Budget 2022: Tax-free savings account coming for first-time homebuyers

The Liberal government is planning to spend $10.14 billion on housing over the next five years in its 2022 federal budget, looking to make homes more affordable by expanding supply and helping young Canadians save for their first home.

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Ottawa’s spending document also includes plans to double the pace of homebuilding in Canada in the decade ahead, support those already struggling with housing and limit profiteering in the sector.

Here’s what the government is proposing to try to make housing more affordable.

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What will a tax-free home savings account do?

The 2022 budget includes plans to create a new Tax-Free First Home Savings Account (TFFHSA) to help Canadians struggling to get into the housing market save for the cost of a down payment.

Real estate hopefuls would be able to save $8,000 per year to a maximum of $40,000 per person towards the purchase of a first home. If buying as part of a household, each individual putting money towards the purchase of a home can save in their own TFFHSA.

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Like existing tax-free savings accounts, withdrawals from a TFFHSA would be non-taxable, including any investment income generated within the account.

Contributions are also tax-deductible, like a registered retirement savings plan.

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Click to play video: 'Federal Budget 2022: One-on-one with Deputy PM & Finance Minister Chrystia Freeland'

Federal Budget 2022: One-on-one with Deputy PM & Finance Minister Chrystia Freeland

Federal Budget 2022: One-on-one with Deputy PM & Finance Minister Chrystia Freeland

“Tax-free in, tax-free out,” the budget document says.

Sahir Khan, executive vice-president at the University of Ottawa’s Institute of Fiscal Studies and Democracy, says the TFFHSA looks to be a “pretty generous measure” in the 2022 budget.

“Getting that down payment is probably the most daunting issue for young people trying to enter the housing market,” he tells Global News.

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‘Can’t afford a home? Have you tried finding richer parents?’: MPs debate affordable housing in Canada

‘Can’t afford a home? Have you tried finding richer parents?’: MPs debate affordable housing in Canada

“In terms of removing a key barrier to access to the ownership market, this looks to be a very significant measure.”

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The TFFHSA is expected to roll out in 2023. Federal estimates put the overall economic impact from the account at $725 million over five years.

The budget proposes doubling the First-Time Home Buyers’ Tax Credit to $10,000, retroactive to any homes purchased after Jan. 1, 2022.

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Likewise, the First-Time Home Buyer Incentive will be extended to March 31, 2025.

The federal government says it’s exploring options to make the program “more flexible and responsive” to the needs of prospective homebuyers.

The budget document pointed to single-income households specifically as due for extra support.

Will Budget 2022 increase housing supply?

The Liberal government started off its budget document preamble saying that Canada is in the grips of a “housing shortage” and claimed increasing the supply of homes is the most effective way to make housing more affordable for Canadians.

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Canada will need to build around 3.5 million by 2031 to improve affordability, the budget predicted.

To get there, the budget lays out plans to double the annual pace of building in the country over the next decade, up from the current 200,000 units per year.

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Part of this will see the creation of a $4-billion Housing Accelerator Fund, run by the Canada Mortgage and Housing Corp. (CMHC), with the goal of creating 100,000 net new housing units over the next five years.

Details were sparse in the budget document, but the fund could include measures to incentivize municipalities to speed up development approvals for new builds.

The CMHC’s Rapid Housing Initiative gets an extra $1.5 billion in the budget and will be extended by two years.

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“This is the most ambitious housing plan to tackle supply and it’s also just a first step,” Finance Minister Chrystia Freeland told reporters before tabling the budget Thursday.

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But Conservative Party interim Leader Candice Bergen criticized the federal government’s timelines for failing to help Canadians looking to enter the housing market today.

“Canadians are worse off today than they were six years ago. Families struggling to pay their bills have been let down. Families trying to buy a house have been let down. Not one house will be built or bought this year under these NDP-Liberal programs,” she said in a statement after the budget’s release.

Khan told Global News the federal budget got “the diagnosis” for Canada’s housing affordability problems “absolutely right.… It’s supply.”

But expanding supply itself isn’t the standalone solution, Khan said – it’s “density” that Canadian cities will need.

Other items in the budget aimed at increasing immigration flows into Canada will only put more demand on Canada’s already limited housing stock, reinforcing the need for greater densification in cities and less suburban sprawl.

Items like the Housing Accelerator Fund, which seeks to sweeten the deal for cities adding density to their neighbourhoods, will need to accompany a cultural shift that sees Canadians get used to a different style of living, Khan says.

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“Ultimately, as Canadians, I think we’re going to have to rethink what it means to be a homeowner and having the single-family detached dwelling with the white picket fence, and think about densification,” he said.

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Will those plans actually make real estate more fair?

The budget also includes hints at coming policy changes aimed at improving fairness in Canada’s housing market.

One of those is a proposal to set aside $475 million in the next fiscal year to provide a one-time payment of $500 “to those facing housing affordability challenges.”

The federal government said the specifics and delivery method for this support would be announced “at a later date.”

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As well, the budget teed up plans to explore a Home Buyers’ Bill of Rights.

Included in this bill would be a plan to end “blind bidding” practices nationally, with potential measures to make a home’s sale price history more transparent and ensure a legal right to a home inspection before buying.

There were also measures to tamp down on the investing and speculation side of the real estate market.

The budget includes plans for a federal review to find out more about what role large corporate landlords play in the market and the impact on renters and homeowners.

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Meanwhile, there were no concrete actions laid out in the budget to deal with so-called “renovictions” — large landlords buying up lower-income housing and evicting the existing tenants only to put the units back on the market at a higher rate.

The budget did set out new rules to tax property flippers. Anyone who sells a property they’ve held for less than 12 months would be considered to be “flipping” under the new rules and would be subject to tax on their profits as business income.

Finally, the government also announced plans to explore a two-year ban on foreign ownership in the budget.

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Citing the influence of “foreign money” on rising home prices in cities such as Vancouver and Toronto, the feds said they intend to “propose restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a period of two years.”

Refugees and international students would be among those excepted from the proposed law.

Khan says while foreign ownership has been a factor in Canada’s rising housing prices, the impact of the phenomenon is “baked into the cake” at this point, making the movement on the issue “important but symbolic.”

“I think we have to distinguish between those kind of nice-to-have measures versus those that are incredibly fundamental, which is finding ways to increase density and get people into housing in a different way than we did since the post-World War II era,” he says.

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