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How the Liberals missed the boat on affordable housing

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How the Liberals missed the boat on affordable housing

Now that we’ve had a couple months to digest the most recent federal budget, we can now safely say Ottawa missed the boat on affordable housing.

Indeed, the Liberals had a golden opportunity to make some simple tweaks to the mortgage system in Canada that would have allowed more first-time buyers to get into the housing market and assist second-time buyers to move up, without major changes to the policies implemented over the last two years to cool the market. Industry groups across the country including the Canadian Home Builders’ Association, Ontario Home Builders’ Association, various real estate associations, boards of trade, lenders and housing advocates, have all beseeched the government to take some steps to ease up on the various stress tests and mortgage restrictions. Most of these requests were embodied in a list of recommendations from the Chair of the Federal Liberal Housing Affordability Caucus, Francesco Sorbara. Sadly, only one of the many recommendations was implemented.

Little impact

Instead, the Liberals decided to use taxpayer money to the tune of up to $1.25 billion to assist first-time buyers to purchase homes by advancing up to 10 per cent of the purchase price of new homes and a five per cent of the price of resale homes in conjunction with a CMHC-insured policy. Incomes were capped at $120,000 annually, and the loan portion cannot exceed four times annual income. Effectively, the program by its very capping of the loan portion, excluded major centres such as Vancouver and Toronto, which have suffered significant declines in both sales and prices over two years. Much criticism has already been levelled against the proposed program as having little impact on increasing housing affordability.

There is no question that these proposals will assist first-time buyers of homes in less expensive areas with the biggest beneficiaries being places like Montreal and western provinces. However, the government will have t0 advance significant sums of taxpayer monies by way of repayable loans plus significant cost to administer the program.

This is not to say there isn’t some merit to this program. However, there are many private, non-profit institutions such as Trillium and Options for Homes which offer similar second mortgage loans and share in the equity upside with purchasers. The government has not totally revealed how the sharing will work, but has indicated that there would be no interest costs during the term of the loan.

On the other hand, the recommendations of the Liberal Housing Affordability Caucus would not cost the government a single dime, and would have allowed a broader section of the marketplace, including those in Vancouver and Toronto, to gain access to housing markets which have now been closed to them because of the new and tightened mortgage rules.

Some of these proposals included:

  1.  Exempting mortgage renewals from the stress test. Currently, institutions, whether those refinancing existing loans with the same borrower or new institutions, are
    applying the new stress test to existing loans. This can put a homeowner in danger of having to pay down his loan in order to qualify even though he has been fully complied with all of the obligations;
  2. Extending the amortization period for blended payment mortgages from 25 years to 30 years. Although this seems like a small adjustment, it would lower overall carrying costs for buyers and materially expand the number of eligible purchasers for financing. Again, 30-year amortization is fairly standard in most countries and in Canada it was raised to 35 years at the height of the financial crisis in 2009;
  3. Modify the current stress test. Requiring purchasers to be able to carry a mortgage which is two per cent above the quoted rate or meet the posted five-year rate (which is usually higher than the real five-year rate) has done enough damage, particularly in the Toronto and Vancouver housing markets, but more so, has impacted on other markets that were not overheated. Some minor adjustments would have made a big difference. The suggestion was to have a declining rate stress test such that the percentage over the proposed mortgage rate (now two per cent) would decline the longer the term of the mortgage that was being obtained. For five- or seven-year mortgages, purchasers are locked in and protected from having to face significant interest rate increases for many years and did not need such a stringent stress test to protect them from increased rates.
  4. Increase the Home Buyers’ Plan which allows purchasers to borrow from their RRSPs. This proposal was in fact partially implemented with the limit of $25,000 being increased to $35,000; and
  5. Increase the GST/HST rebate thresholds of $400,000 to reflect today’s current marketplaces, as proposed by the Canadian Home Builders’ Association. When GST came out in 1991, the level of $400,000 was supposed to be adjusted periodically for inflation. There has not been one adjustment since 1991 and there is no recognition of variations between regions of average prices. Again, this recommendation was ignored.

Markets on ice

In reality, the Liberals were looking for flashy, vote getting, news catching type of proposals that would show that the government is putting its money behind first-time buyers. Making adjustments to the stress test and amortization period really isn’t sexy, but would have had a far greater beneficial impact with no cost to the government. The Liberals have responded to this criticism that the prior changes in the stress test are doing their job in cooling the markets and should not be changed at this time. In fact, many markets have not only cooled, but have been put on ice – such as the lowrise market in GTA for instance.

Leor Margulies is a partner at Robins Appleby LLP and a member of the board of directors of BILD.


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Single-family homes web

New single-family home sales in the GTA jump in February

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New single-family home sales in the GTA jump in February

Single-family homes web

The GTA new home market in February saw the highest number of single-family homes sold since April 2017, according to the Building Industry and Land Development Association (BILD).

There were 639 new single-family homes sold in February, including detached, linked and semi-detached houses and townhouses, according to Altus Group, BILD’s official source for new home market intelligence. This was up 147 per cent from last February, though still 50 per cent below the 10-year average. Sales of new condominium apartments in low-, medium- and highrise buildings, stacked townhouses and loft units, with 772 units sold, were down 58 per cent from February 2018 and down 51 per cent from the 10-year average.

“Softer new condominium apartment sales in February can, at least in part, be attributed to the rapid increase in prices in the past two years, which has priced many would-be buyers out of the market,” says Patricia Arsenault, Altus Group’s executive vice-president, Data Solutions. “The good news is that, although still relatively low in historical terms, there is now more inventory available to purchase and this is curbing the upward pressure on prices.”

ALSO READ: Budget 2019 comes up short

Remaining inventory in February included 11,269 condominium units and 5,233 single-family lots. Remaining inventory includes units in preconstruction projects, in projects currently under construction and in completed buildings.

Benchmark prices of both single-family homes and condominium apartments moderated slightly compared to the previous month. The benchmark price of new single-family homes was $1.12 million, down eight per cent over the last 12 months, while the benchmark price of new condominium apartments was $792,709, up 8.6 per cent over the last 12 months.

“We are hopeful that the measures introduced last week in the federal budget will enable more first-time homebuyers to enter the market and purchase the type of home they want,” says BILD President and CEO David Wilkes. “However, these measures are only the first step, and BILD will continue to advocate for a review of the mortgage stress test so more first-time homebuyers can realize the dream of homeownership.”

Wilkes adds that the GTA is still grappling with challenges around supply. “BILD is continuing to call on the provincial government and municipal governments to take the steps necessary to facilitate additional housing supply to meet the growing need across the GTA.”

February New Home Sales by Municipality

Condominium units Single-family Total
Region 2019 2018 2017 2019 2018 2017 2019 2018 2017
Durham 22 4 113 54 50 302 76 54 415
Halton 39 46 96 269 113 457 308 159 553
Peel 120 104 384 189 34 201 309 138 585
Toronto 533 1,065 1,822 4 6 42 537 1,071 1,864
York 58 641 345 123 56 447 181 697 792
GTA 772 1,860 2,760 639 259 1,449 1,411 2,119 4,209

Source: Altus Group


Budget 2019 comes up short

GTA new home sales begin 2019 on a positive note

2018 GTA new home sales drop to lowest mark in nearly 20 years





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GTA waterfront homes

Budget 2019 comes up short

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Budget 2019 comes up short

GTA waterfront homes

The federal government released the much-anticipated Budget 2019 this week, with homebuyers, builders and others awaiting measures to address housing issues.

And in short, it comes up, well… a little short.

First-time homebuyer help

Much of the housing focus in Budget 2019 was on addressing the needs of first-timers, namely with a new First-Time Home Buyer Incentive.

  • The Incentive would allow eligible first-time homebuyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corp. (CMHC).
  • About 100,000 first-time buyers would benefit from the Incentive over the next three years.
  • Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a five-per-cent down payment and a 10-per-cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month.
  • CMHC to offer qualified first-time homebuyers a 10-per-cent shared equity mortgage for a newly constructed home or a five-per-cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in the largest cities.
  • The First-Time Home Buyer Incentive would include eligibility criteria to ensure that the program helps those with legitimate needs, while ensuring that participants are able to afford the homes they purchase. The Incentive would be available to first-time buyers with household incomes of less than $120,000 per year.
  • Budget 2019 also proposes to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000, providing first-time buyers with greater access to their Registered Retirement Savings Plan savings to buy a home.

Noticeably absent from the housing measures was any adjustment to the stress test, which a number of experts say is necessary.

Industry reaction

“The Building Industry and Land Development Association (BILD) agrees with (Federal Finance Minister Bill Morneau’s) comments that there aren’t enough homes for people to buy or apartments for people to rent,” says Dave Wilkes, president and CEO.

“BILD feels the policies presented in (the) budget are a step in the right direction to help first-time homebuyers. We will continue to advocate for a review of the stress test so that first-time homebuyers can realize the dream of homeownership. Supply challenges still exist and are at the centre of the current unbalanced market, and we call for action on these by the provincial and municipal government.”

Supply challenges in the Greater Golden Horseshoe are serious, and Budget 19 fails to address them.

“This was a re-election budget that didn’t move the dial for new-home buyers in the GTA,” Richard Lyall, president of the Residential Construction Council of Ontario (RESCON) told HOMES Publishing. “While increasing RRSP borrowing for first-time homebuyers is helpful, creating The First-Time Homebuyer Incentive at a maximum of $500,000 doesn’t help many Torontonians or GTA residents.”

The Canadian Home Builders’ Association (CHBA) had been recommending a shared appreciation mortgage approach for some time, as a tool to help those who can’t get into homeownership but have the means to pay rent.

The modification to the RRSP Home Buyers’ Plan will help get Canadians into their first home, but will also act as a burden because the loan has to be repaid within 15 years, including a minimum of 1/15th per year.

“This means that, in the years following their home purchase, a homeowner has the additional financial responsibility of repaying their RRSP,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial.

Important details of the First-Time Home Buyer Incentive program have yet to be released. For example, says Laird, it remains unclear whether the government would take an equity position in homes, or whether the assistance would act as an interest-free loan.

“This is an important distinction because if the government is taking an equity stake in a home, the amount the homeowner would have to pay back would grow as the value of the home increases,” he says.

The very launch of the program is surprising, Laird says, given that the BC Government implemented a similar measure a couple years ago, with unsuccessful results, and it was terminated in 2018. First-time home buyers found it difficult to understand and unappealing to have the government co-own their home.

Let’s do the math

Under existing qualifying criteria, including the stress test, homebuyers can qualify for a house that is 4.5 to 4.7 times their household income.

Under the new First-Time Home Buyer Incentive, however, the government has set a purchase limit of four times household income for the mortgage, plus the amount provided by the government, according to Ratehub.

By participating in this program, first-time homebuyers effectively reduce the amount they can qualify for by about 15 per cent, and their monthly mortgage payment naturally decreases in lockstep.

A household with $100,000 of income, putting a minimum down payment of five per cent, can currently qualify for a home valued at $479,888 with a $2,265.75 monthly mortgage payment.

Affordability calculations

The maximum purchase price for the same household, if they participate in the first-time homebuyer incentive, drops to $404,858.29 with a five-per-cent minimum down payment. The total mortgage amount would then be $400,000 (or four times their household income).

Mortgage payment calculations

If the household took a five-per-cent incentive from the government (for resales), their mortgage amount goes to $378,947.37, and monthly payment is now $1,810.90.

If the household took a 10-per-cent incentive, (for new homes) their mortgage amount goes to $357,894.73, and  monthly payment is now $1,710.29.

Stress test modifications

The CHBA is among the industry groups that is pushing for modifications to the existing mortgage stress test, which has served to lock out too many well-qualified Canadians due to the market and interest rate changes of the past year.

“The First-Time Home Buyer Incentive, if coupled with immediate adjustments to the stress test, has the potential for getting the housing continuum functioning again,” says CHBA CEO Kevin Lee. “It is essential that these changes come quickly, though. Current restrictions on mortgage access mean that many millennials and new Canadians are seeing homeownership slipping away, and in many markets the economic impacts are substantial.”

Looking ahead to the 2019 federal election, CHBA will be encouraging all federal parties to address housing affordability in very meaningful ways in their respective platform documents.

Budget 2019 housing measures

Budget 2019




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Finance: Individual Pension Plans

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Finance: Individual Pension Plans

Lower taxes, more savings

As a result of the February 2018 Federal Budget, which clarified the rules of how passive investment income will be treated in a corporation, business owners should be looking carefully at IPPs (Individual Pension Plans).

For those who earn at least $100,000 in employment income on an annual basis from their corporation, IPPs are an effective way to extract well intentioned retirement savings from a corporation, without triggering taxes at both the individual and corporate level.

IPPs ensure that the retirement nest egg is safely protected from the reach of creditors.


Beginning in 2019, annual passive investment income (above $50,000) means that less of your business income will be eligible for the small business tax rate. If passive investment income surpasses $150,000, the small-business rate is eliminated, and all business income is subject to the full corporate tax rate. IPPs help extract excessive capital from your corporation to ensure that your business maintains its favourable small-business tax rates.

IPPs are calculated on your years of service and age, not just on the income that you earned. This means that if an individual is over the age of 37, IPPs allow for a higher annual contribution limit, compared to a RRSP, when income exceeds $145,000. By retirement age, you can put up to 65 per cent more into your IPP, than your RRSP.

IPPs allow you to fund previous years of service. Your company can make a tax-deductible contribution to fund pension benefits for those members who had employment income dating as far back as 1991. Notably, a portion of these past service contributions must be made by transferring, and folding, an existing RRSP into the IPP. However, this balance is fully tax-deductible by the corporation.

Even though it’s called an individual pension plan, you can have multiple participants within a single corporation. Any shareholder with more than 10 per cent ownership in a corporation, and (in most cases) their spouses, are eligible to hold an IPP.

Both the contributions and expenses are tax deductible, which benefits the business. Associated expenses would include interest on the money borrowed to make the contributions, as well as administrative costs, such as accounting, investment management and actuarial expenses.

Assets held within an IPP cannot be seized by creditors of an incorporated business. Even if a business goes through financial crisis in the future, previously established IPPs ensure that the retirement nest egg is safely protected from the reach of creditors.

When you consider the long-term compounding effects of increased tax-sheltered investment earnings, along with the other benefits, IPPs are impressive retirement-savings vehicles. However, they’re not for everyone. Speak to a knowledgeable actuary or investment manager to evaluate your estate planning options.

Aleem Israel is President and Portfolio Manager at AFINA Capital Management, where he specializes in preserving, optimizing and growing wealth for his clients. afinacapital.com


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Construction trades applaud federal budget

Construction trades applaud federal budget

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Construction trades applaud federal budget

(CNW) — Canada’s Building Trades Unions are pleased with the continued support the government has demonstrated for middle class families in the 2017 budget “Building a Strong Middle Class.”

But the Progressive Contractors Association of Canada (PCA) — which welcomed the federal government’s budget commitments in the area of skills training — also cautioned against consistent deficit spending and increased payroll taxes.

Programs supported in this budget will facilitate the inclusion of under-represented demographics in the workforce will, in turn, benefit all of Canada, the CBTU said in a statement.

“Providing for the training of young people as well as those that are returning to the workforce, providing support for childcare that will allow the parents of young children to build their skills, will bring new faces onto job sites around Canada,” said Bob Blakely, the operating officer for CBTU.

The ongoing commitment to infrastructure funding is fundamental to the growth of the economy and middle class jobs.

“This government continues to see the potential in using infrastructure spending to support the middle class, build more sustainable environments, and create a built environment that will last us generations into the future,” Blakely said.

“We stand ready to build the Canada of tomorrow, building by building, road by road, bridge by bridge,” said Darrell Laboucan, the vice president of the Ironworkers. “Our workers are Canada, and their success is Canada’s success.”

The PCA, although welcoming the commitments in skills training, cautioned against increased payroll taxes.

The government’s support for skills training is focused on helping workers retrain and upgrade their skills in order to adapt to new economic realities, the PCA said in a statement. To this end, the budget provides $225 million over four years and a further $75 million per year thereafter to establish a new organization to support skills development in Canada.

Further, the government is also reforming labour market transfer agreements with the jurisdictions, with funding of $1.8 billion over six years to expand Labour Market Development Agreements. In order to pay for this, the government is also increasing employment insurance (EI) premiums.

“Our members welcome the government’s emphasis on training the workforce of tomorrow,” said Paul de Jong, president of PCA. “We are pleased to see the commitment to under-represented groups in (the) budget and hope that this commitment also includes the construction industry, where women and Indigenous populations have traditionally been under-represented and under-employed.

“It is also our hope that the new funding announced for skills training today will be applied broadly so that all in our industry can benefit.”

However, PCA also expressed concern over the plan to increase EI premiums to pay for the new skills training programming.

“Our members won’t be happy that during an already difficult time they now have to pay higher payroll taxes,” de Jong said.

The budget provides no new infrastructure funding, however, PCA noted, the further details on The Canada Infrastructure Bank, which will be responsible for investing $35 billion over 11 years, focusing on large, transformative projects such as regional transit plans, transportation networks, and electricity grid interconnections. The government’s goal is to have an operational Canada Infrastructure Bank in late 2017 to ensure funds can begin to be invested.

“PCA welcomes the details that were provided today on The Canada Infrastructure Bank,” said de Jong. “We view the acceleration of infrastructure spending as critical to growing our economy.”

Budget 2017-18 is projecting a budget deficit of $28.5 billion and no return to budgetary balance in the near future.

“PCA member companies and their families have to balance their revenue with their spending. We urge the government to do the same,” concluded de Jong.

The Progressive Contractors Association of Canada is the voice of progressive unionized employers in Canada’s construction industry. PCA member companies employ more than 25,000 skilled construction workers across Canada. PCA’s goal is to ensure that Canada has a fair and open construction industry, cooperative labour relations, and a robust, inclusive and highly capable workforce. PCA believes in open competition in which no sector is given artificial and unfair advantage over another on the basis of union affiliation or lack thereof. Find out more at pcac.ca/.

Canada’s Building Trades Unions coordinates activities and provides resources to 15 affiliated trade unions in the construction, maintenance and fabrication industries. In Canada, CBTU represents 500,000 skilled trades workers. Find out more at buildingtrades.ca.


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Budget good for National Housing Strategy

Budget good for National Housing Strategy

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Budget good for National Housing Strategy

(CNW) — Habitat for Humanity Canada is applauding the federal government for making historic investments in affordable housing. The budget provides the necessary fuel to support the implementation of a National Housing Strategy.

Habitat for Humanity is pleased that the budget invests in a range of initiatives designed to build, renew and repair Canada’s stock of affordable housing and ensure that Canadians have affordable housing that meets their needs. It is also encouraged to see additional funding to help address the need for improved housing in the North, support for Indigenous peoples not living on reserves, and making more federal lands available for affordable housing, as well as the significant commitment of $5 billion towards a new National Housing Fund.

Like investments in infrastructure, investments in housing are good for the economy, communities and families, Habitat for Humanity said in a statement. Housing contributes to stronger communities and provides a social return on investment that results in improved health, educational and job outcomes. In the case of Habitat homeownership, families no longer rely on government assistance for housing and move from social/rental housing into affordable homeownership, creating a space for others in need.

Habitat is committed to a continued partnership with the federal government in developing and implementing the initiatives outlined in the budget and ensuring that Canadians have the opportunity to access affordable homeownership as one of the options resulting from this budget.

“The National Housing Strategy is a once-in-a-generation opportunity for change,” said Mark Rodgers, president and CEO, Habitat for Humanity Canada. “To be effective, we must invest in all parts of the housing continuum, including affordable homeownership.

“Habitat for Humanity Canada is working to bridge the gap between social/rental housing and market housing, and we are looking forward to continuing our work with government in making that happen.”

Founded in 1985, Habitat for Humanity Canada is a national, non-profit organization working toward a world where everyone has a decent and affordable place to call home. Habitat for Humanity brings communities together to help families build strength, stability and independence through affordable homeownership. With the help of volunteers, Habitat homeowners and 56 local associations working in every province and territory, it provides a solid foundation for better, healthier lives in Canada and around the world.

Habitat for Humanity Canada is a member of Habitat for Humanity International, which was established in 1976 and has grown to become a leading global non-profit working in more than 70 countries. For more information, please visit habitat.ca.


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