On Tuesday, March 28, 2023, the federal government released Budget 2023. The House of Commons returns today (April 17, 2023), and debate in the House is scheduled to resume right away.
The following blog post summarizes the Budget 2023 items that affect home ownership affordability.
This year, slow economic growth, inflation, and rising interest rates have made home ownership unaffordable for many Canadians. In fact, Budget 2023 notes that, “[so] far, the consequences of moderating growth have been concentrated in housing markets, with higher mortgage rates pushing resales down 40 per cent, and prices down 16 per cent from their peaks in February 2022 […] New construction is also slowing.”
Budget 2023 responds to middle-class Canadians’ struggle to afford homes by proposing several measures, including the ones described below.
Establishing a Tax-free Savings Account for Prospective First-time Homebuyers
The federal government proposes a new type of registered plan, called the Tax-Free First Home Savings Account. A prospective first-time homebuyer can save up to $40,000.00 towards the purchase of a first home, capped at a maximum contribution of $8,000.00 per year. The account holder’s contributions are income tax-deductible, and their withdrawals to purchase a first home would not be taxable.
Financial institutions can offer the Tax-Free First Home Savings Account as of April 1, 2023.
Writing a Code of Conduct to Guide Lenders’ Approach to Mortgage Relief for Existing Mortgages
Through the Financial Consumer Agency of Canada, the federal government intends to publish a guideline for federally regulated financial institutions. The guideline will encourage financial institutions to make mortgage relief—like extending amortizations, adjusting payment schedules, or authorizing lump-sum payments—more accessible to borrowers who are struggling to pay their existing mortgages.
Specifically, the guideline will try to get financial institutions to eliminate mortgage relief penalties, bank fees relating to mortgage relief, and certain interest charges relating to mortgage relief.
The guideline may get its “teeth” by setting expectations for the contents of regulations governing financial institutions.
Potential Further Consultations on Home Ownership Affordability
The federal government, in collaboration with provinces and territories, intends to develop a “Bill of Rights” for prospective homebuyers, to increase transparency and fairness in the homebuying process.
At this stage, it is unclear what rights a Bill of Rights could give prospective homebuyers, or whether those rights would be enforced often.
For example, the Bill of Rights could give prospective homebuyers a legal right to a home inspection as a condition of an offer to purchase a home. But will one prospective purchaser make an offer that seeks to enforce their right to a home inspection, if another potential purchaser makes their offer more attractive by waiving their right to a home inspection? Similarly, the Bill of Rights could require prospective home sellers to disclose the history of sale prices for the home. But will one prospective purchaser offer a purchase price in line with past purchase prices, if another potential purchaser makes their offer more attractive by offering a purchase price that is much higher than past purchase prices?
In other words, it remains to be seen whether the Bill of Rights will have any notable impact on current trends in real estate transactions.
Differences Between Budget 2023 and Budget 2022
This article has only discussed budget measures relating to home ownership affordability introduced or finalized in Budget 2023.
For an overview of budget measures introduced or finalized in Budget 2022, including initiatives that are ongoing (e.g., the ban on non-resident non-Canadians purchasing residential real estate, the tax on underused housing, the increase in the amount of the first-time homebuyers’ tax credit, etc.), please refer to our blog post from last year
This blog post was written by Shannon Hogan, a member of the Real Estate team. She can be reached at 613-369-0369 or at shannon.hogan@mannlawyers.com.
