On April 7, the federal government released its 2022 budget, which included strategies designed to tackle Canada’s housing crisis, including the lack of affordable housing. Low inventory combined with high demand has driven up housing prices across the country, says a Royal LePage report. In the first quarter of 2022, the price of a single-family home in Canada increased by 25.1 per cent to $856,900.

The cottage market has seen similar effects. In 2021, the national aggregate price of a single-family waterfront home jumped 21.5 per cent to $976,000, according to a Royal LePage report.

“Young people cannot imagine being able to afford the house they grew up in,” reads the 2022 budget. “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.”

To fill the housing demand, Finance Canada and the Canada Mortgage and Housing Corporation estimate that the country will need to build 3.5 million new homes by 2031. To achieve this goal, the federal government has committed $72 billion in financial support over the next six years towards its affordable housing plan.

The plan’s strategies range from a Home Buyers’ Bill of Rights to tax credits for first-time home buyers. But not everyone’s convinced these strategies will accomplish the federal government’s goal of making housing more affordable.

“[The plan] will not lower housing prices,” says Frank Clayton, a professor at the Toronto Metropolitan University’s Centre for Urban Research and Land Development, in an email. “The best they can do is to slow down price growth over a longer term.”

Clayton does, however, say that he thinks the budget’s Housing Accelerator Fund could be effective. The fund commits $4 billion over the next five years to support the housing development needs of municipalities. How municipalities use the money is flexible, but the goal of the fund is to create 100,000 new housing units over the next five years.

The budget includes a long list of other strategies. To get a better understanding of how the government’s plan will affect buyers and sellers, here’s a breakdown of the key strategies:

A tax-free first home savings account

The budget will introduce a tax-free savings account to help Canadians with the down payment on their first home and ultimately create a more affordable housing strategy. The account will function similar to an RRSP with tax-deductible contributions, and, similar to a TFSA, withdrawals will be non-taxable.

Prospective first-time home buyers will be able to save up to $40,000, with an $8,000 maximum annual deposit. The federal government says it plans to launch the Tax-Free First Home Savings Account in 2023.

Doubling the First-Time Home Buyers’ Tax Credit

On top of the tax-free savings account, the federal government has doubled the First-Time Home Buyers’ Tax Credit to $10,000 in an effort to assist with the significant closing costs associated with buying a home. The tax credit applies to homes bought on or after January 1, 2022.

Creating a Home Buyers’ Bill of Rights

The federal government has pledged to create a Home Buyers’ Bill of Rights to eliminate real estate practices it feels are driving up prices. This includes cottage real estate, not just homes. The two practices the government is targeting are buyers having to forgo property inspections to make their offers more desirable and blind bidding.

The federal government says it will work with provinces and territories to make home inspections a legal right while phasing out blind bidding altogether. Blind bidding is the default practice real estate agents use across Canada when they engage in a multi-offer scenario. It requires buyers to bid for a property without knowing the size of competing offers. In certain circumstances, it can cause a buyer to significantly overbid, inflating the property’s selling price.

But Katie Steinfeld, broker of record for real estate agency On The Block, says that eliminating blind bidding might actually drive up real estate prices. “A lot of buyers, their argument is when they’re in a blind bidding situation, they don’t want to go up any higher because they don’t know what the next highest offer is. They don’t want to overpay,” she says. “But if they know what they need to pay in order to get the home, that can push them up even higher.”

Steinfeld sides with professor Frank Clayton, saying that many of the federal government’s housing policies don’t speak to one another. If Canada wants to see affordable housing, it needs a lot more new inventory than what was proposed in the 2022 budget, she says, especially since the government has opened up its immigration policy and is planning to welcome over 400,000 new immigrants each year.

A two-year ban on foreign investment in Canadian housing

While foreign investment doesn’t play a major role in cottage country, the federal government has argued that it is pricing Canadians out of homes in urban centres, such as Vancouver and Toronto. That’s why the 2022 budget proposes a regulation that would prohibit all foreign commercial enterprises and non-permanent residents from buying residential property for two years. It has yet to be announced when this regulation would go into effect.

Steinfeld, however, argues that the federal government is aiming its restrictions at the wrong group. According to the Canadian Housing Statistics Program, 2.2 per cent of residential properties in Ontario were owned by non-residents in 2020, and 3.1 per cent in B.C. Whereas multiple-property owning Canadians made up 31 per cent of Ontario’s residential real estate market in 2020 and 29 per cent in B.C., with many of the properties used as rentals.

“That is much more significant than the foreign investment piece,” Steinfeld says. “I think that if they would have created policies to require increased down payment from [multiple-property owning Canadians], perhaps that might have had more of an impact versus just banning foreign buyers altogether.”