Canada’s Finance Minister Chrystia Freeland tabled the 2023 federal budget in Parliament on the 28th of March, highlighting steps that the government of Canada is taking to tackle Canada’s affordability crisis.
- A significant step in this regard is a mandate for financial institutions to begin offering the tax-free First Home Savings Account to Canadians starting on April 1. The program will help Canadians aged 18 to 40 years old save up for the down payment on their first home through a deposit of $8,000 annually, with a lifetime contribution of $40,000.
- The government is also introducing guidelines to protect mortgage-holders who are “facing exceptional circumstances.” Federally-regulated financial institutions will have to provide Canadians with “fair and equitable access” to appropriate relief measures, such as “extending amortizations, adjusting payment schedules, or authorizing lump-sum payments.”
- Another point of note, potentially impacting mortgages, is the govt’s announcement that it intends to cut the maximum allowable annual percentage rate (APR) on loans to 35%, down from the current 47 %. This measure does not apply to payday loans, which are short-term, ultra-high-interest loans for smaller amounts that are exempt from the criminal rate and fall under provincial rules.
- However, the budget didn’t contain any comprehensive plan to improve the housing supply crunch which is one of the largest barriers to affordability.
- Last year’s budget set a target of building 3.5 million homes, across Canada, from 2022 to 2031, which meant about 350,000 homes need to be built every year. The govt. well short of its target. In 2022 only 219,942 homes were completed and the projections for 2023 and 2024 are 223,00 and 206,000 respectively. This means within the first 3 years itself the govt will be hundreds of thousands of homes behind.
- Supply side issues are also being exacerbated with the rapid population increase we witnessed last year. Canada’s population is surging, and much of that comes from a rapid rise in the number of international students and other residents on time-limited permits.
- In 2022, the number of non-permanent residents rose by over 600,000 persons, accounting for 60 percent of Canada’s population growth last year. This increase in enrollment has contributed to high – and rising – rental costs in most communities with colleges and universities.
2 thoughts on “Highlights of Canada’s 2023 Budget – Impact on Real Estate and Mortgages”
In this blog, the relevant policies regarding affordable housing and associated financial issues of the Federal Govt of Canada are presented in a nutshell precisely with much clarity. The Minister has acknowledged the difference in the planning and execution of the policy goals related to the affordable housing sector in the Budget. To that extent we can hope that the Govt will take necessary steps to mitigate this problem in the near future. The average Canadian expects the volatile fluctuations in the housing sector will get stabilised with control over inflation.
This blog presents a very crisp essence of the recent developments and helps the common man take the necessary steps towards getting their dream home. The biggest takeaway for me was the tax-free mandatory first home savings account. It will keep aside and track funds that could go in down payment. I hope government addresses the supply side promptly if we are to ensure that more immigrants settle in Canada and contribute to the economy effectively.