Reading between the lines, you can’t blame a would-be homebuyer for hoping for a bit of help. Sadly, it didn’t come in the Liberal’s first budget. At least, not yet.
And those two little words say it all. That’s because Budget 2016 is packed full of promises and nebulous possibilities when it comes to housing.
Half a million spent on foreign buyer data
By pledging half a million in funds towards the start of more robust data collection, the newly elected Liberal government is doing two things. First, they are staking their mark on a largely regional problem. Foreign home buyers impact very few markets in Canada, so this data collection will only really impact hot markets like Toronto and Vancouver, as well as vacation property areas, such as Cape Breton and Muskoka—all places known for attracting foreign buyers.
Read:25 ways the federal budget affects you
More rental units will help
As the Budget aptly points out “Not all Canadians can afford to—or wish to own their own home.” But finding suitable accommodation is a priority for this government, so to create more affordable places to live, this Budget 2016 will invest $208.3 million over five years, in an Affordable Rental Housing Innovation Fund. This new fund will be administered by the Canada Mortgage and Housing Corporation (CMHC).
Apparently, the money earmarked for these projects will prompt the construction of up to 4,000 new affordable housing rental units over the next half a decade. Perfect, right? More affordable rental housing will ease the pressure on market rents in cities where vacancy rates are very low (and housing prices are quite high). But here’s the kicker: this is seed money not just to build more rentals, it’s seed money to build and test out more innovative housing models. Developers who want to construct mixed use buildings—with a portion allocated to rental and a portion allocated to home ownership—will be given priority.
Even better is that this new initiative will eventually provide low-cost loans to municipalities and housing developers for the construction of new, purpose-built rental housing. Up to $500 million in loans will be made available each year, for the next five years. This capital will be made available to developers in the earliest, most risky phases of development. Why is this important? Because this incentivizes builders to stop concentrating on condos and start constructing mixed-use buildings. As such, the Liberals anticipate the construction of more than 10,000 new rental units in the next five years.
Residential renovators get a boost, too
The spending doesn’t stop there. Budget 2016 will also provide $208.3 million over the next two years to support the construction, repair and adaption of affordable housing for seniors. The funding will come from the Investment in Affordable Housing initiative and will not require provinces or territories to cost-match these investments.
Here’s the thing: while this funding initiative is nestled under social housing, it’s still unclear as to whether or not it will be provided to the institutions tasked to develop this housing or directly to individual seniors.
If so, this would certainly allow seniors to stay in their homes longer. As an added benefit, this initiative helps support the home renovation industry in Canada—as any rebate or tax credit on renovations often translates into Canadians pulling the trigger on those remodels. This keeps small businesses working, which keeps people employed and keeps the economy moving.
Can’t ignore social housing and other aid
To this end, we can’t ignore the widespread initiatives within the Budget to improve accessibility and standards of social housing, particularly for seniors and First Nations communities.
- There’s the $573.9 million to be spent over two years to help retrofits and renovate social housing (and address the required repairs while improving efficiency and reduce energy and water use in these buildings).
- Over the next two years, the feds will spend $554.3 million to address First Nations peoples’ housing needs on reserves. An additional $177.7 million will be spent on affordable housing in the North and Inuit communities.
Making money in real estate? You’re now under a microscope
The newly elected Liberals showed concern about tax loopholes and tax evasion in this Budget—and this will have extreme implications for those involved in the real estate business.
Real estate investors need to take note. Over the last few years, the CRA has tried to close loopholes when dealing with real estate profit and whether or not it’s classified as a capital gain or business income. This injection of money will certainly help this endeavour.
Read an explainer on capital gains tax.
Read more on calculating capital gains tax on real estate sales.
Read more on reducing your risk of a CRA audit.
For anyone that invests in real estate—from condo assignment sales, to home flippers, to those with complex transactions involving foreign buyers—now is the time to start talking to a tax specialist.
Gone is the real estate donation credit
Last year’s budget included a proposal to provide an income tax exemption on capital gains of donated private corporation shares or real estate, beginning in 2017. (To qualify, the cash proceeds from the disposition need to be donated to a registered charity or other qualified donee within 30 days.) Budget 2016 eliminates this tax exemption.
Expect tougher mortgage rules and the disappearance of rock-bottom rates
Finally, there were some promises in the Budget that will impact big banks and lenders and, by way of trickle down, this will also impact homeowner and home buyers.
Budget 2016 introduced a “Bail-in” regime; this would reinforce that bank shareholders and creditors are responsible for the bank’s risks, not taxpayers. While it goes on to explain how banks will do this, the bottom line is that banks have now been passed the baton, when it comes to mortgage debt. Before they could opt to take out CMHC (or Genworth) mortgage loan insurance—even on properties where buyers put more than 20% down at the time of purchase. This shifted the risk from the bank to the taxpayer. If a house forecloses, the bank is paid what is owed through the sale of the home, but any shortfall is covered by the mortgage loan insurance. If, however, there were a rise in foreclosures and a rise in payouts, taxpayers could be theoretically on the line to cover the shortfall, should the insurance premiums collected not cover what is owed.
Read more on the consequences of mortgage default.
What does it mean for main street home buyers? It means that with increased regulation and responsibility, banks will have increased costs and risks and they’ll pass this cost onto you, the consumer. So, even though mortgage rates remain historically low, gone are the days of rock-bottom rates. (For more on this read how the recently introduced 10% down payment rule impacted the market.)
Home buyers will probably also see stricter rules when it comes to mortgage applications, as banks try to contend with this shift in who is responsible for a potentially failed loan. That will translate into tougher standards and could mean that buyers who are on fringes—those without good credit scores and credit utilization, those without full-time employment income, or those with higher debt ratios—may find it hard to qualify for a mortgage, never mind getting the best rates.
Read the full post in MoneySense
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