Proposed Federal Fixes to Cool Canada’s Housing Market

Published April 5, 2021 by Real Estate Leads
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Despite what some had predicted for it, Canada’s housing market has become as hot as ever during the Coronavirus pandemic and much of that continuing to be the result of demand continually outstripping supply further and further. That is a formula that is very challenging to balance out, as promoting the number of new housing starts that would be required to counter that trend is something that’s very difficult if not completely impossible.

At the ground level of all of this are ever greater numbers of people who’d like to be first-time homebuyers but are increasingly priced out of the market. It’s important to mention that this in itself is not unnatural, and it’s never been easy to become a first-time homeowner in any location. There’s a lot of diligence and sacrifice that’s involved in that, and most of us can relate to that on a personal level. That said, there’s never been this many people stymied in their attempts to buy a home because of a) the prices they’re listed for, and b) the prices they end up selling for.

From a realtor’s point of view, this is something of a dual-edged sword. Homes sold will be yielding higher commissions, but there’s fewer prospective new clients out there who can afford a home. It’s for this reason that our online real estate lead generations system for realtors here at Real Estate Leads comes as highly recommended as it does. These leads are for people who are looking into real estate, and very likely after digging deeper into it than most would based on the fact they can afford a home in their area of the country.

But back to topic. The unprecedented severity of the situation here is prompting many people to suggest that the Federal Government should act to cool the housing market. Yes, it’s an indisputable fact that 95+% of the time when the Feds interfere in the market it ends up being detrimental in the long term. Yes, that is almost certainly going to be true here too and Liberal governments are champions when it comes to fumbling the ball on issues like this.

However, there’s enough of an uproar for this that it’s a worthy topic of discussion.

3 Possible Fixes

  1. Add to Speculation and Foreign-Buyer Taxes Applied to Purchased Homes

This may seem like a legit move in theory, but no shortage of industry insiders have stated very emphatically that current activity by real estate investors has been wholly and predominantly domestic. Meaning that the bulk of the times it’s Canadians who are willing to pay the prices that these homes are getting when sold

Some people still insist that to discourage buyers from purchasing property only to flip it after a short period and pocket the gain from rapid appreciation, the Feds could create a tax on residential real estate sales. Others have gone further to say that it could be modified to fall to zero over five years of holding the property to make it a little more digestible for home buyers.

However, any national speculation tax should not be focusing exclusively on very quick repeat sales. This is because irrefutable statistic evidence has shown that investors who buy homes only to re-sell them six months to a year later are extremely uncommon.

  • Expanding on Capital Gains Tax

The notion of taxing capital gains on a principal residence is gaining some traction, but it’s commonly understood that doing so would be political suicide for any politician – and well it should be!

This is as mean-spirited and nasty a suggestion as anyone could come up with, given the way so many Canadians who’ve worked hard through their life are relying on the equity in their homes to give them the retirement they deserve. And that’s just the tip of the iceberg why this is simply a terrible idea.

A capital gain refers to selling an asset for more than you bought it for, and yes that is a feature of every real estate market everywhere in the world, not just Canada. Canadians currently have to pay tax on capital gains on investments such as stocks a real estate but not when it comes to their primary residence. And that is the way it should be!

The home is the biggest investment many Canadians have, and taking this move could hurt younger people too as older homeowners would be discouraged from downsizing and as a result fewer homes that are affordable would go onto the market.

The long and short of it is that this is not only a bad idea, but it’s the lazy and super-pandering approach and would be a big slap in the face to hard-working and responsible Canadian homeowners.

  • Tightening Mortgage Regulations

The government is well familiar with this route, and it did increase the mortgage ‘stress test’ regulations a few years back as it is.

However, the current mortgage stress test is only mandatory for federally-regulated lenders, which include all the big banks. It the individual provinces were to adopt similar rules for their lenders it might be somewhat more effective.

The reality is that until there are vastly larger increases in new home building starts all across the country and fewer people are absolutely determined to live in certain locations only, the housing frenzy IS going to continue.

If any realtors out there would like to share an opinion on any of this, we’d love to hear it in the comments below.


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