On its face, the First-Time Home Buyers Tax Credit seems like it would increase housing affordability. After all, aspiring home owners often have difficulty scraping together enough money for a deposit. But tax credits are the wrong tool. I pointed out during the last provincial election that evidence from the US suggests that the tax credit would, in fact, reduce housing affordability. When the $8000 first time home buyers tax credit expired in April 2010, median home values dropped by $15,000. This means that people who used the tax credit actually overpaid by $7000. The credit was merely allowing some buyers to bid up housing prices. This could well be happening in Saskatchewan as well.
Saskatchewan’s $1100 First-Time Home Buyers Tax Credit took effect January 1st, 2012. According to data from last two editions of the Demographia International Housing Affordability Survey, released by the Frontier Centre, the median house price in Regina increased by $22,000 between the third quarter of 2011 and the third quarter of 2012. The increase in Saskatoon was $8500. According to the survey, this puts Saskatoon into seriously unaffordable territory, and Regina is on the cusp of entering that category. While there are plenty of factors involved, and it would be difficult to impossible to isolate the effect of the credit, there isn’t any good reason to believe that the effect would be any different than it was in the United States. The Canadian Housing and Mortage Corporation cited the credit as a factor in high housing prices in their Housing Market Outlook reports for both Regina and Saskatoon, though they did not attempt to quantify the impact.
Given the rapid cost escalation in Saskatchewan’s housing markets, pouring gasoline on the fire seems like a poor choice. Though boutique tax credits are often considered vote winners, they don’t always help the intended beneficiaries.