Liberals promise new tax-sheltered account for downpayment savings

The First Home Savings Account would allow Canadians under 40 to set aside up to $40,000 toward the purchase of a first home, with no tax on contributions or withdrawals. Contributions to the account would be deducted from income, as with an RRSP, and remain tax-sheltered until withdrawn tax-free as with a TFSA, up to a maximum of $40,000. If funds held in the account weren’t used for a home purchase by the age of 40, they would convert to normal RRSP savings, the Liberals proposed.

In their campaign documents, the Liberals indicated that the $40,000 threshold was chosen because it “represents roughly 5% of the average home price in Canada.” The Liberals would put in place integrity measures to deter avoidance and ensure the program “supports genuine savings towards a first home and the people who need it.”

The Liberals would also “help Canadians save on closing costs” by doubling the First-Time Home Buyers’ Tax Credit, from $5,000 to $10,000, representing a savings of $1,500 and make the First-Time Home Buyer Incentive more flexible by giving Canadians the option of choosing a deferred mortgage loan as an alternative to the current shared equity model.

The Liberals also promised to reduce monthly mortgage costs by lowering the price charged by the Canadian Mortgage and Housing Corporation on mortgage insurance by 25% and committing $1 billion in loans and grants to develop and scale up rent-to-own projects “creating a pathway to homeownership for renters in five years or less.”

Under addressing housing supply, the Liberals promised a “multigenerational home renovation” tax credit to support families looking to add a secondary unit to their homes. They also promised to make $4 billion available to Canada’s largest cities to accelerate their housing plans toward creating 100,000 new “middle-class homes by 2024–25” and $2.7 billion over four years to the National Housing Co-Investment Fund to build and repair more affordable housing, and $600 million toward converting office space to housing.

Under protecting homeowner rights, the Liberals promised to ban new foreign ownership of Canadian houses for the next two years and to expand on an already promised tax on vacant housing owned by non-resident non-Canadians. They also promised to introduce an “anti-flipping tax” on the speculation of residential homes, requiring property to be held for at least 12 months.

The Conservatives also said they’d ban foreign investors not living in or moving to Canada from buying homes for a two-year period. A Conservative government would instead encourage foreign investment in purpose-built rental housing. The NDP would introduce a 20% foreign buyer’s tax on homes.

The real estate industry was critical of the Liberal plan, saying it doesn’t do enough to address the lack of supply.

“They’re treating the symptom of the problem and not the real problem, which is the supply,” said Ben Young, the senior vice-president of development at Southwest Properties in Halifax.

With the number of available homes failing to keep up with demand in recent years, he would like to see federal and provincial government lands opened up for development, which could boost housing inventory.

He also thinks parties should be less focused on housing tax incentives, even though he admitted they garner broad appeal, because he said they don’t often help supply.

“It’s like saying, ‘come on in my store, it’s 100% off, but I don’t have any inventory,” he said.

Davelle Morrison, a Toronto broker with Bosley Real Estate Ltd., thinks the Liberal’s incentive for people under 40 is “nice to have,” but “doesn’t really move the needle.”

She believes the country’s housing sector would be better off if it had a 30-year amortization rate, more attention paid to Indigenous needs and more allowances for laneway housing and basement apartments.

She also wants politicians to stop fixating on foreign buyers, who some have blamed for driving up home prices in recent years.

“We need to stop making foreign buyers the Bogeyman and saying that everything is their fault,” said Morrison, noting studies show they account for less than 5% of homes owned in the Greater Toronto Area.

“We have had very few foreigners buying into the market because of Covid-19, and real estate prices have still climbed.”

The average price of a home sold reached $662,000 in July, up 15.6% from the same month last year, the Canadian Real Estate Association said earlier this month.

The average price of a Toronto home was just over $1 million in July, up 12.6% compared to a year ago, the city’s local board said.

As those prices climbed, bidding wars intensified, brokers complained of a lack of supply and prospective buyers felt pressure to stretch their budget and drop more cash on already expensive homes.

The Liberals want to take some of the pressure out of that process by banning blind bidding, but Morrison said open auction systems, where all parties know each others offices, have done little to cool the Australian market.

The Ontario Real Estate Association made the same observation.

“Auction fever creates a three-ring circus on front lawns, as hopeful buyers crowd in front of a home with a live auctioneer, or online, and the bidding begins,” said OREA President David Oikle in a statement.

“Far from making homes more affordable, auctions can drive prices higher, and dangerously push buyers to make rushed decisions involving tens of thousands of dollars in just minutes.”