As the Canadian Liberal government presented its last budget before the next federal election, there was clear focus on home buyers.
There are three major announcements for people looking to buy homes – the introduction of the First-Time Home Buyer Incentive, an increase in the Home Buyers Plan (HBP) limits and outlining the circumstances in which people who are not first-time home buyers, could use the HBP.
Government-turned-landlord?
“Through the First-Time Home Buyer Incentive, Canada Mortgage and Housing Corporation (CMHC) would provide up to $1.25 billion over three years (starting in 2019–20) to eligible home buyers by sharing in the cost of a mortgage,” the budget document stated.
Under this plan, the CMHC would provide 5% of the cost of an existing home and 10% of the price of a new home towards down payment. This is essentially an interest-free loan that must be repaid, perhaps when the property is sold.
Those who apply for this incentive must have at least 5% (but less than 20%) of the down payment. They must also have a household income under $120,000. The purchase price of the home cannot be more than four times the buyers’ household income – meaning the price of the home is capped at $480,000 for buyers at the income limit.
This incentive does not address the issue of low supply in affordable housing but will in fact drive demand higher in the affordable housing market, which will, in turn, drive home prices higher, making them unaffordable.
“This decision makes absolutely no sense,” said John Pasalis, the president of Realosophy Realty. “The government is basically replacing the Bank of Mom and Dad. It is odd that the government is getting into the business of buying people homes,” he said.
He also points out that this incentive is effective in a space with relative limited supply, especially in markets like Toronto and Vancouver, and so will essentially drive home prices higher in the affordable segment in these cities, making the policy ineffective in a couple of years from now.
Increased HBP limits
“To provide first-time home buyers with greater access to their RRSP savings to purchase or build a home, Budget 2019 proposes to increase the Home Buyers' Plan withdrawal limit to $35,000. This would be available for withdrawals made after March 19, 2019,” the budget statement read.
This is good news.
“This move makes sense, the HBP withdrawal amount hadn’t been adjusted in a decade,” Pasalis said.
With the new limit, a couple looking to buy their first home together, could withdraw a combined $70,000 towards their down payment out of their RRSP, which will have to be repaid over 15-years.
Not just for first-timers?
The budget also acknowledged that couples who experience a breakdown in marriage or common-law partnerships can sometimes lose their home.
“Budget 2019 also proposes that individuals that experience the breakdown of a marriage or common-law partnership be permitted to participate in the Home Buyers' Plan, even if they do not meet the first-time home buyer requirement. This measure would be available for withdrawals made after 2019.”
This is a welcome move, especially for those in difficult circumstances, Pasalis said.
