Why It Just Got Even More Expensive to Buy A Home
...and why Alberta's budget punishes success
As many of you already know the recent budget announced by the Alberta Provincial Government has a plethora of tax increases, new and higher user fees, and some cuts to spending. The changes are wide-ranging, so it's a lot to chew on.
For the sake of our readers, however, I thought I'd focus on two key areas:
- Why it's more expensive to buy a home, and
- Why this budget punishes success and hurts those who drive our economy
- Why this budget punishes the vulnerable in our society
These changes take effect July 1st, 2015...so if you don't want to throw away your money, you should buy before then.
Land Titles and Mortgage Registration Changes
Alberta has long enjoyed some of the lowest real estate closing costs in Canada. This has been a benefit to many people, including first-time home buyers, and has helped to maintain real estate affordability and make home ownership a viable option versus renting.
The two major changes that the province has instituted are as follows:
- An increase to the flat-fee portion of a registration at land titles, from $50 to $75 (a 50% increase)
- An increase to the variable-fee portion of a registration at land titles, from .02% to .12% - a whopping 500% increase!
How This Punishes Success
The nicer and more expensive home you buy, the more you'll pay under this new model. Why is that, you ask? Good question! After all, the cost of registering a $600,000 mortgage at land titles is the same as the cost of registering a $150,000 mortgage. It seems as though the government is basing it's pricing on "ability to pay" instead of on "equal prices for the same service for all citizens".
Let's take the analogy a bit further. How would you feel if the grocery store charge you more for an apple than the guy in line behind you, just because you make more money? The apple didn't cost the store anymore. The guy growing the apple got the same price for it from the wholesaler. It's nutritionally the same and both taste great. Why on earth would you punish one person for making more money than the other for the same good?
Remember, the people earning big incomes have often sacrificed a lot to get their education, to work their way to the top, often working in dismal conditions, remote locations (think Fort Mac), away from their families and taking big risks - physically and financially. They're spending a healthy chunk of what they earn on goods and services, which supports the economy, and pay a substantial proportion of tax already. The properties they buy support higher property taxes for our municipalities too.
Punishing success through excess taxation is a demotivator and a competitive risk. After all: money and talent are mobile.
Service fees like the mortgage registration fee and land title fees are mandatory if you want to own real estate in Alberta. You don't have a choice...but if you want something nice, the government thinks you owe them more for nothing in return.
How This Hurts the Vulnerable
Maybe you don't care that much about people who work hard, make a good living, and use their own money to buy a home and register a big mortgage on it. Ok...but what about people who have scrimped and saved their whole lives to buy a home, own it, pay down the mortgage and build some equity? What abou them? What happens when they lose a job because they work in oil and gas, or for a spinoff company, or are hit by some of the government's own cuts? What if they have a small business that is struggling as a result of the weakening of our economy?
These fees will hit the vulnerable even harder because they apply to refinancing as well. If someone has some equity in their home and wants to use that - THEIR equity - to improve their financial situation, the government is now taxing that person's equity by increasing these fees...and it's a substantial increase.
Remember - that's money now that will go to pay for the excessive government spending we've seen - instead of into our economy. That's another $900 that can't be used to buy groceries, make a car payment, put a kid into sports, or put into savings or investments. It gets sucked into the great big vacuum of government waste - waste that they've created, and you have to pay for.
To compare, we use a $500,000 home purchase and a $400,000 mortgage: