In my last post, I wrote about some of the housing-related proposals outlined in the 2022 federal budget.
In the budget the Liberals are proposing some solid proposals that would encourage municipalities to cut their red tape and stop getting in the way of building housing.
However, on the demand side, some of the measures in the budget leave a lot to be desired.
Among the flagship proposals that the Liberals are putting forth is the Tax-Free First Home Savings Account. First-time homebuyers would be eligible to save up to $40,000 in this tax-free account.
Just like the existing TFSA, any growth of the account will be tax free. However, the Tax-Free First Home Savings Account will also allow users to deduct deposits from the income just like an RRSP. The Liberals are also planning on doubling the first-time home buyers’ tax credit to $10,000 and extends the first-time home buyer incentive.
This is like taking one step forward and two steps back. Expanding the supply of housing is great, but it’s not going to mean much if the government is also going to pour more gasoline onto the demand fire. Also, the $40,000 Tax-Free account sounds like a lot, until you consider how housing in Toronto and Vancouver can be upwards of $1 million. The tax-free savings from a $40,000 account is hardly going to make a dent.
The Liberals have also introduced measures to tackle housing speculation and financialization. The biggest change they’re planning on making is imposing an outright ban on foreigners buying Canadian housing for two years. In addition, home safes will be subject to full capital gains taxes if they were sold less than 12 months after being purchased.
I’ve already mentioned in a previous post how jurisdictions like New Zealand have tried to tackle high housing prices by imposing regulations and restrictions on foreign buying, with little to no success. Politicians need to stop scapegoating foreign speculators and instead focus on the real issue: a lack of supply.
Taxing the profits of home sales in a political third rail in this country. The plan to only tax profits from home sales if the sale was made within 12 years doesn’t go far enough. Canada is pretty unique in the world that all capital gains from home sales are exempt from taxes if it’s the primary residence, even if it’s a multi-million-dollar mansion. In the U.S., homes are only exempt from capital gains up to $250,000 for single people and $500,000 for married couples.
Finally, the Liberals have are also introducing their ban on blind bidding, which is what Australia has already done. The ban on blind bidding will likely be just as effective as the foreign speculators ban, as we’ve seen in Australia. Down under, they’ve banned blind bidding years ago, yet Australia’s housing crisis is as bad as or worse than Canada’s.
Photo credit: Karen Longwell/Flickr/CC BY-NC 2.0
