Let’s Talk Housing Affordability
In 2018 the province of British Columbia was really under pressure to fix the housing crisis in BC. In response, they came up with a 30 point plan to address housing affordability. The concept was to generate higher tax revenue streams that would then fund new housing projects. The policies also increased general PST revenue and added to funding for schools across the province. Generally speaking the most impactful pieces of this plan are:
A 6.6 billion investment toward affordable housing over 10 years which translates into 114,000 new affordable rental homes. This work is to be done with both non-profit and private sectors.
A goal to build 14,000 rental units for the “missing middle”. This investment is 378 million over 3 years (2018-2021) and 1.8 billion over next 10 years.
How they are funding it….TAXES!
Property Transfer Tax (PTT) rate for homes values beyond the 3 million mark increased from 3% to 5%. PTT revenue reached $2.1 billion in 2020/2021 and is estimated to be $3.2 billion in 2021/2022.
Foreign Buyers Tax increased from 15 to 20% and expanded to areas outside Metro Van to include Capital Regional District, Fraser Valley, Central Okanagan and the Nanaimo Regional District. Upcoming changes to foreign buyers on a federal level will likely deplete most of this revenue stream of approximately 100 million per year for the next two years.
Speculation and Vacancy Tax rate increased to a total of 2% of the property’s assessed value for foreigns owners and remained at 0.50% for Canadians or those with permanent residency. This tax brought in $80 million of revenue in 2020.
Overall new tax measures generated an additional 407 million in 2020/2021. Roughly a third of those dollars came from tax hikes imposed on homes over 3 million. Not all of this tax money goes back into housing. For example: PST on short term rentals likely goes into general PST revenue and the property tax increases help fund public education.
The provincial goal of adding 128,000 affordable homes over ten years isn’t going to impact home purchase prices in BC, it’s not enough. In 2021 BC welcomed over 100,000 new residents to the province. Housing starts in 2020 were down to 37,734 and have historically ran around to 40k mark in prior years.
During the pandemic matters got worse with supply chain challenges, labour shortages and rising construction costs - issues that all still greatly impact the market. Now here we are here with a ton of new residents and not enough homes across the province to give renters and purchasers a choice, let alone an affordable price. The steps the province is taking to combat housing affordability is actually geared mostly towards renters not home owners.
Fast forward to the feds. One of the hottest topics of the last federal election was the housing crisis. In the recent 2022 federal budget the Liberals released a series of initiatives to hopefully make it easier for Canadians to buy homes. However, it seems to follow a similar plan to BC where it focuses on increasing affordable rental supply.
Key Issues:
Lack of inventory & a rapidly growing population.
Canada aims to welcome over 1.4 million new permanent residents over the next three years. Finance Canada and CMHC believes we need an additional 3.5 million new homes by 2031. That’s a lot and the true number is probably even higher to balance the market. For reference, in 2018 there were approximately 13.82 million homes in Canada. How will these homes be built quick and affordably?
What they plan to do:
Add to supply, but almost all is rental supply…
Housing Accelerator Fund: a $4 billion dollar account aimed at creating 100,000 new units in the next 5 years. Let’s repeat that 100,000 new units…even though we need an additional 3.5 million new homes in less than 10 years. It is contingent on an application process where municipalities have to commit to federal principles such as: increasing densification of urban cores and speeding up development permit approvals. The goal is to “light a fire” under municipalities in efforts speed up the development process and reduce red tape.
Extension of the Rapid Housing Initiative: $1.5 billion over two years between 2022 and 2023 to create 6,000 new affordable housing units. For anyone doing the math that’s roughly $250,000 cost per unit.
For home owners and purchasers there is some relief is coming through policy changes but not enough to impact overall affordability:
Multigenerational Home Renovation Tax Credit: This directly impacts the home owner. In 2022 the credit will provide up to $7,500 to construct a secondary suite for a senior or adult with a disability. In 2023 the credit will be 15% of up to $50,000 in renovations, which seems to be the same financial amount as $7,500 stated for 2022.
Tax Free First Home Savings Account: a new account in 2023 only for first time home buyers. This account allows individuals to contribute $8,000 per year tax free up to a total of $40,000 in contributions. Contributions appear be tax-deductible, just like an RRSP.
Doubling First Time Home Buyers’ Tax Credit: as of January 1, 2022 the tax credit amount is now $10,000. This provides up to $1,500 in monetary support which is meant to ease closing costs.
Home Buyers’ Bill of Rights: working with provinces to end blind-bidding and implement changes as mandatory subjects (such as finance and home inspection). This will happen over the next year, exact details are vague.
Intentions to Ban Foreign Home Buying for 2 Years: this excludes recreational residential property. There are exemptions such as refugees fleeing an international crisis. It seems the government is struggling with the data on foreign ownership and its correlation to overall affordability.
Property Flipping Taxation: any property held for <12 months would be subject to full taxation after January 1, 2023. There are a few exemptions but the goal is to stop flippers from turning a profit by renovating homes and reselling for profits within a short period of time.
GST on Pre-sale Assignments or Substantially Renovated Homes: This will make GST payable on all assignments and substantially renovated homes despite owners intentions to live in the home or to sell for potential profit.
Canada is a vast country with a rapidly growing population of people. More people demand more housing. Changes to interest rates will temporarily release some demand but that’s only transitory. It doesn’t change the fact we need to build millions of new homes within a short period of time. If the feds, provincial governments and municipalities can’t work together to make this happen then we are headed for a continued steep increase in home prices and rental prices for the foreseeable future. It’s time for the government to step in and create policies and incentives that actually address the issue of supply. Only then will the affordability of home ownership follow suit.
Article References:
BC Budget 30 Point Plan of 2018
Making Housing More Affordable
GOC - notice supplementary information for the 2022-2024 immigration levels plan
Help Cities Accelerate Housing Construction
Addressing Housing Affordability
The content provided above is for informational purposes only and should not be solely relied upon. All information should be verified by official sources. Tax related advice should be obtained from an Accountant or Tax Lawyer. Legal advice should be obtained from a lawyer.
Written as of April 14, 2022.
