If you are a first time buyer hoping to get some love from the federal government then the 2021 budget is a big nothing burger for you.
Average prices in Canada are up by over 30% despite the economy shrinking by 5% and the market is appreciating far faster than anyone's salaries. Good luck trying to come up with a down payment using that math.
Aside from a 1% tax on foreign-owned, vacant or under-used property which has been proven to have virtually no impact on affordability, there is nothing in this budget for you.
How Did We End Up Here?
To fund government expenditures, the Central Bank sells bonds and use that to increase the money supply in the economy (i.e. print more money). It sounds all well and good but it's essentially like buying stuff on your credit card knowing you have no means of paying it off. When taken to the extreme, printing money leads to massive inflation (increase in prices and fall in the purchasing value of money).
The Trudeau government has taken on more debt since taking power than all of the past Prime Ministers since confederation PUT TOGETHER. That's right! Add up all the debt in Canada's history and that will not equal the 6 years Justin Trudeau has been in power.
Consequently, A TON OF MONEY has been printed these past 6 years and now we are seeing the effects as inflation sets in!!
Inflation has a way of transferring more wealth to the wealthy than to the "have-nots". While home prices and prices for goods and services skyrocket during inflationary periods, wages and incomes tend to remain flat. So if you own a home and have a job, you're essentially riding the market up and you won't feel the effects of inflation as much. Your share of the pie should remain proportionately unchanged.
First-time home buyers trying to get into the market are taking it on the chin right now. They are seeing home prices skyrocket, increasing costs for goods and services while salaries and wages are staying flat.
How the heck is a renter with a good job ever going to be able to save for a home? How does someone who doesn't come from wealth able to get in the market? They can't and they aren't.
To these people, this budget says "Screw you, buddy! We got rich people's interests to protect."
In the 1990's, baby boomers were in their late 30's and enjoyed 21% of household wealth. Today, millennials own just 3% of household wealth.
What Is Being Done?
Not much. Actually......Nothing at all.
The knee-jerk reaction would be to call on the government make it easier for first-time buyers to buy a home. This is dumb.
Making it easy to get a mortgage and creating first-time home buyer incentives is what got us in to this mess. Over time, incentives and new rules will distort the market so that the people being helped will be priced out of the market permanently.
Since 2010, mortgage rates have been kept artificially low at around 3% or less. Historically, rates have been much higher and reflected the market as a whole. With cheap rates, Sooooo many more people can qualify for a mortgage and that has resulted in prices rising at alarming rates. A decade of cheap rates have passed and home owners have a boatload of equity they are using to buy rental properties, a vacation properties in multiple offers. All the while first-time home buyers get their soul crushed from the sideline as their buying power dwindles.
The IMF has chimed in warning it would be 'ill-advised' for Canada to relax housing rules. Anything that makes Canadian real estate easier to buy is not a good idea at this point. In the short run it will help a few people but in the long run it will only add fuel to the fire.
Read.
Government Doesn't Seem To Care
If you read anything into the 2021 federal budget it is that the Trudeau government doesn't give two shits about young people being able to own a home. Canada will continue to be a safe-haven for foreign investors (criminal and law-abiding alike) who drive up prices for young, tax-paying Canadian families.
Our government has been deflecting our attention away from this, saying that offshore capital is not a problem. Choosing instead to push against a narrative that foreign investment was problematic for housing affordability. Foreign investors have made their money in places where incomes are higher and tax rates are significantly lower, giving them an advantage over a young family paying taxes in Canada. You're kidding yourself if you think all the money flowing in to Canadian real estate was obtained legally There's plenty of black market money being laundered in Canadian real estate.
It's not a level playing field for our young families and our elected officials are complicit in this.
In a recent interview with TVO, Parliamentary Secretary for Housing Adam Vaughan, accidently told the truth about Canada’s housing market:
"We’re a very safe market for foreign investment but we’re not a great market for Canadians looking for choices around housing."
When asked about enacting measures to cool the market your Parliamentary Secretary for Housing was reluctant to recommend anything to curb a skyrocketing market and even proposed to bring in measures contrary to the recommendations of the IMF we discussed earlier.
This is not good for anyone.
Home prices increasing by record amounts every year is not healthy; wages are not increasing at the same rate. The reality that a household income of $200K can't afford to a detached home in the GTA is troubling to say the least.
What Needs To Be Done
To me, the logical place to start would be to eliminate real estate speculation from international buyers and to the reduce bureaucracy for developers.
Speculation is easy to solve: if you don't pay taxes here, you can't own property here. You must live here full time to be able to purchase real estate and vacant property is taxed through the nose as a deterrence for those who already own here.
As much as 50% of new condo inventory is purchased by international buyers; seems a bit excessive doesn't it? How does allowing this benefit Canadians?
Non-Residents Owning Canadian Real Estate
I used to believe the rhetoric that less than 5% of Canadian Real estate is foreign owed. I was wrong.
I've since learned that anyone who estimates the amount of foreign ownership of real estate in Canada will be wrong. Everyone will be wrong because in Canada, a foreign investor can pour money into Canadian real estate through a Canadian company they set up either federally, provincially or territorially, using a Canadian as a nominee director/shareholder/beneficiary, without disclosing the true beneficial owner.
How much real estate is owned through privately held corporations registered in Canada? How many of these privately held corporations are owned or controlled by foreigners? Our fractured system does not allow the tracking of foreign ownership of privately held companies so how can Statscan or CMHC create a measurement of foreign ownership? They can't.
As I write this sentence, I am awaiting a response from my MP explaining why we need to allow Canadian real estate to be treated like a global commodity. I encourage you to do the same.
I feel for these young Canadians struggling to realize a dream of home ownership. The 2021 Federal Budget does not provide any reason for them to be optimistic for brighter days.
That sucks.
