Everyone should have a safe and affordable place to call home.But that noble goal—one that was taken as a given for previous generations—is increasingly out of reach for far too many Canadians. Young people cannot imagine being able to afford the house they grew up in. Foreign investors and speculators are buying up homes that should be for Canadians to own. Rents in our major cities continue to climb, pushing people further and further away from where they work.According to the National Bank of Canada “Housing Affordability Monitor” Report, Canada is experiencing worst decline in housing affordability in generation.Canadian housing affordability deteriorated for the firth consecutive quarter in 2022. The Mortgage Payment of a representative home as a percentage of income (MPPI) rose 4.9 points after a 2.2 point increase in Q4 of 2021. The first Quarter of 2022 was also the worst quarterly deterioration in over 27 years. The Housing Affordability Monitor calls the worsening in affordability which occurred in the last 12 month the “nastiest in 40 years”.. For the first time since 1994, buying a representative home within urban city limits in Canada, would take over 50% of the representative household income.<figure class="image"><img src="https://files.rifo.co/CompanySite/29/29_图片 2.png"></figure>In Toronto, the first quarter of 2022 was marked by the highest quarterly deterioration in affordability since 1994, the MPPI* gaining 8.1pp to reach its highest level since 1990 (75.6pp). The level of the MPPI* thus remained way above the city’s 20-year average (49.7pp) and the urban composite (53.5pp). The deterioration was in part attributable to the increase in home prices, which grew 22.7% annually and 7.2% during the quarter. Both the condo and non-condo segments registered steep declines in housing affordability as prices respectively grew 5.6% and 7.4% during the quarter and interest rates climbed, pressures that an income up 0.8% could not offset. For both types of dwelling, the quarterly and annual deteriorations in affordability surpassed those of the composite average.&nbsp;<figure class="image image_resized" style="width:94.96%;"><img src="https://files.rifo.co/CompanySite/29/29_图片 3.png"></figure><figure class="image"><img src="https://files.rifo.co/CompanySite/29/29_图片 4.png"></figure>*Source: National Bank of Canada “Housing Affordability Monitor” Report, May 2022All of this has an impact on our economy, too. In cities and communities across the country, a lack of affordable housing makes it more difficult to attract the workers that businesses need. Increasing our housing supply will make Canada more competitive in the global race for talent and investment. It will help make sure that our economy can continue to grow in the years to come.&nbsp;One such example is the newly proposed Homebuyer’s Bill of Rights. This was a new idea proposed as part of the 2021 re-election platform for the Liberal Party. The Homebuyer Bill of Rights was also mentioned in the 2022 federal budget released earlier this spring and is something that should have a positive impact on the home buying experience in Canada.&nbsp;<figure class="table" style="height:100px;width:100%;"><table><tbody><tr><td style="border-color:hsl(0, 0%, 100%);border-style:solid;"><figure class="image"><img src="https://files.rifo.co/CompanySite/29/29_图片 5.png"></figure></td><td style="height:100px;width:50%;">It’s safe to say that the past few years have been a whirlwind in the real estate market. We’ve experienced one of the strongest Seller’s Markets in history. During the pandemic, it was completely normal to see homes go into multiple offer scenarios, selling high above the asking price, and selling mere days after getting listed. This competition created an environment that was not sustainable for buyers. Buying a home became something that wasn’t just a challenge, for some it felt downright impossible.&nbsp;The purpose of the Homebuyer’s Bill of Rights was to remove some of the roadblocks that made it harder for buyers to secure real estate. The main goal is to create an environment of transparency to help protect buyers and give them the tools and resources to make sound financial investment decisions.&nbsp;There is no formal date when the new Homebuyer’s Bill of Rights will become active as it appears somewhat of a “fluid” approach with Canada’s Housing Minister working with the provinces and territories to firm up and roll out the initiative over the next year.&nbsp;</td></tr></tbody></table></figure>Ban on Blind Bidding – Right or Wrong?&nbsp;One of the biggest newsmakers in the new Homebuyer’s Bill of Rights is the end of blind bidding. In our hot Seller’s Market, blind bidding was common. When properties go into multiple offers, sometimes you would see thousands or even tens of thousands of dollars between competing bidders. Seller’s agents are not actually allowed to disclose the contents of an offer to a buyer’s agent unless they have express written consent from the seller.&nbsp;While some brokers are saying that blind bidding can result in price increases and that the bidding transparency would help to keep prices lower, a new Report, commissioned by CREA from an independent think tank, Smart Prosperity Institute, strongly suggests the ban on Blind Bidding practice would actually increase the real estate prices. The report finds that although it’s possible the blind bidding process can cause higher prices, the evidence to support that claim is limited and, in fact, increased bid transparency leads to higher prices in a hot real estate market – not lower.In already established tradition of ignoring the opposing views including these CREA recommendations, Liberal government is plowing ahead with its plans to engage with provinces and territories over the next year “to develop and implement a Home Buyers’ Bill of Rights and bring forward a national plan to end blind bidding”.Homebuyer Bill of Rights and Home InspectionsAnother common phenomenon during the pandemic was submitting “firm offers” with no conditions. In many cases, buyers wanted to make their offers as appealing as possible, forgoing their right to a home inspection. This reckless practice would help the transaction close faster and allow for all sorts of potentially very costly defects and flaws to go unreported. While such a move might make sense if the house is purchased by a commercial developer or a buyer with the purpose of complete tear down, it is still inadvisable to a residential buyer. The Bill of Rights would make it a legal right to get a home inspection on a purchase. This would protect buyers in hot markets who have often been forced to forgo any such conditions when purchasing, resulting in costly surprises.While the end of blind bidding and the right to home inspection are noble aspirations, both are problematic to implement. “Among the most notable items is a ban on blind bidding, but that will have to filter down through provincial real estate bodies, and could take a number of years to organize,” BMO economists noted. “There is also mention of a right to have a home inspection, but that too will be complicated to implement.”Transparency under the new Homebuyer Bill of RightsAs mentioned above, one of the key goals of the Homebuyer’s Bill of Rights in Canada is to establish greater transparency in the real estate market.&nbsp;The bill calls for the total transparency on any recent house sale prices and title searches on the home, ensuring that buyers have the full picture of the property they are viewing.&nbsp;It will also require real estate agents to disclose when they are involved in both sides of a transaction. For example, when they are representing both the buyer and the seller. This is primarily to expose conflicts of interest and to ensure that the real estate agents are acting in the best interest of a buyer or seller. Currently, provincial legal frameworks exist as a guideline for the Real Estate Council of Ontario (RECO), in British Columbia and Alberta, but this new bill will make a comprehensive federal law to avoid jurisdictional limits. This is all good stuff.Mortgage Lending Rules ChangesArguably, Canada’s mortgage industry is currently one of the most regulated in the world, with the exception, perhaps, of the C tier lenders. However, with the Homebuyer’s Bill of Rights, Canada is going to be getting even more transparent. The bill would see banks and lenders offering mortgage deferrals for up to six months in the event of a job loss or “major life event.” It would also place a legal responsibility on mortgage lenders to act in the buyer’s best interest when it comes to mortgage options and incentives.&nbsp;At the end of the day, the Homebuyer’s Bill of Rights is designed to protect homebuyers in a competitive and challenging market. However, these rights will also benefit sellers too since many sellers are also buyers in other transactions. With more due diligence and transparency, everyone wins.&nbsp;Other changes would include ensuring price transparency for recent house sale prices, creating a national beneficial ownership registry, and requiring mortgage lenders to offer deferrals in some specific life circumstances.Limits on foreign buyersThere have been concerns in recent years that foreign speculation in the Canadian housing market has driven prices up for Canadian citizens. In order to combat this, the government has proposed a near-total ban on foreign home purchases for up to two years.The recent budget release has reaffirmed this commitment and it seems likely that a ban is imminent. This could reduce competition for homes and, with it, some of the upward price pressure, though critics point out that the issue of foreign buyers is often greatly overstated and that domestic buyers are much larger contributors to price issues.The government previously put in place a tax on foreign-owned vacant housing and also plans to extend this to foreign-owned vacant land.Temporary ban on foreign home purchasesThe government plans to prohibit foreign buyers, including commercial enterprises, from purchasing non-recreational residential property in Canada for a period of two years. The measure seem to target large corporate buyers from outside the country.Yet Bank of Canada data has found domestic investors and repeat buyers have outpaced first-time homebuyers together accounting for more than half of all homes bought by Canadians since 2014.Statistics Canada revealed last week that owners with multiple properties account for 30 to 40 % of housing stock in several provinces, including Ontario, British Columbia and Nova Scotia.A Global News review of government records found at least 20 % of sitting MPs, including one-third of Trudeau’s cabinet, hold rental and investment real estate. While the practice is legal, it has raised concern among experts about whether the government is truly invested in combating investor-driven real estate, or rampant monetization of the market. PM Trudeau appeared to defend the 42 caucus members who are part of that list. “I think there are a lot of people across the country who have rental properties as part of their retirement plans, as part of their lives. Lots of Canadians need to rent,” he said. “What we’re cracking down on is the fact there are foreign investors and big corporations that buy homes in Canada and then just let them sit, and bid up the prices so that they get more and more expensive, and use them as an asset class for revenue for people who have a lot of money.”However, RBC Economics expressed some skepticism towards the ban on foreign home buyers, saying that any direct impact of the measure will be “minimal”. “Non-residents own less than 2% of the housing stock in most markets – with recreational areas (exempt from the ban) typically seeing the higher rates – so their influence tends to be localized at best,” Hogue explained.Housing accelerator fundKey housing item is the $4 billion being dedicated to a new Housing Accelerator Fund, which has a goal of helping municipalities build 100,000 new units over the next five fiscal years.“The fund will be designed to be flexible to the needs and realities of cities and communities, and could include support such as an annual per-door incentive for municipalities, or up- front funding for investments in municipal housing planning and delivery processes that will speed up housing development,” the budget states.We all know that Liberal government can spend. While its very encouraging that the housing supply has finally become front and center after some 10 years at the helm, “…how the federal government will deliver on this remains vague on details,” noted economists from Desjardins.“These are important investments that tackle a structural shortage—with the Budget pointing to 3.5 million homes needed over the next nine years—and it is encouraging to see that the federal government plans to use its weight to ensure concessions are made around zoning and other reforms,” wrote Scotiabank economist Rebekah Young.It is unclear how creating 100,000 new middle-class homes by 2025 would help tackle the housing shortage seeing the ever rising immigration numbers as well.Rapid Housing InitiativeThe Rapid Housing Initiative is a program delivered by the Canada Mortgage and Housing Corporation as part of their National Housing Strategy. It is designed to build thousands of affordable housing units across the country. The plan was for the initiative to last just 2 years, though the Liberal government has now expressed plans to continue the plan for an additional year.Rental Construction Financing InitiativeThe Rental Construction Financing Initiative is a program designed to offer low cost loans to developers in order to encourage the creation of more rental units. In the past, this program has been successful in creating more rental units, however, the affordability of these units has been called into question, often charging higher rents than the market average. As part of the new agreement with the NDP, the government intends to refocus this initiative on producing more affordable housing units.Tax-Free First Home Savings AccountThe Liberals plan to introduce a new registered savings account known as the Tax-Free First Home Savings Account which would allow Canadians to save up to $40,000 for a first home purchase with $8,000 yearly contributions. This would help to reduce the tax burdens on prospective buyers and make saving for a down payment faster. But, it also most effectively benefits Canadians who make enough to save $8,000 a year while lower earners who struggle to save will still encounter difficulty in working towards homeownership.&nbsp;Again, rapidly rising cost of living and inflation make saving anything let alone thousands of dollars toward any purchases.&nbsp;<figure class="table" style="height:150px;width:100%;"><table><tbody><tr><td style="border-color:hsl(0, 0%, 100%);border-style:solid;height:150px;width:50%;"><figure class="image"><img src="https://files.rifo.co/CompanySite/29/29_图片 6.jpg"></figure></td><td>Ottawa has generally been removed from the debate on how to make home ownership more affordable in pricey markets, so it’s good to see that after 10 years in power, this government finally started taking housing affordability issue seriously. Taken together, the measures outlined in Budget 2022 are likely to mix with provincial-level policies and the central bank’s rate hikes – leading to a welcome respite for the overheated market. As with any political proposal, there are voices on both sides arguing for the viability and soundness of these proposed changes. Since the plan avoids banking its success on a single change and offers a variety of different approaches, it would be challenging to track and measure the success of the plan going forward. Our view remains unchanged as we believe that the proliferation of the gig economy, low wages and ever diminishing dollar purchasing power with other overlooked economic factors are major contributors to the housing crisis in Canada. But these are much harder issues to tackle.</td></tr></tbody></table></figure>&nbsp;&nbsp;

Affordable Housing - Will the Homebuyer's Bill of Rights Help?

RIFO's take on the viability of the Homebuyer's Bill of Rights as part of 2022 Budget. Will the proposed changes improve Housing Affordability in Canada?

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