effect? That’s the only reason I can think of. They’re probably wanting air-head zoomers and young millenials to lever up on $1 million dollar crack shacks at the height of the bubble.
Hmm… This new savings account will cause higher prices in the long term but perhaps lower in the short term. Might as well wait 5 years to max it out before buying, government is giving you free money to wait 5 years!
One home per person/family – how hard is that to implement? LOL
Sorry, but it is what happens when a socialist can provide a capitalist with funds from the taxpayers and allow a delusionary person to believe it is for the poor downtrodden first-time homeowners. The only benefactor of this ridiculous scheme is the sellers who will pocket higher profits due to the taxpayer’s funds and the poor first-time buyers’ tax-free funds ensuring the speculator’s higher profits. As always socialist programs are a direct transfer of income from the middle class to the rich.
Yes, totally agree.
We are all subsidizing speculators and slum-lords!
The federal government is incenting home buyers in an overvalued market while thousands of families are marginalized each month to due to rising rental rates and inflation.
So the very same government that is incenting home buying – driving up demand for overvalued non-productive real estate is creating a homelessness crisis that requires billions in funding* for low income housing.
The exponential rise in demand for low cost housing simply exposes the chasm between have’s and have-not’s.
A significant number of Canadians have become homeless while many of the “have’s” simply ride real estate tsunami as slum-lords, Canada’s number one occupation of choice!
Absurd!
*funding from development costs on new builds, provincial funding and federal funding for low income housing – a massive burden for taxpayers!
I think what they are trying to do is detach the housing construction economy from the housing prices. Doing this creates an offset that they can use with targeted economic stimulation going directly into housing construction if they raise the water interest rates too quickly and that economy starts to stall out. It also means that if the housing prices absolutely collapse they can keep the economy of construction going and hopefully avoid a financial crisis. It was all recommended by the IMF.
I’m not saying it will work, but I think that’s more likely the intention behind this. After all if the IMF is making suggestions it means the potential downside is much bigger than what we are being led to believe.