Financial Friday #82: Election Promises Deliver Home Buyer Relief?
Election Promises Delivering on Home Buyer Relief?
The 2021 federal election is now in the books and while it did little to shake-up political power, it did bring the issue of housing affordability to the forefront and plenty of promises were made. We will have to wait on whether or not any of them come to fruition, but here is a rundown of the more noteworthy promises and how they might affect anyone looking to buy a home.
- Restrictions on foreign ownership. Whether an outright ban on ownership or increased taxes on vacant properties, the consensus is that these policies would have very little effect on dampening prices. The pandemic either closed or severely restricted the border for much of the last 18 months and we all know what happened to house prices during that period.
- A doubling of the home-buyer tax credit. This would save you an additional $750 bucks one-time on your income taxes when you buy a home. Not exactly chump change, but wouldn't go too far in paying down the mortgage.
- Reducing the cost of CMHC mortgage insurance for first-time buyers. This would definitely help as insurance tacks an extra 3-4% to your mortgage for anyone with less than 20% down.
- Less stress-testing and longer mortgages. Tweaking the mortgage stress test to allow people to borrow more money sounds like a recipe for disaster and not a solution! Spreading the payments over 30 years (25 is the limit now) was also suggested, but this only lowers the monthly payment, costs you more in interest, and does nothing to control rising home prices. In fact, both of these measures may actually lead to more competition and higher prices.
- More tax-sheltered savings/investment accounts like the proposed “First Home Savings Account”. Currently, you can borrow from your RRSP to buy a home and many people also use their TFSA for their down payment savings. Additional tax-sheltered savings/investment accounts may help somewhat, but not much if you are struggling to max out what we have already (18% of gross income RRSP + $6000 TFSA). Higher limits and/or better tax sheltering (tax-free in and out for example) on savings won’t really move the needle for most of us if home prices are sky high while incomes are stagnant.
This list is not exhaustive and many ideas were floated during the campaign, but it is safe to say that first-time home buyers looking to the election for a significant change were likely left disappointed. While some of the proposed solutions would lower monthly payments, none of them seem effective at actually controlling home prices. The lack of a majority government will make it even more difficult to deliver on any of them.
- Increasing the supply of homes. Supply up, price down is economics 101 and it sounds like a reasonable idea. The big question here is implementation – what levers can the federal government pull to make this happen and can they provide enough subsidies, incentives or whatever else they are thinking to actually make a dent in the current shortage and keep a lid on prices?
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