The recently released Federal 2023 Budget hopes to make homeownership an achievable reality for more Canadians, specifically young people and new Canadians. With supply low, national inventory was at just 4.1 months in February 2023, and housing prices continuing to rise, hitting a national average of $662,437 in February 2023, this is an ambitious goal for the government.
While the budget addressed the primary concerns of many potential homebuyers, lack of inventory and unaffordability, there were minimal new policies outlined. Rather than looking ahead at the coming months, a large portion of the budget focused on highlighting several ongoing initiatives from last year such as a two-year ban on non-residents purchasing residential properties, a $4 billion Housing Accelerator Fund, and doubling the First-Time Home Buyers’ Tax Credit.
Notably, the budget introduced a new Code of Conduct and a new Tax-Free First Home Savings Account, which went into effect on April 1. The budget also committed to building more affordable housing, stating its intention to support the reallocation of funding from the National Housing Co-Investment Fund’s repair stream to its new construction stream. Lastly, the government said it has its eyes on investor activity in order to ensure that investment properties are helping, not hurting, housing affordability.
What is the New Tax-Free First Home Savings Account?
First introduced in Budget 2022, this new registered plan is coming to fruition this year and plans to give prospective first-time home buyers the ability to save $40,000 on a tax-free basis. This new initiative will hopefully offer relief to first-time homebuyers, especially as home prices have increased and forced the cost of down payments to soar.
Similar to an RRSP, contributions are tax-deductible and withdrawals to purchase a first home will be non-taxable. However, using this towards an investment property would not qualify for tax-free withdrawal. To be eligible, you must be a Canadian resident over 18 who has not owned a home at any time during the year the account is opened or the four years prior.
New Code of Conduct Hopes to Ease Pressure for Borrowers
Intending to protect Canadians with existing mortgages, this new initiative will ensure federally regulated financial institutions provide fair and equitable access to mortgage relief measures for people struggling as a result of heightened interest rates. Potential measures include extending amortizations past 25 years, adjusting payment schedules, or allowing lump-sum payments. This gives homeowners, particularly those with variable rate mortgages, more opportunity and flexibility to maintain ownership.
Building Up Inventory with More Affordable Housing
A $4 billion Housing Accelerator Fund was announced, with the application portal planning to open in June. The goal is to build 100,000 new homes across Canada, with municipal and indigenous governments being required to submit their own action plans in order to access the funding. In addition to this, the government has also committed $4 billion to Canada Mortgage and Housing Corporation to implement a co-developed Urban, Rural and Northern Indigenous Housing Strategy.
The need for more housing is evident as it was reported by the Toronto Regional Real Estate Board that inventory in March 2023 was at 2.4 months, with several areas having inventory below 2 months. Calgary is seeing similarly low numbers of supply. The Calgary Real Estate Board reported in March 2023 the lowest levels of inventory in 17 years, with just 1.33 months of supply.
Some Walk Backs on the Foreign Buyers Ban
Initially introduced in Budget 2022, the ban originally prevented commercial enterprises and individuals outside of Canada from buying residential properties in the country for two years. It included exemptions for those on temporary work permits, however, permit holders were still required to work full-time and file income tax returns for three of the last four years.
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There were some concerns that the measures were too restrictive, and as a result, the government has adjusted part of that legislation. Budget 2023 stated that non-Canadians in the country on a work permit or who are authorized to work in Canada can now purchase residential property. As well, non-Canadian foreign businesses can now purchase residential property if they intend to develop it, and can purchase vacant land zoned for residential or mixed-use for any purpose.
These efforts by the government are encouraging, however the current situation will not change overnight and prospective buyers and sellers should get advice from a local real estate agent. If you need help navigating the topsy-turvy real estate market, speak with one of our experienced agents. Give us a call today!
