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With the Liberals forming another minority government, the Conservatives and NDP can still play a role in shaping housing policy. But would any of the parties’ proposals truly move the dial on affordability?
Now that the election is in the rear-view mirror, it’s time for our elected officials to get to work implementing their campaign promises—which included making housing more affordable. Indeed, with home prices continuing to rise into the stratosphere, all three major political parties spent a considerable amount of time and energy promoting their “solutions” to help first-time buyers get a foothold in the real estate market.
Of course, because the Liberals have formed another minority government, they’ll need the support of the other parties to get anything accomplished, which means compromise is a must. So, it’s worthwhile to take a look at where the Liberals, Conservatives and NDP stand on housing policy, and whether their approaches would help you afford your first home.
All three parties take a dual approach to the problem, with various measures to increase housing supply, as well as methods to help individual buyers save and/or borrow more to put toward a first home. While experts agree increasing supply is the best way to put some downward pressure on prices, they point out that enabling buyers to pay more for a home has the opposite effect of increasing demand and driving prices even higher.
So, what’s the upshot? We break down what each party’s approach to housing might look like for you, in real dollar terms.
There are a number of programs already set up to make home ownership easier for first-time buyers.
The Home Buyers’ Plan allows Canadians to borrow up to $35,000, tax-free, from their RRSPs to put towards a first home purchase, although they must repay the funds within 15 years. If a couple is purchasing a first home, they can each use the program for a total of $70,000 that can go toward a down payment.
The First-Time Home Buyer Incentive (FTHBI) offers additional loans (of 5% or 10%) to lower income households (generally under $120,000, but can be under $150,000 in some cities), but the value of the home cannot exceed $480,00 (or $675,000 in some cities). Also, the owner must pay back the same proportion (5% or 10%) of the home’s value after 25 years or when they sell. These restrictions have resulted in minimal uptake of the program.
The existing Home Buyers’ Tax Credit allows first-time buyers to claim $5,000, which results in a one-time tax savings of $750. The credit can be split with a spouse or common-law partner with whom you share the home purchase, or fully claimed by just one of you.
Here’s what the three main political parties have proposed to improve housing affordability.
Measures to increase supply:
Measures to help buyers:
Measures to increase supply:
Measures to help buyers:
Measures to increase supply:
Measures to help buyers:
It’s impossible to say whether the initiatives to increase housing supply will result in lower real estate prices, or even slow the rate of price increases—and, if so, by how much. Skeptics point out that promises to build new homes are contingent on provincial and municipal approval, and that the NIMBY (“Not In My Backyard”) forces are too strong to allow all that development to happen (especially when it comes to “affordable” housing). Similarly, the measures to curb speculation in the housing market might discourage some flippers and foreign investors, but probably wouldn’t have a huge impact on housing prices as a whole.
Any way you look at it, it’s highly unlikely home values will fall across the board. At the very least, they’ll probably retain their current value or continue to go up.
Given that assumption, let’s consider the proposals to help buyers save and borrow more money for a home purchase. (Just keep in mind that, as previously mentioned, such initiatives increase demand and end up pushing real estate prices even higher.)
The truth is, some of these measures are also unlikely to come to pass, or simply won’t make much of a difference to first-time buyers. For example, because real estate rules fall under provincial jurisdiction, it’s uncertain that the Liberals could move forward with a ban on blind bidding. Similarly, the proposed changes to the FTHBI, which hasn’t had much uptake in its current form, only removes the equity share element from the mix; it doesn’t improve affordability for first-time buyers beyond what already exists.
There are also concerns that a new first home savings account (FHSA) would benefit only those who already have enough in RRSP savings to make full use of the Home Buyers’ Plan, or those with lots of TFSA savings (since they could immediately withdraw $40,000 to put into the FHSA and get a large tax deduction).
Having said all that, if you’re a first-time buyer, these initiatives could help you in three different ways:
Homes priced at $1 million or more currently require a minimum 20% down payment ($200,000+) as they aren’t eligible for a CMHC-insured mortgage. Raising the insured mortgage cutoff to homes above $1 million, as both the Liberals and Conservatives propose, would allow some higher-income households to qualify for pricier homes even without a larger down payment.
Similarly, if the mortgage stress test was eliminated (although it’s not clear if the Conservative proposal would do away with the stress test entirely, or simply make it less strict), buyers would also be approved for larger mortgages and could therefore buy more expensive houses.
It’s important to note, however, that while you might be able to get into the market because you could then offer more competitive bids (that is, pay more for the same house), the homes you’re looking at won’t be any more affordable. All you’re doing is taking out a larger mortgage to finance your purchase, which means your carrying costs will go up accordingly.
If you bought a home within your current qualification limits and used the Liberal First Home Savings Account or NDP rental subsidy to put more money toward your down payment, you’d be borrowing less, so your monthly payments would go down. The Liberal plan to lower CMHC premiums by 25% could also reduce your monthly carrying costs slightly, as you’d no longer be adding the cost of the premium to your mortgage. The NDP plan to allow 30-year amortizations (up from the current 25-year maximum) would lower your monthly mortgage payments, but the trade-off is that you’d then pay your mortgage (and interest charges) for an extra five years—and the additional interest payments would add to the overall cost of your home.
This one is easy to quantify. Both the Liberals and NDP (but not the Conservatives) would increase the allowable claim for the Home Buyers’ Tax Credit to $10,000 (up from the current $5,000), which would put an extra $750 (or a total of $1,500) in first-time buyer’s pockets.
While every situation is unique, we’ve crunched the numbers for three hypothetical first-time home buyers to see how they’d fare. Our buyers are in three different provinces, with varying household incomes, savings and debt. Based on those figures, we’ve calculated the maximum value home they could currently buy, as well as their monthly mortgage payment using current lending rules.
* Heating costs are estimated at $150/mo.
** Calculated at 2.0% interest and 25-year amortization
Although there’s a perception that the parties are prioritizing affordability for young people at the expense of aging homeowners—who may be relying on the value of their homes to help them through retirement—there’s little evidence current homeowners would suffer.
As outlined above, a successful increase in housing supply by any federal government seems like a long shot. And even if they can pull it off and the additional supply puts some downward pressure on prices, home values will still likely increase—just at a slower pace.
Plus, if buyers can access larger mortgages or amortize them over longer periods, they’ll end up putting higher offers on homes, and prices will go up.
The only potential drawback for existing owners would be if they sell within 12 months of purchase—as they’d be subject to the Liberal’s new tax on home flipping. Foreign investors in the Canadian housing market would also take a tax hit under the Liberal and NDP plans, and anyone selling an investment or vacation property would pay more in capital gains taxes on the sale proceeds under the NDP.
On the plus side, current owners could get a bigger tax break if they renovate their homes to be more accessible and would get a new tax break if they create multigenerational housing by adding a separate unit for relatives.
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Keep in mind that all the parties are forecasting 3%+ GDP growth which will only happen with significant immigration. This will increase the number of buyers and mitigate the effects of these policies.
Also keep in mind that we may not have the people and resources to build that many homes that quickly. It may take much longer to get it done, costs to build will likely go up, and quality of construction may go down.
How is this being funded? Through the tax dollars of all of us. including the 70%+ who are already home owners?
Remember that home ownership is a privilege – not a right.
Except for the foreign buyers ban, all the measures will increase the demand for housing.
Guess we’ll find out whether you can build an economy around perpetually increasing home prices.
Also, when did Housing become a protected retirement vehicle for retirees? If my stock portfolio tanks because of a market correction is the government responsible for maintaining it’s value?
Perhaps homes should remain homes and not financial assets or retirement vehicles. Then we wouldn’t be in this mess.