The agenda

Since 2015, when the shiny new prime minister vowed to corral house prices, they’ve swollen 81.4%. The federal debt has doubled. Household borrowing is off the chart. Inflation is the highest in 30 years. Interest rates are set to rise. And we have Omicron.

(By the way, a boring B&D portfolio has gained just under 70% in the same period.)

What will 2022 bring?

An end to the pandemic, probably. Many think Omicron – hugely contagious and more flu-like (so far, anyway) – will be the last hurrah in Canada, the US and Europe, where vax rates keep escalating. The markets seem to think so. Roaring Twenties, and all that.

But in this country, next year promises to be one of change, propelled by an increasingly activist federal government as Mr. Trudeau realizes this is his swan song. We’ve talked about the tax measures likely on personal incomes and investments already. Namely, a new tax bracket to suck off even more of the 1%er cash flow; an increase in the capital gains tax inclusion rate; and quite likely some diddling with interest-only line of credit payments.

The big news comes with real estate. Here is what we know will happen:

The FHSA.
A hybrid of the TFSA and RRSP, this will allow people under 40 to invest up to forty grand in a tax shelter, write if off taxable income, grow the funds tax-free, then withdraw them, no tax, to buy a house (which can yield tax-free capital gains). What a deal.

A ban on foreign buyers.
Announced in the Chrystia Update a couple of weeks ago. Like, a real ban, tempting other jurisdictions (like the US) to bar Canadians from buying there. Seriously bad news for areas of Canada that benefit from residents who keep principal properties elsewhere. Whistler. NS South Shore.

A tax on foreign-owned real estate.
To equal 1% of the assessed value. Announced twice now and scheduled to take effect in the 2022-3 fiscal year. It will be announced again in the budget.

A fat tax credit to close home sales.
The federal newbie credit will be doubled, a measure Trudeau said during the election campaign would help first-time buyers shoulder closing costs. Second-time buyers don’t matter.

An increase in the CMHC borrowing limit.
Big news here. To date there’s been a $1 million limit on getting CMHC insurance and using 20x leverage to buy a house. A property worth more than that required a 20% down payment. Now it is ballooning to $1.25 million. More debt.

A rent-to-own program.
Details sketchy and unknown. Consultations now taking place. The latest economic update set aside more than $4 billion for this and the FHSA next year.

A ban on blind bidding (maybe).
Cool, but this is not in the feds’ jurisdiction. Provinces control the real estate industry, so Ottawa will have to negotiate with them to encourage a ban on the practice of allowing multiple bids on one property without disclosing details to the bidders.

An anti-flipper tax.
The beginning of the end of the principal residence capital gains exemption? Maybe. The Libs say they will impose a tax on the profits of any house sale when the property has been owned for less than 12 months. So much for renovators who add real value and improve the housing stock, and where profits are already taxed as income.

Pressure to change zoning restrictions.
The housing minister says he fully supports the busting-up of single-family neighbourhoods to allow the intensification of land use, as NZ has done and BC is trying to do. In a stroke the federal government is demonizing those people who paid a premium for homes in established, leafy hoods, now to be devalued. I’d be pissed.

Higher down payments for investment properties.
A big sleeper. Details unknown. Contained in a ‘mandate letter’ from T2 to his housing minister, Ahmed Hussen. Perhaps minimum down payments will be jacked. Perchance the deductibility of interest on loan payments will be eliminated. And – without a doubt – rents will rise as a result.

Will any of all of this work to make houses more affordable?

No. Some of these measures may cool sales (kicking out offshore buyers, forcing mom & pop landlords to retreat), while others will hike demand and prices (the FHSA, enhanced tax credit, sweeter shared-equity mortgage, higher CMHC limit). Given historically low levels of inventory, the demographics of nesting Millennials, higher savings rates thanks to Covid and still-cheap mortgages, there’s zero chance of prices falling in Q1.

The heavy listing, if it comes, will be done by the Bank of Canada. Steady increases in interest rates will take away the punch bowl and force prices lower as borrowing costs jump.

Unless, of course, the government relents and brings in an interest rate subsidy. You know, in time for the next election. Dog help us.

About the picture: “Greetings from Alberta!” writes Brett. “Here’s a pic of our COVID pup, Lucy, when our kids realized it was (roughly her 1st bday). She’s been the best thing to come out of this pandemic.”