May 19, 2022

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How Will The Federal Budget Affect Housing Affordability?

How Will The Federal Budget Affect Housing Affordability?



On Monday morning, I began the arduous task of sorting through a week’s worth of mail that had piled up and been left by my lovely wife in my home office.

Mail, eh?  How could there be so much when we don’t really even use mail anymore?

More than a dozen flyers – several from politicians, since it’s that time of year, a beautiful letter from a Harvey Kalles real estate agent offering to buy my home, and a ridiculous amount of T5’s and T5013’s, since it’s that time of year again as well.  Why do we still mail these?  Seriously, what a waste of paper and postage!  Add in a few invoices from my accountant, two postcards from my father to my kids, and last but not least, something from the Ontario government.

Those envelopes made from recycled brown paper give it away, right?

And what was inside?

A cheque for $170.00.

Ah, yes!  The refund of my vehicle registration tax that I never asked for.  How grand!

All I could think about, of course, was what a wasted exercise this was.  The $170.00 going back into my pocket would surely be recouped through New Tax A, New Tax B, or Increased Tax C.  And once that’s completed, and the government has their money back, what will it have cost them?  How much was spent on these cheques, the postage, the staffing necessary to oversee the process, and more?

What an incredible waste of money.

And yet, this is how politics works.  It’s simply smoke and mirrors.

Yeah, that’s my introduction to a conversation about the federal budget that was released last week, and I know it’s impossible to write the following without including bias, opinion, and political leanings.  I also know that many of the TRB readers support the federal government, since they did achieve 32.62% of the popular vote in the 2021 election, so odds are, a third of the readers love the government, the party, the leaders, and the budget.

But I’m not exactly the biggest fan in the country, suprise, surprise.

It’s not just the insane amount of time and effort spent on “housing affordability” that irks me, but rather the tax-and-spend theme that’s been the party’s M.O. since day one.

Then again, my good friend Chris tells me all the time, “A federal government should run a massive deficit in times of economic prosperity!”

Canada’s national debt stands, at the time of writing, at $1.16 Trillion, according to https://www.debtclock.ca/.

Then again, the United States’ national debt is at $30.4 Trillion according to https://www.usdebtclock.org/.

The average debt per citizen in the United States is three times higher than in Canada.

So who’s in a better position?  Them, because they have more debt and have spent more on their citizens, or us, because we carry less debt?

Despite all this talk about debt, I watched Chrystia Freeland say something incredible the other day; something that I couldn’t believe came out of her mouth:

“Our ability to spend is not infinite.  The time for extraordinary COVID support is over.  And we will review and reduce government spending.  Because that is the responsible thing to do.”

Wait.

What?

Reduce government spending?

Isn’t this government all about spending?

Just when I was starting to come around on the idea!

I said that I would discuss how the federal budget will affect the housing market, but it’s not possible to do so without first pointing out how much this government spends, because it shows how much they want people to have.  And therein lays the problem as it relates to housing, because this government wants everybody in Canada to own a house, which is simply not possible

A brief intermezzo, if you will…

When I was in London last week, we took a walk through Hampstead Heath and my brother pointed to a house on the other side of the train tracks.

“My colleague just bought that house,” Neil said.  “It’s his first house.”

Now, in Toronto, we can assume this individual is 27-years-old, perhaps a few years out of school, maybe 5-6 years of working under his belt, and it’s his “time” to get into the housing market.

But in London?

“My colleague is 46-years-old,” Neil said.  “Married, three kids.”

Incredible.

This individual graduated from university at age-22 and began working.  He found a partner, got married, had three kids, raised them, and continued to work – and rent.  Because that’s what Londoners do; they rent.  Their housing is expensive and most of them know that they will never own.  But this colleague of my brother’s worked for twenty-four years and eventually, at age-46, bought his first house.

Meanwhile, in Toronto, scores of mid-20-somethings are bitching and moaning about “housing affordability.”

The newspapers are lined up to take photos of that sad couple, just engaged, ready to start a family, who can’t afford the detached, 4-bedroom home that they want in the central core.

How do we explain the difference between the two mentalities in London and Toronto?  Why do Londoners accept their market for what it is, but Torontonians look to the government to “fix” the problem?

That question is rhetorical, or so it should be by now.  I’ve been talking about this for years!

We have a socialist government who wants everybody to have, and while I don’t think that free medical, free dental, free daycare, free drug plan, and free hugs are a bad thing, we still have to find a way to pay for all of this.  Unless we’re going to run a $30 Trillion deficit, that is…

So when it comes to housing, what can the government do?  They sure aren’t going to stand in front of a podium and tell people the truth: that they might (gulp!) not be able to afford what they want, when they want, and where they want.  So instead, we continue to make promises that we can’t keep, and make plans that lead to nowhere.

The federal budget is exactly that when it comes to housing policy.

Kudos to the government realizing that we have a “supply problem,” which is the buzz-word for 2022, even though I’ve been saying this for a decade!!  But in order to create supply, which, in theory, could lead to a balanced market, the government’s plan is to spend a ton of money.

So without further adieu, let’s look at their plan.

Page One, Chapter One, we read this:

Everyone should have a safe and affordable place to call home.

But that goal—one that was taken as a given for previous generations—is increasingly out of reach for far too many Canadians. Young people cannot imagine being able to afford the house they grew up in. Foreign investors and speculators are buying up homes that should be for Canadians to own. Rents in our major cities continue to climb, pushing people further and further away from where they work.

There’s that word again: should.

Everyone “should” have an affordable place to call home.

But who defines “affordable?”  That’s my issue, since allowing individuals to link the words should, home, and affordable, leads to entitlement that we don’t see in London, Paris, or New York.

Overall, the government breaks down their plan into the following sections:

 

1.1 Building More Affordable Homes

1.2 Helping Canadians Buy Their First Home

1.3 Protecting Buyers And Renters

1.4 Curbing Foreign Investment & Speculation

 

The report, which you can read in full HERE, is easy to read and well laid-out.  I’ll give it that!

So let’s look at each section and I’ll give you my thoughts on the important points.

1.1 Building More Affordable Homes

 

$4 Billion Housing Accelerator Fund

This is $4 Billion over five years, starting in 2022-23, and the funds are given to the CMHC to launch the fund itself.

The fund is targetting the creation of 100,000 new new housing units over five years.

My Take: No matter what number they assigned to this, I was going to say it’s low.  There is little-to-no information about how the funds will be dispersed, when, where, etc.  But there’s mention of “municipalities,” which I think is important, since I have always believed that building and creating housing starts and ends at the municipal level.

Using Infrastructure Funding To Encourage More Home Construction

$43 Billion in new and existing federal funding over the next ten years that will be leveraged to encourage the construction of more homes for Canadians.

My Take: There’s not a lot of concrete information here, but the numbers given are significant.  This feels like fluff.  They’re touting money they’ve already planned to spend.

Rapidly Building New Affordable Housing

A “proposal” to provide $1.5 Billion over two years, starting in 2022-23, to the CMHC to extend the Rapid Housing Initiative.

This will create at least 6,000 new affordable housing units.

My Take: Great!  Why not spend more?

Speeding Up Housing Construction and Repairs For Vulnerable Canadians

Specifically, shelters, homes for seniors, persons with disabilities, and supportive housing.

$2.9 Billion is earmarked for this.

The goal is the creation of 4,300 new units and the repair of 17,800 units.

My Take: Great!  Again, I have no issues here; how could anybody?  And again, I’m not averse to spending more.

Direct Support For those In Housing Need

$475 Million in 2022-23 to provide a one-time payment of $500 to those facing housing affordability challenges.

My Take: This is possibly the dumbest thing I’ve ever heard.

$500?  Really?

Who qualifies?  How?  Where?  What do they do with the $500?  What if they spend it on tickets to the Red Hot Chili Peppers?

This reminds me of a David Cross comedy routine where he hammers the George W. Bush government for promising everybody in America $100.  He mimics a naive, uneducated Southerner who says, “Wait a minute….what about all them lear-jet-flying, caviar-eating rich folk.  Do they get $100?”  He then says, “Oh, no, no.  They get billions and billions of dollars in tax cuts.”  The Southerner then pauses and says, “But I still get my hundred dollars?”

This is just so silly, folks.  Ideas like this drive me nuts.

Affordable Housing In The North

Providing $150 Million over two years, starting in 2022-23, to support affordable housing and related infrastrucure in the North.

My Take: The more important issue pertaining to the north: how long until Russia invades the north in search of oil?

Multigenerational Home Renovation Tax Credit

Up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability.

My Take: Why only seniors and the disabled?  What about a 21-year-old son or daughter who can’t afford market rent?  Also, what is “support?”  This isn’t cash.  This is a claim.  I have no issue with this, in fact, I think it’s a great idea.  But they’ve narrowed this to a particular segment of the population and I think it’s short-sighted.  If the government wants individuals to create new housing supply, then helping them pay to create a new unit within an existing dwelling is a great way to do it!

Greener Buildings And Homes

$150 Million over five years, starting in 2022-23, to Natural Resources Canada to develop the Canada Green Buildings Strategy.

My Take: This is the government giving another wing of government money.  It’s $150 Million to “develop a strategy.”  Is this job creation?

Improving Community Responses to Homelessness

$18.1 Million over three years, starting in 2022-23, to Infrastructure Canada to conduct research about what further measures could contribute to eliminating chronic homelessness.

My Take: This isn’t $18.1 Million to help the homeless but rather to “conduct research.”  This drives me insane!  Fund studies and reports and create jobs.  My wife is a social worker and we talk about the causes of homelessness all the time, so I won’t get into this.  But my take is that you can’t eliminate homelessness, so let’s spend that money to support the homeless rather than create government jobs and fund studies to tell us what we already know.

1.2 Helping Canadians Buy Their First Home

 

Tax-Free First Home Savings Account

The new TFFHSA gives prospective first-time buyers the ability to save up to $40,000 via tax-deductible contributions, and the withdrawal would be tax-free.

My Take: Sure, why not!  But as I always say, any reduction in government tax revenue will be offset by new or increased tax revenue elsewhere.  So this is simply giving the next generation a break while potentially increasing taxes on individuals who have never benefited from this program.  The estimated “support” is $725 Million over five years, so that’s $725 Million that the government will look to generate elsewhere.  I don’t really have an issue with this plan, although people who can’t save, can’t use it.  So do we want trust-fund kids taking advantage of these savings?

Doubling The First-Time Home Buyers’ Tax Credit

This takes the FTHBTC from $5,000 to $10,000.

My Take: Sure, why not!  See above.  Where does the offset in revenue come from?  Also, how far does $10,000 go in Toronto versus Saskatoon?

Supporting Rent-to-Own Projects

$200 Million in dedicated support under the existing Affordable Housing Innovation Fund, which includes $100 Million to support non-profits, co-ops, developers, and rent-to-own companies building new rent-to-own units.

My Take: Did anybody notice how “non-profits” and “developers” were grouped together?  What the hell is this?

1.3 Protecting Buyers And Renters

 

Moving Forward On A Home Buyers’ Bill Of Rights

$5 Million over two years, starting in 2022-23, to the CMHC to bring forward a national plan to end blind bidding, ensure a legal right to a home inspection, and ensure transparency on the history of sales prices on title searches.

My Take: I can’t possibly sum this up in a line or two.  I have no issue with “ending” blind bidding, except that I know it’s impossible, unless the government takes over the purchase and sale of all real estate in the country and sells via their own platform.  We’ve discussed this at length before.  We’ve also discussed the idea of mandatory home inspections, mandatory cooling-off periods, etc.  I am all for consumer protection, but I don’t have faith in the government to implement meaningful legislation that is well-thought-out and has no unintended consequences, like every piece of legislation they put out there.

Housing For Canadians, Not Big Corporations

A federal review of housing as an asset class, in order to better understand the role of large corporate players in the market and the impact on Canadian renters and homeowners.

My Take: There’s no plan here, just a mention of doing further research.  This could potentially end the commoditization of real estate, which has been gaining momentum either through shared-equity mortgages or fractional ownership.

 

1.4 Curbing Foreign Investment & Speculation

 

A Ban On Foreign Investment In Canadian Housing

Propose restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non- recreational, residential property in Canada for a period of two years.

Refugees and people who have been authorized to come to Canada under emergency travel while fleeing international crises would be exempted. International students on the path to permanent residency would also be exempt in certain circumstances, as would individuals on work permits who are residing in Canada.

My Take: It’s too late for this.  Way, way, way too late.

Making Property Flippers Pay Their Fair Share

New rules to ensure profits from flipping properties are taxed fully and fairly.  Specifically, any person who sells a property they have held for less than 12 months would be considered to be flipping properties and would be subject to full taxation on their profits as business income

My Take: I cringe when I hear the words “pay their fair share.”  It reminds me of Jagmeet Singh referring to high-income individuals not paying their “fair share” despite a 53% marginal tax rate at the top level.  If this new rule is intended to have an effect, then it has to be longer than 12 months.  The way permitting and supply chain issues drag on and on, it’s tough to move a property inside 12 months if one is actually doing a renovation.

Taxing Assignment Sales

Make all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/HST purposes, effective May 7, 2022.

My Take: No kidding!  Why was this not already in place?  I believe there are billions of dollars of lost tax revenue, notably through capital gains, on assignments in the last twenty years.  Especially with respect to the foreign buyers who put down a 5-10% deposit on a condo then flip the paper in 12-36 months.

 

 


 

Alright here goes.

I’m going to say this, but please, please don’t gloat…

I have no issue, overall, with this budget as it pertains to the housing market.  In fact, I’m presently surprised by the content.

Don’t get me wrong, it’s far, far from perfect, and I have many issues.  But I read the whole package twice and overall, I expected worse.  I expected more nonsense – like giving people $500 for no reason, and I expected more handouts, more freebies, and more legislation that would have unintended consequences.

But overall, I think this gets a pass.

Dammit.  I can’t believe I said that.

Look, if we’re at a point where the budget gets a pass because it’s not loaded with nonsense, then there’s a larger problem at hand here!  But many among you don’t believe in the same “problem” as I do, notably that there’s no such thing as free.

“Free” doesn’t exist.  Somebody has to pay for it.  So if any the government, at any level, in any country, offers a new “free” service, it’s going to be paid for by increasing taxes or creating new ones, or, cutting services and/or expenditures elsewhere.

That’s the problem I have with governments that are not fiscally conservative, but I also don’t like the message that “free” sends to a population that’s looking for reasons to coast.

But do I have issues with the money the government is going to spend with respect to housing?

Nope.

Four billion dollars for the housing accelerator fund?  I’m on board.

Rewarding municipalities for initiative?  Great.

Building affordable housing, spending money on homelessness, and helping veterans?  Awesome.

What’s not to like in all of this?

And while I’m not against the “help” being provided to first-time buyers, I do cynically wonder what second-time buyers or older millennials, Gen-X’ers, and Boomers must think about this, since they didn’t benefit from the same help.  Although, prices didn’t necessitate the help at the time.

I don’t know about the rent-to-own support.  I’m not sold.

I don’t know what to think about any green initiatives.

The “Bill of Rights” is excellent in theory but none of their ideas are good ones.

I love the idea to ban foreign investment, but they can’t, since the government doesn’t have the resources to ascertain the source of funds when somebody on the ground here – a citizen or permanent resident, is buying.

Taxing assignment sales is a no-brainer.

All in all, these initiatives get a “pass.”  But I don’t know if they’ll actually make housing “more affordable.”

I’m still waiting for the principal residence tax exemption to be overturned, since that will be the biggest source of new tax revenue in the history of the country.  But for now, so long as no more crazy ideas hit the forefront, I’m alright with all of this.

Earlier this week, Chrystia Freeland said:

“This is the most ambitious housing plan to tackle supply that the Canadian government has ever put forward.”

We’re grading on a pretty rough curve here, but at face value, she’s not wrong.





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