Canada | Federal Budget

Federal government eyes affordability for homebuyers in pre-election budget

The 2019 budget focused on supporting first-time home ownership, while investing in ways to increase supply

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Multi-family housing under constructionCanada Mortgage and Housing Corporation will offer qualified first-time homebuyers a 10 per cent shared equity mortgage without interest for a newly constructed home or a five per cent shared equity mortgage for an existing home (Getty Images/Dan Reynolds Photography)

Housing affordability was at the forefront of the 2019 federal budget unveiled on March 19.

For many Canadians—particularly millennials—finding an affordable place to call home feels like an impossibility. High prices in some housing markets have created concern among those hoping to borrow money to purchase a home.

In its final budget before the next election, the federal government introduced several measures, targeting first-time homebuyers and the lack of housing supply.

SUPPORTING FIRST-TIME HOMEBUYERS

The 2019 budget points out that saving enough for a down payment and managing the monthly costs can be challenging for first-time buyers, many of whom are young Canadians. In an effort to make home ownership more affordable, the government announced a First-Time Home Buyer Incentive, available to those with household incomes less than $120,000 per year.

The incentive enables homebuyers to reduce the amount of money required from an insured mortgage without increasing the amount they must save for a down payment. Canada Mortgage and Housing Corporation will offer qualified first-time homebuyers a 10 per cent shared equity mortgage without interest for a newly constructed home or a five per cent shared equity mortgage for an existing home.

“We support measures aimed at helping young Canadians afford homes,” says Francis Fong, chief economist at CPA Canada. “However, there are real questions about whether or not the First-Time Homebuyer Incentive will actually improve access rather than simply provide an additional method for borrowers to increase leverage given supply constraints in Canada’s major markets.”

To further address affordability concerns, the budget also adjusts the rules to the Home Buyers’ Plan (HBP). To provide first-time homebuyers with greater access to their RRSP savings to purchase a home, the plan would allow a withdrawal limit of $35,000—an increase from the current $25,000. 

Unlike regular RRSP withdrawals, HBP withdrawals are not added to a person’s income—instead they must be repaid over a 15-year period. However, if the required repayment is not made, the amount for that year will be included in income.

In addition to the increase, anybody experiencing a breakdown in marriage or common-law partnership will now be able to participate in the HBP, even if they don’t meet the first-time homebuyer requirement. provided that certain conditions are met.

While the increase may be seen as valuable to many first-time buyers, others—especially in the more expensive housing markets—say it doesn’t change much. GTA resident Jillian Wood was recently pre-qualified for her first home and says that while the change is a step in the right direction, it doesn’t drastically change how much she can qualify for in Toronto.

“I don't think it’s common for most 30-year-olds to have put $35,000 in their RRSPs by now,” she says. “Education costs and high cost of living have made it pretty tough for many people in my generation to save that much.

“It’s pretty hard to save enough for a 20 per cent down payment in this market.”

INCREASING HOUSING SUPPLY

In the country’s more expensive housing markets—particularly Toronto and Vancouver—many lower-income and middle-class Canadians are struggling to find and afford a good place to live. Housing supply has not grown quickly enough to meet rising demand, boosting both purchase and rental prices.   

In larger cities, the budget points out, rental vacancy rates hover around one per cent. When the demand for limited spaces is high, so too is the average monthly cost of renting. The government plans to boost the Rental Construction Financing Initiative—a 2017 program that provides low-cost loans for the construction of new rental housing. The budget earmarks an additional $10 billion over nine years in financing, to help build 42,500 new units across Canada.

“Measures designed to address housing supply are likely going to have a more significant long-term impact on housing affordability than those aimed at increasing demand now,” says Fong. “It is certainly positive to hear the federal government discussing the supply side of housing, but the vagueness of the measures underscores the difficulty of addressing supply.” 

The government will also attempt to spur new growth through partnerships and targeted investments. The budget includes $300 million to launch a new Housing Supply Challenge, inviting municipalities to propose initiatives that break down barriers that limit new housing. Successful applicants will be selected and funded through a merit-based competition—with more details coming this summer.

Additionally, the government recently announced the Expert Panel on the Future of Housing Supply and Affordability, jointly established with the Province of British Columbia. Canada Mortgage and Housing Corporation will invest $4 million over two years to support the work of the panel, and $5 million over two years for state-of-the-art housing supply modelling and related data collection. 

FEDERAL BUDGET 2019

The government has also prioritized younger Canadians with their pre-election budget. Read more about the 2019 budget, and get the full analysis from CPA Canada.