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Finance Minister Bill Morneau makes an announcement on housing in Toronto on Monday. (Nathan Denette/The Canadian Press)
Finance Minister Bill Morneau makes an announcement on housing in Toronto on Monday. (Nathan Denette/The Canadian Press)

Globe editorial

New housing rules a necessary dose of preventive medicine Add to ...

Are you a first-time home buyer concerned about the housing rule changes? Email RYounglai@globeandmail.com and you could be featured in a story.

Politicians have two options when dealing with a potential housing bubble. They can let it go floating by and hope to hell that it doesn’t burst on their watch. Or they can take steps to reduce the odds that it will pop, and to minimize the damage if the effort fails.

Finance Minister Bill Morneau took the second, better option on Monday when he announced measures designed to cool the housing markets in Toronto and Vancouver. He is going to make it harder for some Canadians to get a new mortgage, and he is creating more paperwork for homeowners at tax-filing time, but the cost is worth it.

The most striking change is his decision to close the loopholes allowing unqualified people to benefit from the exemption that lets Canadians and Canadian residents avoid paying taxes on any profit earned from the sale of a primary residence.

This is a signature Canadian policy and probably the most generous tax break most people in this country ever get. The problem is that it has been too easy to take advantage of, in part because there is currently no requirement to report a primary home sale to the Canada Revenue Agency.

Related: Ottawa’s housing reforms target foreign buyers, mortgage debt

Opinion: Stress tests won’t fix Canada’s heated housing market (Subscribers)

Related: Four major changes to Canada’s housing rules

The Globe and Mail has uncovered numerous examples of permanent non-residents benefiting illegally from this tax break. It is now taken as given that stratospheric home prices in the Toronto and Vancouver areas are partly the result of foreign investors, many of them from mainland China, parking their money in Canada’s most active real estate markets and reaping tax-free windfalls.

Under the new rules, people who sell their primary residence will have to report doing so in their annual tax filing. And anyone who isn’t resident in Canada the year they buy a home here won’t be able to claim the exemption for that year.

Mr. Morneau is also making it tougher for Canadians to qualify for new mortgages. All borrowers, whether they put a lot or a little down on a home, will have to demonstrate that they will be able to make their monthly payments when interest rates start to rise.

These measures alone will not cure Canada’s real-estate headaches. Ottawa also needs to look at putting money into affordable housing, among other things. But this is a good start.

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