The Canadian Real Estate Association is calling on the federal government to include several housing initiatives in its upcoming budget.
Based on the impact housing has on the overall economy, the association believes the proposals are even more important in light of the existing uncertain times.
“Bay Street needs to take a back seat to Main Street in the next federal budget,” said Canadian Real Estate Association president Calvin Lindberg. “The government has already moved to help credit markets and our chartered banks, now it’s time to take direct and immediate action to help ordinary Canadians.”
Statistics released by CREA show that the residential housing market sales volume withdrew in 2008 to levels not seen since 2002. More importantly, the most recent statistics from December 2008 show that sales activity reached its lowest level for the month of December since 2000. Some 434,477 homes traded hands via the MLS® systems of real estate boards in Canada in 2008, down 17.1 per cent from the record 523,855 properties sold in 2007.
In Winnipeg, the final MLS® figures for 2008 and the month of December were less dire. In fact, dollar volume by the end of the year reached $2.4 billion, the highest total on record.
“We are in a better position than many other markets to counter the uncertainty arising as a result of a predicted national economic downturn in 2009,” said WinnipegREALTORS® past-president Darlene Clare.
“Winnipeg’s economy is still performing exceptionally well, interest rates are very favourable, and there is more balance in our housing market than was the case over the past number of years.”
The Bank of Canada announced a half a percentage point cut in its trend-setting lending rate to 1.25 per cent to counter the effects of declines in the world’s major advanced economies, including Canada’s. Particularly hard hit is Eastern Canada, where a significant number of manufacturing-sector jobs have been lost due to declining exports, especially to the United States which is in a deep recession.
In response to the Bank of Canada’s announcement, Canada’s major lending institutions have reduced some advertised mortgage interest rates.
“We are pleased the Minister of Finance (Jim Flaherty) and the government have recognized the need for action by ranking housing as one of the top six issues in its pre-budget consultations,” said Lindberg.
CREA has met with senior government officials and proposed several measures to help stimulate the housing market, both for residential and commercial investors. All the proposals from CREA have been endorsed and supported by WinnipegREALTORS® as well as the Manitoba Real Estate Association.
For residential home buyers, CREA proposes the government increase the limit of the Home Buyers Plan (HPB). Introduced in 1992 by a Conservative government and made permanent by a Liberal government in 1994, the HPB has broad political and consumer support.
The HBP allows first-time home buyers to withdraw up to $20,000 from their RRSP to help purchase a residential property, which must be repaid over a period of 15 years.
Unfortunately, the HBP has not kept pace with inflation or home prices. As a result, the HPB does not have the same impact and relevance it did 16 years ago, when $20,000 represented 13.3 per cent of the average house price, versus about 6.5 per cent today.
“The government should immediately raise the HBP limit from $20,000 to $25,000 and it should keep pace with annual inflation. Additionally, it should be available to all home buyers, not just first time buyers,” the CREA president added.
To address issues facing the commercial and investment property markets, CREA is seeking amendments to the Income Tax Act to promote increased reinvestment in real property. The CREA proposal calls for the deferral of capital gains taxes and the capital cost allowance recovery for all real property investments when an investment property is sold and the proceeds are re-invested in another real property within the subsequent year.
“Our proposal has benefits across the board for the economy, for rental housing and for the small investor, as well as some significant environmental benefits as old buildings are renovated and made more energy efficient. The budget is the perfect time for this sort of stimulus,” said Lindberg.
Studies show that more than 29 jobs are created for every $1 million invested in property renovation. A study prepared by Altus Clayton for CREA also shows that each residential MLS® transaction generated an additional $32,200 in consumer spending. Commercial and investment property transactions can generate even higher levels of economic spinoffs.
Canada Mortgage and Housing Corporation reported that rental construction is not growing fast enough to offset demand. At the same time, the Ontario Housing Supply Working Group has found that tax changes, such as the proposed rollover, “will not only lower the rent threshold at which a new project will be viable ... new supply will help reduce demand pressures and ... increase the supply of vacant units in existing stock.”
Within Canada, Statistics Canada reported Winnipeg had the lowest vacancy rate in 2008 at 0.9 per cent, making it difficult for potential tenants, including immigrants vigourously pursued by the provincial government, to find rental accommodations.
CREA’s proposed deferral and reinvestment will help the small investor disproportionately. Research based on the 2006 tax year indicates that 58 per cent of those reporting real property gains had net incomes of $50,000 or lower.