Why Canada’s hot housing market is an issue for business owners

Policies to address housing affordability are key to Canadian competitiveness, says KPMG

Why Canada’s hot housing market is an issue for business owners

Canada’s housing markets have caught fire: given the recent near-zero interest rate environment, and more people than ever working from home for the past two years, it’s no wonder.

With sky-high prices and low housing supply, and higher mortgage costs just around the corner, there’s greater urgency than ever for policies that would bring the Canadian dream of homeownership back within reach – and it’s not just households who have a stake.

“Housing affordability is a key issue for Canadian families,” says Dino Infanti, National Enterprise Tax Leader at KPMG in Canada. “We expect to see this issue as a key theme in the upcoming federal budget, to address what the government describes as the financialization of the housing market. The ability to buy a home also has an impact on Canada’s ability to attract talent.” 

With digital innovation high on their agenda, business owners today have a pressing need for tech talent. In KPMG’s Business Outlook Poll conducted in August last year, 79% of business owners said they need more workers with digital skills as the pandemic had changed the way they work. More than two thirds (69%) said they plan to hire more staff over the next three years, including 24% who cited cybersecurity or information security as the top skill they’re looking for and 20% who needed workers in data analytics and analysis.

However, 68% of businesses said they’re having a hard time hiring people with the skill sets they need to grow. Fifty-two per cent were not confident they would find the people with the skills they need, and would consider hiring from outside Canada.

With a declining fertility rate and Covid triggering earlier retirements, Canada is also betting on immigration as part of its broader plans for post-pandemic economic recovery. To help address shortages in skilled labour, Prime Minister Justin Trudeau’s administration set a target of introducing 401,00 new permanent residents in 2021; this year’s target is only slightly higher at 411,000.

According to Statistics Canada, immigrants tend to buy homes in large urban centres like the Greater Toronto Area and Vancouver. The latest figures from the Toronto Regional Real Estate Board show that the average home price in the GTA exceeded $1.3 million in February; the home price index for all residential properties in Metro Vancouver surpassed the same threshold, based on the latest data from the Real Estate Board of Greater Vancouver.

Some tax measures have been floated to help address the issue of affordability, Infanti says. Bill C-8, which went through its first reading in the House of Commons last December, includes draft legislation for an underused housing tax. Aside from some exceptions, that would place an annual tax of 1% on the value of residential property located in Canada owned, directly or indirectly, by persons who are neither citizens nor permanent residents of the country.

There’s also another proposal for an anti-flipping tax, which was first suggested as part of the Liberal party’s pre-election platform. Under that scheme, the principal residence exemption would not be applied to individuals who sell or transfer the title to their principal residence within 12 months of buying it. Exceptions would be carved out for circumstances like selling a home that’s been damaged or destroyed by a disaster during that 12-month period, or a drastic change in the circumstances of the beneficial owner such as divorce, serious illness, or death.

“Recently there was also an announcement pertaining to a tax-free First Home Savings Account,” Infanti says, referring to another Liberal party pledge. “That registered savings plan would give someone under 40 years of age the ability to save and extract up to $40,000 tax-free to pay toward their first home, with no requirement to repay it.”

Housing affordability is just one way for Canada to stimulate job creation with immigration. Aside from addressing administrative backlogs, the government is looking at new measures to accelerate processes for immigration and work permit applications. A three-year period of tax reductions for newcomers to Canada could also provide valuable support to incoming workers.

“New Canadians are an important part of Canada’s economy, and business owners are accessing that talent,” Infanti says.