March 26, 2019

Analysis of Housing Incentives in the 2019 Canada Budget

The 2019 Federal Budget is aiming to favour First Time Home Home Buyers and the lower income segment with no incentive for purchasers of higher valued properties. However, is that really the case? Let's see what those incentives are and discuss them in detail.

Incentive #1
The first incentive, increases the limit of the RRSP withdrawal from $25,000 to $35,000 under the Home Buyers Plan. This could be effective if millennials have made contributions to their RRSPs long enough to have accumulated $35,000 in their accounts, therefore this incentive mainly benefits those that have entered the work force with higher incomes. Personally ,I don't know many 1st time buyers that really have 35K in their RRSP account.

Incentive #2 
The second incentive introduced in the 2019 Budget is a shared equity mortgage offered through CMHC for 5%-10% of the property value up to a maximum mortgage amount of four times the participants' annual household income, which is a maximum of $480,000 including the incentive. This is being offered to households with incomes of less than $120K and in the eye of the government is a move to help reduce the monthly mortgage payment of these borrowers . Although this sounds tempting, in reality it is problematic in nature, as the resulting boost in demand will only fuel the already heated more affordable home segments,  inflate the prices for these types of homes and create inconsistency in the Real Estate market by reducing supply and driving more buyers into the rental market. Not to mention the fact that it won't really help first time home buyers find properties in that price range in cities like Toronto and Vancouver where properties under $600,000 are virtually non-existent. 

The other issue with this policy, based on the information available so far, is that it means the government will be part owner of your property and we don't know at this point if this also means they will benefit from any gain or loss that you face. There are many ambiguities with the administration of the suggested equity mortgage and how this is going to play out.  It is definitely an unusual approach by the government to address an issue in a housing segment.

I believe that  government should focus more on advocating for more purpose built rentals in order to keep ever increasing rental prices under control for Millennials.  The federal government should play a proactive role with different levels of government  to reduce red tape, including the hectic requirements for redevelopment and outdated zoning by-laws which limit density in markets like Toronto and Vancouver, so that developers can bring their units to the market faster, and at more affordable prices.

The core of the issue is really the lack of supply in more affordable, high demand areas of cities like Toronto and Vancouver.  This measure could also prevent some buyers from entering the market while they wait until this policy is fully implemented, so this could potentially cool the market off in the short run.

Overall, based on my observations and the above discussion, it is my opinion that the government has not come forward with anything that will significantly help buyers or the market in general.

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