Federal Election 2021: Would the parties’ housing proposals help you afford a first home?

by Ann deBruyn

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Photo by Andres Ayrton from Pexels

As home prices continue to rise into the stratosphere, ownership is becoming out of reach for an increasing number of Canadians. So, it’s not surprising that the upcoming 44th federal election has all three major political parties promoting their “solutions” to help first-time buyers get a foothold in the real estate market. 

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The initiatives include various ways to increase housing supply, which experts agree is the best way to put some downward pressure on prices. The parties’ proposals also include policies that would help individual buyers save and/or borrow more to put toward a first home, which could provide enough of a bump to get into the market, but would have the opposite effect of increasing demand and driving prices even higher.

So, how do the party approaches differ and, more importantly, would they help you afford your first home? We took a deep dive into the platforms to answer that question before you make your decision at the polls Sept. 20. 

Do any home ownership affordability measures already exist?

There are a number of programs already set up to make home ownership easier for first-time buyers. 

The Home Buyers’ Plan allows Canadians to borrow up to $35,000, tax-free, from their RRSPs to put towards a first home purchase, although they must repay the funds within 15 years. If a couple is purchasing a first home, they can each use the program for a total of $70,000 that can go toward a down payment.

The First-Time Home Buyer Incentive (FTHBI) offers additional loans (of 5% or 10%) to lower income households (generally under $120,000, but can be under $150,000 in some cities), but the value of the home cannot exceed $480,00 (or $675,000 in some cities). Also, the owner must pay back the same proportion (5% or 10%) of the home’s value after 25 years or when they sell. These restrictions have resulted in minimal uptake of the program.

The existing Home Buyers’ Tax Credit allows first-time buyers to claim $5,000, which results in a one-time tax savings of $750. The credit can be split with a spouse or common-law partner with whom you share the home purchase, or fully claimed by just one of you.

What are the 2021 campaign promises around housing?

Here’s what the three main political parties have proposed to improve housing affordability.

Liberals

Measures to increase supply:

  • Two-year ban on sales to foreign buyers
  • New taxes on house-flipping and vacant foreign-owned homes
  • Homeowner tax credit when adding a secondary suite for family members
  • Grants to builders of rent-to-own housing
  • Build/renovate 1.4 million homes over four years

Measures to help buyers:

  • Increase the insured mortgage cutoff from $1 million to $1.25 million (and then index to keep up with inflation)
  • Lower the cost of CMHC mortgage insurance by 25% for first-time buyers
  • Allow the FTHBI to be taken as a deferred loan rather than a shared-equity mortgage
  • Double the Home Buyers’ Tax Credit to $10,000 (for a savings of $1,500, up from $750)
  • Ban blind bidding on homes
  • Create a new First Home Savings Account to allow first-time buyers to save up to $40,000 in tax-deductible contributions, with all growth and withdrawals tax-free

Conservatives

Measures to increase supply:

  • Two-year ban on sales to foreign buyers
  • Encourage foreign investment in affordable rental housing
  • Convert 15% of federal real estate to housing
  • Increase housing density near federally funded transit
  • Build 1 million homes over three years

Measures to help buyers:

  • Increase the limit on eligibility for mortgage insurance and index it to home price inflation
  • Adapt the rules of the mortgage stress test so buyers can borrow more
  • Increase the Home Accessibility Tax Credit from $10,000 per home to $10,000 per person

NDP

Measures to increase supply:

  • 20% tax on foreign buyers
  • Increase the taxable portion (to 75%, up from 50%) of capital gains on the sale of homes flipped by investors
  • Build 250,000 affordable homes within five years; and another 250,000 within 10 years

Measures to help buyers:

  • $5,000 annual rental subsidy to families
  • Double the Home Buyers’ Tax Credit to $10,000 (for a savings of $1,500, up from $750)
  • Increase maximum amortization for mortgages to 30 years (up from current 25-year maximum allowed when homes are purchased with less than 20% down payment)

Would these campaign promises help you afford a first home?

It’s impossible to say whether the initiatives to increase housing supply will result in lower real estate prices, or even slow the rate of price increases—and, if so, by how much. Skeptics point out that promises to build new homes are contingent on provincial and municipal approval, and that the NIMBY (“Not In My Backyard”) forces are too strong to allow all that development to happen (especially when it comes to “affordable” housing). Similarly, the measures to curb speculation in the housing market might discourage some flippers and foreign investors, but probably wouldn’t have a huge impact on housing prices as a whole. 

Any way you look at it, it’s highly unlikely home values will fall across the board. At the very least, they’ll probably retain their current value or continue to go up.

Given that assumption, let’s consider the proposals to help buyers save and borrow more money for a home purchase. (Just keep in mind that, as previously mentioned, such initiatives increase demand and end up pushing real estate prices even higher.) 

The truth is, some of these measures are also unlikely to come to pass, or simply won’t make much of a difference to first-time buyers. For example, because real estate rules fall under provincial jurisdiction, it’s uncertain that the Liberals could move forward with a ban on blind bidding. Similarly, the proposed changes to the FTHBI, which hasn’t had much uptake in its current form, only removes the equity share element from the mix; it doesn’t improve affordability for first-time buyers beyond what already exists.

There are also concerns that a new First Home Savings Account (FHSA) would benefit only those who already have enough in RRSP savings to make full use of the Home Buyers’ Plan, or those with lots of TFSA savings (since they could immediately withdraw $40,000 to put into the FHSA and get a large tax deduction).  

Having said all that, if you’re a first-time buyer, these initiatives could help you in three different ways:

1. You might qualify for a more expensive home 

Homes priced at $1 million or more currently require a minimum 20% down payment ($200,000+) as they aren’t eligible for a CMHC-insured mortgage. Raising the insured mortgage cutoff to homes above $1 million, as both the Liberals and Conservatives propose, would allow some higher-income households to qualify for pricier homes even without a larger down payment. 

Similarly, if the mortgage stress test was eliminated (although it’s not clear if the Conservative proposal would do away with the stress test entirely, or simply make it less strict), buyers would also be approved for larger mortgages and could therefore buy more expensive houses.

It’s important to note, however, that while you might be able to get into the market because you could then offer more competitive bids (that is, pay more for the same house), the homes you’re looking at won’t be any more affordable. All you’re doing is taking out a larger mortgage to finance your purchase, which means your carrying costs will go up accordingly.

2. You might lower your monthly carrying costs

If you bought a home within your current qualification limits and used the Liberal First Home Savings Account or NDP rental subsidy to put more money toward your down payment, you’d be borrowing less, so your monthly payments would go down. The Liberal plan to lower CMHC premiums by 25% could also reduce your monthly carrying costs slightly, as you’d no longer be adding the cost of the premium to your mortgage. The NDP plan to allow 30-year amortizations (up from the current 25-year maximum) would lower your monthly mortgage payments, but the trade-off is that you’d then pay your mortgage (and interest charges) for an extra five years—and the additional interest payments would add to the overall cost of your home. 

3. You might get a larger one-time tax credit 

This one is easy to quantify. Both the Liberals and NDP (but not the Conservatives) would increase the allowable claim for the Home Buyers’ Tax Credit to $10,000 (up from the current $5,000), which would put an extra $750 (or a total of $1,500) in first-time buyer’s pockets.

What would that look like for specific first-time buyers?

While every situation is unique, we’ve crunched the numbers for three hypothetical first-time home buyers to see how they’d fare. Our buyers are in three different provinces, with varying household incomes, savings and debt. Based on those figures, we’ve calculated the maximum value home they could currently buy, as well as their monthly mortgage payment using current lending rules.  

Household 1

  • Nick and Sara live in Ontario, where Nick earns $120,000, and Sara earns $70,000 
  • Down payment: Nick has TFSA savings of $30,000, and both Nick and Sara have RRSPs they can access under the Home Buyer’s Plan ($35,000 each), for a total down payment of $100,000
  • Debt: Monthly car payments of $500
  • Max. affordability: $999,999* 
  • Mortgage payment: $3,929 monthly** 

Household 2

  • Alice and Dave live in British Columbia, and both earn $60,000 per year 
  • Down payment: $50,000 gift from their parents
  • Debt: Student loan repayments of $200/mo., and $800/mo. in car payments
  • Max. affordability: $561,815* 
  • Mortgage payment: $2,254**

Household 3

  • Tricia and Vern live in Nova Scotia. Tricia earns $70,000 and Vern earns $25,000
  • Down payment: They can access $35,000 from Tricia’s RRSP. No TFSA savings
  • Debt: $400/mo. car payment; 300/mo. line of credit
  • Max. affordability: $450,326*
  • Monthly payment: $1,829**

* Heating costs are estimated at $150/mo.

** Calculated at 2.0% interest and 25-year amortization

How much more home would these buyers qualify for under the various housing plans?

Household 1

  • Conservatives: +$250K. Because homes over $1 million would now be eligible for CMHC insurance, and the mortgage stress test would not be applied, Nick and Sara would qualify for a $1.25-million home. But they’ll pay for that privilege: their monthly payments would increase by $1,092 (to a total of $5,021/mo.). 
  • Liberals: +$125K. Nick could withdraw his $30,000 TFSA savings and put them into the new First Home Savings Account, which would give him a $12,000 tax deduction that he and Sara could add to their down payment. Accounting for that and the changes to CMHC insurability and the 25% premium cut, they would qualify for a $1.125-million home, and their monthly payments would increase by $243 (to a total of $4,172/mo.).
  • NDP: $0

Household 2

  • Conservatives: +$188K. Without a mortgage stress test applied, Alice and Dave would qualify for a $750,000 home, and their monthly payments would increase by $829 (to a total of $3,083/mo.).
  • NDP: $0
  • Liberals: $0

Household 3

  • Conservatives: +$150K. Without a mortgage stress test applied, Tricia and Vern would qualify for a $600,000 home, and their monthly payments would increase by $659 (to a total of $2,488/mo.).
  • Liberals: $0
  • NDP: $0

How much lower would these buyers’ mortgage payments be (if they stayed within their current qualification limits) under the various housing plans? 

Household 1

  • NDP: -$522/mo. An extra $5,000 for their down payment (from the rental subsidy) and a 30-year amortization reduces Nick and Sara’s monthly payment to $3,407. But, because they’d be paying off their mortgage for an extra five years, it would also cost them more than $50,000 in additional interest over the life of the mortgage.
  • Liberal: -$81/mo. Nick and Sara’s monthly carrying costs go down to $3,848, thanks to a larger down payment (using the First Home Savings Account tax deduction) and the 25% CMHC premium cut. 
  • Conservatives: $0

Household 2

  • NDP: -$308/mo. An extra $5,000 for their down payment (from the rental subsidy) and a 30-year amortization reduces Alice and Dave’s monthly payment to $1,946. But, because they’d be paying off their mortgage for an extra five years, it would cost them nearly $30,000 in additional interest over the life of the mortgage.
  • Liberal: -$22/mo. The CMHC premium cut would lower their monthly payments to $2,232.
  • Conservative: $0

Household 3 

  • NDP: -$254/mo. An extra $5,000 for their down payment (from the rental subsidy) and a 30-year amortization reduces Tricia and Vern’s monthly mortgage payment to $1,575. But, because they’d be paying off their mortgage for an extra five years, it would cost them more than $25,000 in additional interest over the life of the mortgage.
  • Liberal: -$18/mo. The CMHC premium cut would lower their monthly payments to $1,811.
  • Conservative: $0

How would existing homeowners fare under the various housing plans?

Although there’s a perception that the parties are prioritizing affordability for young people at the expense of aging homeowners—who may be relying on the value of their homes to help them through retirement—there’s little evidence current homeowners would suffer.

As outlined above, a successful increase in housing supply by any federal government seems like a long shot. And even if they can pull it off and the additional supply puts some downward pressure on prices, home values will still likely increase—just at a slower pace.

Plus, if buyers can access larger mortgages or amortize them over longer periods, they’ll end up putting higher offers on homes, and prices will go up.

The only potential drawback for existing owners would be if they sell within 12 months of purchase—as they’d be subject to the Liberal’s new tax on home flipping. Foreign investors in the Canadian housing market would also take a tax hit under the Liberal and NDP plans, and anyone selling an investment or vacation property would pay more in capital gains taxes on the sale proceeds under the NDP.

On the plus side, current owners could get a bigger tax break if they renovate their homes to be more accessible and would get a new tax break if they create multigenerational housing by adding a separate unit for relatives.