2003 Pre-Budget Submission September 2002

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					THE CANADIAN REAL ESTATE ASSOCIATION




  2003 Pre-Budget Submission




         September 2002
                            2003 Pre-Budget Submission

Table of Contents

1. Introduction                                                                      1

2. Executive Summary
   i.   REALTOR View on Fiscal Policy                                                2
   ii. Brownfield Redevelopment Offers Opportunities                                 3
   iii. A National Affordable Housing Strategy                                       4
   iv. Tax Deferral for Investment Property                                          7
   v. Why it's Time to Raise RRSP Contribution Limits                                8

I.   REALTOR View on Fiscal Policy                                                   9

II. Brownfield Redevelopment Offers Opportunities                                   13

III. Affordable Housing                                                             14
     The Housing Need                                                               14
     Putting REALTOR Expertise to Work for Affordable Housing                       15
     Public and Private Dimensions                                                  16
     The Current Federal Role                                                       16
          Direct Financing                                                          16
          Addressing Systemic Barriers to Housing Affordability                     17
          RRAP program                                                              19
          Mortgage Insurance for Rental Housing                                     20
     Other Areas for Federal Action                                                 20
          Shelter allowances                                                        20
          Ending rent controls                                                      21
          Homelessness                                                              22

IV. Tax Deferral for Investment Property                                            24

V. Why It's Time To Raise RRSP Contribution Limits                                  26
   Raising Contribution Limits Encourages Canadians To Save More                    26
   Contribution Limits are Insufficient                                             27
   Contribution Limits are Unfair                                                   28
   Contribution Limits Have Fallen Behind                                           30
   Contribution Limits are Uncompetitive                                            31

Appendix A: Home Buyers’ Plan                                                       32

Appendix B: Special Report on MLS® Home Sales                                       33




                  The Canadian Real Estate Association 2003 Pre-Budget Submission
1. Introduction

CREA represents more than 65,000 licensed and registered members who are engaged in
all aspects of the real estate industry. They subscribe to a strict code of ethics. CREA has
proprietary rights to the REALTOR trademark. Through the Multiple Listing Service® (MLS®),
a co-operative listing system used exclusively by members of the real estate boards, there
were 421,180 property transactions in the year 2001 representing $73.3 billion in economic
activity. The residential component accounted for 380,700 units valued at $65.4 billion.

The Association's recommendation to formally set declining debt targets and establishing
spending limits to provide the additional fiscal room for further tax cuts and improved fund-
ing for government services addresses the goal of best assuring all Canadians the highest
quality of life. The recommendation to raise RRSP contribution levels and index the contri-
bution ceiling would enable Canadians to enjoy the highest quality of life in their retirement
years.

Additionally, we also advocate improved tax treatment for investment properties, affordable
housing and brownfield remediation which can contribute to alleviating the shortage of rental
housing while boosting economic and job growth. Our 2003 Pre-Budget Submission also
makes a number of other recommendations aimed at improving the quality of life for those
in need of affordable housing that do not involve making amendments to the Income Tax Act.




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                  The Canadian Real Estate Association 2003 Pre-Budget Submission
    2. Executive Summary

    i. REALTOR View on Fiscal Policy

    Beginning with the 1998 budget, a Contingency Reserve had been set annually at $3 billion.
    The 2000 budget set aside $2 billion for economic prudence for 2001-02. However, the
    2001 budget reduced the Contingency Reserve by half and eliminated funds for economic
    prudence.

    With economic growth running far stronger than anticipated in the 2001 Budget, the
    government should reinstate the full $3 billion Contingency Reserve and set aside $2
    billion for economic prudence beginning with fiscal year 2002-03.

    The Budget Plan 2001 also projected a balanced budget and suspended debt repayment for
    2001-02. However, in his statement to the House of Commons Standing Committee on
    Finance on June 19, 2002, Deputy Prime Minister and Minister of Finance John Manley said
    that "…we can reasonably expect a surplus of around $6 billion for 2001-02. This surplus
    will be used to further pay down the debt."

    We applaud the decision to use the unanticipated fiscal surplus to pay down the debt.
    Paying down the debt permanently reduces interest payments and creates the fiscal room
    necessary to cut taxes further and to boost spending on other priorities such as health care,
    education and security.

    Unfortunately, Budget Plans in recent years have failed to include meaningful debt reduc-
    tion. Instead, a pattern has emerged whereby the national debt is forecast to remain stable,
    tax revenues are underestimated and higher-than-expected actual tax revenues are used to
    fuel unbudgeted program spending.

    The Canadian Real Estate Association recommends that the federal government
    incorporate debt repayment as an integral part of the budget. Announcing two-year
    rolling debt-reduction targets as part of the Budget would signal the use of fiscal surpluses
    to repay the national debt as a lasting priority. Using economic prudence and contingency
    reserves alone toward debt repayment is too tepid a commitment, since they are available
    only if not required for their primary purposes.

    By announcing diminishing debt targets, taxpayers can be assured that their personal
    income taxes will be used to create the additional fiscal room necessary for further tax cuts
    and to improve publicly funded services of importance to all Canadians. In short, announc-
    ing declining debt targets in the Budget would assure Canadians that the government has a
    specific plan to improve Canadians' standard of living.




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                      The Canadian Real Estate Association 2003 Pre-Budget Submission
ii. Brownfield Redevelopment Offers Opportunities

Disused urban industrial and commercial sites classified as Brownfields in many cases offer
opportunities for redevelopment. They are often centrally located with access to infrastruc-
ture. Their potential uses can contribute to urban densification, community revitalization,
economic development, job creation and housing solutions.

CREA's National Commercial Council (NCC) has participated in the development of
Brownfield Redevelopment Strategy. We support the view that a variety of tax incentives will
be required. The proposal with the greatest potential for success is the recommendation that
remediation costs be treated as a deductible expense when computing income for tax pur-
poses.

CREA recommends that Sections 18 and 20(1) of the Income Tax Act be amended to
allow remediation expenses to be treated as a deductible expense.




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                  The Canadian Real Estate Association 2003 Pre-Budget Submission
    iii. A National Affordable Housing Strategy

    The Housing Need
    Canada Mortgage and Housing Corporation, the Federation of Canadian Municipalities, the
    Prime Minister's Task Force on Urban Issues, the Provinces and housing stakeholders have
    all identified a serious problem of housing affordability in most urban regions.

    The problem is most acute for low-income Canadians, unable to afford rents in existing
    housing and, in some cases, a shortage of units that results from years of disincentives for
    new construction.

    Putting REALTOR Experience to Work
    REALTORS who earn their living from housing Canadians are concerned about the entire
    housing affordability problem, from homelessness to favourable market conditions for home
    buyers.

    REALTORS are actively contributing to affordability solutions in different regions. Alberta
    Real Estate Association members are partnering with governments to develop new housing
    and to renovate existing properties. Winnipeg Real Estate Board members have taken a
    leadership role in creating the Housing Opportunity Partnership program, which helps
    restore and revitalize neighborhoods. The London & St. Thomas Real Estate Board con-
    tributes to affordability solutions as the only private sector organization on the London
    Housing Authority Council.

    Housing needs vary from region to region. As a national organization, CREA wants to con-
    tribute to a national affordable housing strategy in partnership with provincial real estate
    associations and community real estate boards

    Public and Private Dimensions
    The private sector must play a significant role in an effective national strategy. All orders of
    government must also contribute to solutions to affordability problems.

    The federal government's first priority should be to ensure taxation and regulatory policies
    will encourage the private sector to build and maintain affordable housing.

    Equally important are federal programs that support low-income occupants of existing
    housing stock. The Residential Rehabilitation Assistance Program (RRAP) operated by
    CMHC has been particularly successful.

    The federal government must continue, with the provinces, to fund a shelter component of
    the social safety net.




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                       The Canadian Real Estate Association 2003 Pre-Budget Submission
The Current Federal Role

1. Direct Financing
Mindful of previous federal funding for public housing, CREA has concerns with direct sub-
sidization of the construction of new units and recommends rigorous evaluation of the cur-
rent federal-provincial agreement with respect to allocation of funds and targeting before
any extension of the program is approved.

We are pleased that the current agreements, with $680 million in federal funding over five
years, is aiming for effective targeting and leaves delivery to the provinces.

CREA favours a range of other measures, outlined below, rather than further emphasis on
subsidization, after the current program expires.

2. Systemic Barriers to Affordability
Much of the current problem of affordability can be traced back over 20 years to a federal
tax environment that has discouraged both investment in, and maintenance of, affordable
rental units.

In the next budget, the federal government should implement several tax changes:

   (i) Residential rents should be zero-rated under the GST so landlords could recover
         tax paid on purchases, repairs and improvements through GST input tax credits.
   (ii) Rental investors should qualify for the small business deduction for income tax
         purposes.
   (iii) All taxpayers, not just companies in the business of real estate, should be able to
         apply capital cost allowance losses against income from other sources.
   (iv) The CREA proposal to defer capital cost allowance when an investment property
         is sold in exchange for another property, if applied to affordable housing, would
         contribute to a solution.


3. The RRAP Programs
The RRAP Programs are well targeted to low income occupants of existing housing stock,
enabling them to carry out repairs that maintain the properties at acceptable levels for
health, safety and accessibility.

RRAP is perhaps the greatest success of federal housing policy. It has delivered the intend-
ed results efficiently and effectively. In the process it has created thousands of jobs.

As the housing stock ages, there will be an increased demand for repairs by households in
core housing need.

CREA supports an increase in total funding of RRAP programs annually for the next five
years.

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                  The Canadian Real Estate Association 2003 Pre-Budget Submission
    4. Mortgage Insurance
    Changes to CMHC's mortgage insurance for rental units have provided borrowers with
    added flexibility for financing. CREA urges CMHC to work with stakeholders with a view to
    further improving the program.

    5. Shelter Allowances
    If governments are prepared to restore a tax and regulatory climate that is conducive to the
    construction of rental units -- while there will always be exceptions -- the problem of afford-
    able housing will usually be a shortage of income to afford rents, rather than an actual short-
    age of units.

    Financial assistance to individuals, through direct shelter allowances or rent supplements
    are the most cost-effective way for governments to assist low-income tenants.

    6. Rent Controls
    As additional rent supplements are implemented, provincial rent controls should be phased
    out. Rent controls, while politically attractive, are economically disastrous. They do not ben-
    efit those most in need.

    7. Homelessness
    There is a serious problem of homelessness in most larger cities. The solution requires con-
    certed efforts by all orders of government, the voluntary and private sectors. CREA urges
    the federal government to continue to fund the Supporting Communities Partnership
    Initiative (SCPI) beyond the current 2004 commitment.




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                      The Canadian Real Estate Association 2003 Pre-Budget Submission
iv. Tax Deferral for Investment Property

 The Canadian Real Estate Association's National Commercial Council (NCC) pro-
 poses that the Income Tax Act be amended to permit capital gains tax deferral for
 investment properties.

NCC members specialize in small-scale commercial real estate. They know the proposal
would be most beneficial to the small investor. Many of their clients invest in residential
rental properties.

Currently these investors have no inventive to sell and invest in larger properties, or prop-
erties at different locations. On the contrary, the tax consequences act as a disincentive.

The concept of deferring tax is in the Income Tax Act, however, rental property is excluded
from eligible definitions.




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                  The Canadian Real Estate Association 2003 Pre-Budget Submission
    v. Why it's Time to Raise RRSP Contribution Limits

    Registered Retirement Saving Plans (RRSPs) are not a "program for the rich". A variety of
    middle-income salaried employees are adversely affected, such as nurses, plumbers, police
    officers, sales managers, and school administrators . Moreover, RRSPs play a vital role for
    over 2.4 million self-employed Canadians who must plan their own retirement without the
    luxury of a company-assisted pension plan.

    Carry-forward provisions have not existed long enough for aging baby boomers to be able
    to exceed RRSP contribution ceilings sufficiently during their peak earning years to make up
    for foregone contributions when the expense of raising a family made it difficult to save for
    retirement. Raising the contribution ceiling would enable aging baby boomers to save more
    for retirement during those years when their capability of doing so is highest.

     CREA urges the government to increase RRSP annual contribution limits
     immediately to $19,000 and by $2,000 each year thereafter until reaching $27,000.
     The contribution ceiling should also be adjusted for inflation annually.

    Immediately raising the RRSP contribution limit to $19,000 would ensure that all middle
    income earners in the third personal income tax bracket are treated equally. Increasing the
    contribution ceiling to $27,000 would enable RRSP contribution limits to catch up to other
    pension benefits and contributions, and improve the international competitiveness of
    Canada's tax-sheltered private retirement savings policy.

    Indexing the RRSP contribution ceiling would address the inconsistency introduced into the
    tax system when full indexation of income tax brackets was introduced in the Budget Plan
    2000. Full indexation of the contribution ceiling would end the automatic erosion in
    Canadians' ability to save for retirement due to inflation.




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                      The Canadian Real Estate Association 2003 Pre-Budget Submission
I.      REALTOR View on Fiscal Policy

Contingency Reserve

Beginning with the 1998 budget, a Contingency Reserve had been set annually at $3 bil-
lion. The 2000 budget set aside $2 billion for economic prudence for 2001-02.

However, the 2001 budget reduced the Contingency Reserve by half and eliminated funds
for economic prudence while indicating that:

     "It is the Government's intention to rebuild the normal Contingency Reserve and
     economic prudence as soon as possible."

 With Canadian economic growth far stronger than was anticipated in the 2001
 Budget, the government should reinstate the full $3 billion Contingency Reserve
 and set aside $2 billion for economic prudence beginning with fiscal year 2002-03.


Debt Repayment

In his statement to the House of Commons Standing Committee on Finance on June 19,
2002, Deputy Prime Minister and Minister of Finance John Manley said that "…we can rea-
sonably expect a surplus of around $6 billion for 2001-02. This surplus will be used to fur-
ther pay down the debt."

Since the Budget Plan 2001 projected a balanced budget and suspended debt repayment
for 2001-02, we applaud the decision to use the unanticipated fiscal surplus to pay down the
debt.

The Canadian Real Estate Association first recommended in our 1998 pre-budget submis-
sion that the federal government incorporate debt repayment as an integral part of the budg-
et, and has included the proposal in our submission every year since then.

We continue to be of the view that, as with outstanding credit card balances and personal
loans, there should be at least a minimum annual obligation to repay the national debt. Debt
repayment should be accounted for after public debt charges and before the Contingency
Reserve so that it is incorporated in the budgetary balance over the two-year budget plan-
ning horizon.

Formalized debt reduction targets would fortify the commitment toward debt repayment. In
their absence, debt repayment runs the risk of being perceived as a non-priority and
reduced to an ad hoc decision subject to change with each succeeding budget.




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                   The Canadian Real Estate Association 2003 Pre-Budget Submission
     Including explicit debt reduction in the budget would also remove prevailing uncertainty
     about whether higher-than-anticipated revenues will be used to increase spending. The
     government's history of underestimating budgetary revenues and spending in the absence
     of explicit debt repayment has given rise to these suspicions, as shown in the table below:

     Figure 1

                                                     Fiscal Year:
                              1999-00                  2000-012001-02
            Budget      Total  Program   Total  Program   Total   Program
             Plan:     Revenue Spending Revenue Spending Revenue Spending
             1999       156.7    111.2   159.5   113.2
             2000       160.0   115.5    162.0   116.0    168.0     121.5
             2001                        178.6            171.3     130.5


     For example:

     •   Total revenue and program spending for 2000-01 in the 2000 budget was revised
         upward in the 2001 budget by $16.6 billion and $3.3 billion respectively.

     •   Total revenue and program spending for 2001-02 in the 2000 budget was revised
         upward in the 2001 budget by $3.3 billion and $9 billion respectively.

     Higher-than-projected tax revenues should be used to pay down the debt and provide fur-
     ther tax relief, not to boost spending on new programs. Strengthening the commitment to
     debt repayment would also lower interest payments and make additional resources avail-
     able for priority programs such as health, education and security.

     While five consecutive fiscal surpluses since 1997-98 have enabled debt repayment of
     $41 billion, the debt burden remains too high.

                                              Net Federal Debt




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                       The Canadian Real Estate Association 2003 Pre-Budget Submission
According to the 2001 budget, about 24 cents of every tax dollar collected in 2001-02 was
to be used to pay interest on the debt.
                       Debt Charges as a % of Total Revenues




While debt charges as a percentage of spending have been falling in recent years, they
must continue to fall and spending discipline must be the order of the day. While progress
on the debt has been made, our debt burden is much bigger than the United States', our
largest competitor.
                                  Canada vs. US Debt
                       As a Percentage of Gross Domestic Product




Including specific debt repayment in the Budget Plan would send a clear message that the
government committed to lightening the debt burden for all Canadians. It is the single most
important action the government can take toward raising Canadian taxpayers' standard of
living.

Spending Limits

To ensure that a higher-than-forecast fiscal surplus is not reduced via increased spending,
rolling two-year spending limits should be legislated and incorporated into the two-year plan-
ning horizon for the federal budget.

Legislated spending limits would boost fiscal policy credibility in the same way that inflation
targets have established monetary policy credibility. Spending limits would also ensure that
a higher-than-expected fiscal surplus would be available for additional tax cuts or debt
repayment.

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                  The Canadian Real Estate Association 2003 Pre-Budget Submission
     The Five Year Tax Plan

     The October 2000 Economic Statement and Budget Update launched a five-year plan of
     individual and corporate tax cuts which, when combined with tax cuts announced in the 2000
     budget, promised to total $100 billion by the end of fiscal year 2004-05.

     While these tax cuts were the biggest in Canadian history, more can be and must be done.
     Even with these tax cuts, Canadians remain overtaxed.

     According to the 2001 budget, tax expenditures and general tax actions announced in the
     2000 budget, the 2000 economic statement and the 2001 budget will total $61 billion by the
     end of fiscal year 2003-04.

     The budget planning horizon in the 2001 budget ends in 2003-04, just one year before the
     end of the five-year tax cut plan. If the value of previously announced tax cuts for 2004-05
     is conservatively estimated to be equal to that for the previous year, the government will fall
     $17 billion short of the $100 billion goal. Alternatively, if the value in 2004-05 of previously
     announced tax cuts is conservatively estimated to grow at the same rate as the previous
     year, the goal of $100 billion in tax cuts by 2004-05 will have been exceeded.

     Regardless of the value in 2004-05 for previously announced tax cuts, additional tax cuts
     must be made. Persistently higher than expected tax revenues and fiscal surpluses suggest
     that budgetary resources permit additional tax cuts beyond those already announced, so
     long as spending discipline is maintained.

     Our association proposes a number of tax measures below to improve Canadians' quality
     of life, make the business environment more favourable for economic growth and trade, and
     assure greater levels of economic prosperity.




12
                        The Canadian Real Estate Association 2003 Pre-Budget Submission
II.    Brownfield Redevelopment Offers Opportunities

Canada is the only G-8 nation that has not developed a national strategy for brownfield
redevelopment. CREA commends the Federal Government for creating a National
Brownfield Redevelopment Strategy Task Force in the December 2001 budget. CREA has
participated in the Task Force's stakeholder consultations and is encouraged by the scope
and direction of the draft Strategy.

Brownfield sites are derelict, dysfunctional or under-used industrial and commercial facilities
where expansion or redevelopment is complicated by real or perceived environmental con-
tamination. Brownfields have the advantage of infrastructure in place and a variety of poten-
tial uses. Redevelopment can contribute to urban intensification, community revitalization,
economic development and jobs. They can lead to the creation of new housing.

CREA's National Commercial Council is a council of more than 4,500 specialists within the
Canadian Real Estate Association. The council provides a strong interactive network for
members practicing industrial, commercial, and investment real estate.

Part of the council's mandate is to formulate recommendations on issues of public policy
involving commercial real estate. The council has participated in the development of the
National Brownfield Redevelopment Strategy. In addition, some of the Canadian Real
Estate Association's member real estate boards are actively addressing the problem of
remediation of brownfield sites in their communities.

Our experience supports the view that a variety of tax incentives to brownfields redevelop-
ment will be required. Of the various proposals under discussion, the one with the greatest
potential for success is the recommendation to treat remediation costs as a deductible
expense when computing income for tax purposes.

The current requirement that funds spent on remediation generally have to be treated as up-
front capital, rather than a deductible expense, has a chilling effect on investment in brown-
fields. In many urban areas, brownfields are situated in prime locations that are fully serv-
iced. They offer significant public benefits through a variety of uses. Private sector investors
are prepared to participate. If redevelopment represents sound public policy -- and we are
convinced it does -- a tax incentive directed at environmental cleanup could help brownfields
compete economically with other greenfield sites.

The proposed deduction could be claimed in the year the cost is incurred, or it could be car-
ried forward without limitation to subsequent years.

In the year that a remediated property is sold at a gain for tax purposes, a clawback could
operate to include any capital costs made in respect of the property that were previously
deducted.

 CREA recommends that Sections 18 and 20 (1) of the Income Tax Act be amended
 to allow remediation expenses to be treated as a deductible expense in computing
 income.
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                   The Canadian Real Estate Association 2003 Pre-Budget Submission
     III. Affordable Housing

     The Housing Need

     The Committee has asked us to comment on measures the government can take to best
     assure the highest quality of life for all Canadians. Adequate shelter is a basic need. Next
     to health, nothing is more important to Canadians. Yet there is evidence that substantial
     numbers are struggling with the affordability of shelter.

     In its 2001 Annual Report, Canada Mortgage and Housing Corporation (CMHC) estimates
     that 1.7 million families are in "core housing need." CMHC found that the majority of these
     are families with children, senior citizens and aboriginal households. The Federation of
     Canadian Municipalities (FCM) has called homelessness and the affordable housing situa-
     tion a "national disaster".

     Housing need in Canada is not new. For more than 80 years, the federal government has
     taken measures to assist, whether through the direct creation of housing units, or rehabili-
     tation of existing housing stock. CREA has closely monitored the changing array of federal,
     provincial and municipal housing programs over our 59-year history, frequently making rec-
     ommendations on issues of affordability.

     Public policy is concerned with affordability issues across most of the housing spectrum.
     REALTORS are concerned with the full range of affordable housing issues, from homeless-
     ness to housing financing for first-time homebuyers to housing affordability for all
     Canadians. In this paper, we address only issues that apply to the rental sector and home-
     lessness.

     The problem is well known to the federal government. In releasing the Liberal Task Force
     Report on Housing on May 14, 1990, Paul Martin, MP, noted, "The lack of affordable hous-
     ing contributes to and accelerates the cycle of poverty, which is reprehensible in a society
     as rich as ours." In the 2000 Red Book, the Liberal Party wrote, "Canada's urban regions
     are experiencing a severe shortage of affordable rental housing. New construction of rental
     housing is at a near standstill. These shortfalls, combined with massive population increas-
     es, have brought vacancy rates to an all-time low and pushed costs beyond the reach of
     many Canadians."

     More recently, the Prime Minister's Caucus Task Force on Urban Issues identified affordable
     housing shortages as a critical problem facing Canadian society.

      In nearly every major urban region, the Task Force heard that the shortage of affordable
      housing is one of the biggest challenges affecting economic competitiveness and quality
      of life. Municipal governments and housing providers cannot meet the demand for
      affordable housing and emergency shelter. As more and more people migrate to cities,
      the pressure to find suitable accommodation has a ripple effect on society as a whole. As
      competition for existing housing stock intensifies, tenants at the lower end of the market
      increasingly have no choice but to turn to shelters or remain in already overcrowded
      conditions.
             - Interim Report, Prime Minister's Caucus Task Force on Urban Issues, April 2002.

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                       The Canadian Real Estate Association 2003 Pre-Budget Submission
Putting REALTOR Expertise to Work for Affordable Housing

REALTORS are informed about the Canadian housing market, and are a valuable resource
in matters relating to housing. REALTORS in many parts of the country are sharing their
market expertise and actively working to create local solutions.

In Alberta, where there is a pronounced shortage of affordable housing, REALTORS have
become important community resources. By bringing a diverse range of partners to the
table, REALTORS have helped to create public-private solutions through the Alberta Real
Estate Association's Affordable Housing Initiative, providing a Facilitator to work with local
REALTORS. To date 18 projects that will create 302 units have been launched. The projects
are in Brooks, Calgary, Edmonton, Fort McMurray, Lethbridge, Medicine Hat and Red Deer.
The projects include construction of new units, as in Fort McMurray, as well as renovating
existing properties, as in Edmonton. A member of the Calgary Real Estate Board has been
named the Calgary Homeless Foundation's Volunteer of the Year.

While Winnipeg has one of the best housing affordability indexes in the country, many
renters who have sufficient income to qualify for a mortgage may not have saved enough
money to cover the required downpayment and closing costs. The Winnipeg Real Estate
Board has taken a leadership role in creating the Housing Opportunity Partnership (HOP)
program, which helps bring home ownership into reach and revitalizes neighborhoods,
bringing a positive impact to housing values in the area. To date, HOP has invested more
than $2 million in the city. Thirty homes have been acquired with 23 sold, one for sale and
six under renovation as of April 4, 2002.
 The London and St. Thomas Real Estate Board is the only private sector organization to sit
 on the London Housing Advisory Council, which reports to city council on housing related
 matters. "How have we benefited as a Board? We have come to know and
 understand our community - our entire community - far better than before. We have been
 educated in a matter that, as REALTORS, is of the utmost relevance to us. We have been
 given the opportunity to help grow the community that gives us our livelihood. We have
 earned the gratitude and respect of other community stakeholders, and, frankly, that has
 inspired us beyond measure."
                 - Michael Hines, President of the London and St. Thomas Real Estate Board.

As these examples demonstrate, the housing need is not uniform across the country. In
some areas, new units are required. In others, the revitalization of existing housing stock
that is currently uninhabitable is needed. This means that, generally, the most effective solu-
tions are created locally.

The Prime Minister's Caucus Task Force on Urban Issues recommended in its interim report
the creation of a National Affordable Housing Strategy. CREA agrees with the interim rec-
ommendations of the task force insofar as it calls for a long-term strategy to be developed.
CREA has concerns, however, that such a strategy will emphasize financing of new afford-
able housing units and undervalue the need for systemic changes that are needed.

As a national association, CREA wants to contribute to the development of a national afford-
able housing strategy, both directly and - since regional housing issues vary significantly -
through the participation of provincial associations and local real estate boards.
                                                                                                  15
                  The Canadian Real Estate Association 2003 Pre-Budget Submission
     Public and Private Dimensions

     CREA believes the private sector must play a significant role in finding solutions to the lack
     of affordable housing available in many regions of Canada. This is not to say, however, that
     the private sector can resolve the problem on its own. All orders of government have an
     important role to play in the stimulation of affordable housing construction and renovations,
     and in taking measures to increase housing affordability.

     Indeed, the 1990 Liberal Task Force on Housing concluded, "Task Force members believe
     that all Canadians deserve decent, affordable housing. The Task Force does not believe
     that the national government, the private housing sector, or the non-profit sector can, in iso-
     lation, resolve the tremendous housing deficiencies facing this country."

     What, then, is the appropriate role for the federal government, bearing in mind that housing
     is primarily a provincial responsibility and that municipalities must play a significant role in
     the delivery of programs?

        1. CREA believes the first priority for the federal government should be to ensure that
           taxation and regulatory policies under its control will encourage the private
           sector to build and maintain affordable housing.

        2. Equally important are federal programs - some administered by CMHC - that
           support low-income occupants of existing affordable housing stock. Private stock
           houses the vast majority of Canadians who are in core housing need. Some
           existing programs, particularly RRAP, are essential. In addition, governments
           must be prepared to think "outside the box," eliminating rent controls in favour of
           shelter allowances.

        3. There will always be a need to include a shelter component in the social safety
           net to house those in greatest need and minimize homelessness. The federal
           government should continue to provide funding with the provinces for locally
           operated shelters.

     The Current Federal Role

     The federal government has recently demonstrated it is prepared to take a leadership role
     in providing affordable housing. CREA applauds the government's goal, but expresses
     concern over the direct public financing of new affordable housing units.

     Direct Financing

     In 2001, the federal government committed $680 million over five years to stimulate the
     creation of more affordable housing units. This is the first direct public funding of new
     affordable housing units since 1993. Federal-Provincial Affordable Housing Program
     Agreements have now been signed with most provinces and territories.

16
                        The Canadian Real Estate Association 2003 Pre-Budget Submission
In the past, CREA has expressed serious concerns with federal direct subsidization of hous-
ing units. Subsidies have produced expensive, ill-conceived, poorly-targeted public housing.
Construction subsidies in the past have temporarily provided additional units, but shortages
have returned once the subsidies ended, as sooner or later they have always ended.

The current Affordable Housing Initiative seeks to avoid, or to minimize, these problems.
Provinces and territories are primarily responsible for design and delivery of the programs.
There will be partnering with the private and non-profit sector. The agreement stipulates that
funds are for low-to-moderate income households, thus at least recognizing the need for
effective targeting.

The federal government downloaded responsibility for social housing to the provinces in
1993. Since then, CMHC has downsized. Today, it operates substantially in a commercial
manner. The corporation is no longer adequately equipped to administer affordable housing
programs throughout Canada, nor should it be.

The new minister responsible for CMHC has entertained the idea of an expanded future fed-
eral role in public housing based on CMHC's record of the sixties and seventies. CREA
urges the government to resist any temptation to expand subsidization of new rental hous-
ing. Any substantially increased mandate for CMHC in public housing will require additional
administrative bureaucracy.

CREA believes the federal government and the provinces must enforce rigid rules for
the allocation and targeting of funds under the current program. An independent eval-
uation should be completed before any extension of the agreement. CREA further
believes that direct subsidies are no substitute for other measures, outlined below,
which would alleviate much of the current affordability problem.

Addressing Systemic Barriers to Housing Affordability

In 1992 CREA recommended changes to the tax system to allow for equitable and equal
treatment of rental housing. The government did not accept the proposals outlined in the
paper, Less Equitable and Less Neutral.

Unfortunately, as a result, the problem we described 10 years ago not only persists - it has
become more acute. CREA pointed out that tax changes, dating to the tax reforms of the
eighties, had increasingly disadvantaged investment in rental housing which very much
includes the construction of affordable units. "When the recovery gets fully under way and
the demand for rental accommodation strengthens, the fall-off in starts of rental units, if it
persists, will lead to a shortage of affordable rental housing that could reach crisis
proportions."




                                                                                                 17
                  The Canadian Real Estate Association 2003 Pre-Budget Submission
     In the fall of 2000, federal, provincial and territorial ministers of housing agreed to study the
     tax environment as one of the barriers to the affordability of housing. We recognize housing
     policy must be implemented by all orders of government. But the joint ministers' forum must
     not be used to delay reforms by any one government. In this case two years have passed
     without published results. CREA, along with other stakeholders, have identified the need for
     federal action in this area.

     We have identified three tax measures, advocated for many years by housing-interested
     groups, that the federal government could take to stimulate creation of additional affordable
     housing units.

        1. Residential rents should be zero-rated under the GST so that landlords would be
           able to recover tax paid on purchases, repairs and improvements through input tax
           credits. Unlike other businesses, rental housing owners must bear the cost of the
           GST because residential rents are exempt from GST, i.e., there are no GST cred
           its to apply against receipts paid for the development and operation of rental
           housing.

        2. Rental investors should qualify for the small business deduction for income tax
           purposes. The Income Tax Act at present precludes small rental landlords from
           being considered "small business" for income tax purposes. The provision results
           in much higher taxes payable on rental investment than for other similar ventures.
           This clearly adversely affects the attractiveness of rental investment for individuals
           and small business - the majority of rental landlords in Canada.

        3. All taxpayers (not just companies in the business of real estate) should be able to
           apply capital cost allowance losses against income from other sources.

     In addition, we urge the government to apply the proposal we outlined in last year's sub-
     mission to affordable housing. This is the recommendation of our National Commercial
     Council members to allow deferral of capital gains tax upon the disposition of an investment
     property provided the proceeds are reinvested in another property in compliance with a set
     of rules.

     This measure, outlined in more detail in another section of this submission, would help to
     increase the supply of new affordable rental housing.

     We note that the proposal - as applied to rental housing - is supported by the Canadian
     Home Builders' Association and the Canadian Federation of Apartment Associations.




18
                        The Canadian Real Estate Association 2003 Pre-Budget Submission
   CREA calls on the federal government to implement taxation measures to help
   stimulate the creation of additional affordable housing units. Specifically, CREA
   recommends the government:

   •   Zero-rate residential rents should be under the GST.
   •   Allow rental investors to qualify for the small business deduction for income tax
       purposes.
   •   Allow all taxpayers to apply capital cost allowance losses against income from
       other sources.
   •   Allow capital gains tax to be deferred when an investment property is sold,
       provided the proceeds are re-invested in another property.

RRAP program

Assistance to maintain aging housing stock in safe, livable conditions has deep roots in
Canadian public policy. The Residential Rehabilitation Assistance Program itself dates to
1973. The program has provided 500,000 mostly forgivable loans to help rehabilitate more
than 650,000 dwellings. Over the years targeting has improved. More than 80 per cent of
clients had incomes of $20,000 or less in 1998-99 and all clients were in core housing need.

Originally designed for qualifying homeowners and landlords, RRAP has evolved to include
components for persons with disabilities, rooming houses, rural and native housing, con-
versions of non-residential buildings into affordable housing and assistance to upgrade shel-
ter accommodation.

The program creates thousands of jobs. CMHC estimates that about 135,000 person years
of employment have been created between 1974 and 2000. CMHC studies have shown that
4,635 person years of employment are generated by $100 million spent on renovations
compared with 3,780 for the same spending on new construction.

From 1986 to 1999 RRAP supported the repair and improvement of 261,000 self-contained
homeowner and rental units, and 13,400 rooming house and hostel units to bring them up
to minimum standards for health, safety and accessibility. In the year 2000, 18,150 units
were assisted by all forms of RRAP.

A report commissioned by CMHC estimates that over the next nine years, based on a strong
correlation between the age and condition of housing stock, the number of units in need of
major repair occupied by households in core need will increase by approximately 388,600
households, an average of 43,000 units per year.

In 1998, funding for the federal off-reserve renovation programs was extended for five years
at a cost of $50 million a year. In 1999, annual funding was doubled for four years, expiring
at the end of March 2003.


                                                                                                19
                  The Canadian Real Estate Association 2003 Pre-Budget Submission
     RRAP is perhaps the greatest success of federal housing policy. It has delivered the intend-
     ed results efficiently and effectively. Taking into account its record and expanded future
     need, a substantial increase in RRAP funding is justified.

        The Residential Rehabilitation Assistance Program is a proven and vital federal
        program that helps to rehabilitate aging and decaying housing stock while cre-
        ating jobs. CREA supports an increase in total funding for all RRAP
        programs for the next five years.

     Mortgage Insurance for Rental Housing

     Last year CMHC announced changes to the program for the development of rental units.
     Mortgage insurance provides borrowers with greater access to financing. It creates more
     choice and more affordable housing for all Canadians. Mortgage financing is insurable for a
     variety of purposes, including the purchase of existing property, new construction, renova-
     tions and conversion projects and equity transfer to assist in the purchase or construction of
     another multi-unit residential project.

     Other Areas for Federal Action

     Shelter allowances

     We have noted that the private sector alone can't solve all the problems of housing need.
     We accept that, even if all the recommendations outlined above are implemented, there will
     be Canadians without adequate housing. We submit that subsidies to build more public
     housing have usually proven to be inefficient and ineffective over the long term. The prob-
     lem is usually not a lack of suitable housing, but rather a lack of adequate income. Financial
     assistance to individuals - either through direct shelter allowance or rent supplements or
     through a tax mechanism - can provide effective assistance and offer greater choice to many
     more Canadians than construction of subsidized units.

     Housing economist Greg Lambert's study, Cost Effective Housing Assistance: A Comparison
     of the Costs of Non-Profit Housing Versus Shelter Allowances, shows that shelter
     allowances are the most cost effective way for governments to assist low-income tenants.
     His study shows that critics of shelter allowances who support subsidizing new units under-
     estimate the long-term costs of maintaining the new units.




20
                       The Canadian Real Estate Association 2003 Pre-Budget Submission
Ending rent controls

Rent controls remain in Ontario for existing tenants. They are also in place in Quebec,
Manitoba, New Brunswick, Newfoundland and Prince Edward Island.

Strictly speaking, rent control refers to control by the government of the rent a landlord may
charge for a housing unit. Rent controls were first introduced in Canada following the First
World War, and again following the Second World War. They were introduced as a tempo-
rary measure to combat a perceived emergency situation. Many programs turned out not to
be so temporary. In Canada, the provinces were instructed to introduce rent control pro-
grams as part of federal wage and price controls in 1973.

CREA opposes rent controls and they continue to be a major concern for provincial real
estate associations in the provinces where they exist. In 1985 CREA wrote, "Although assis-
tance is no doubt required for the working poor, the unemployed, the elderly, the single par-
ent family and those in need of special housing (e.g. those with disabilities), it is very hard
to justify continued subsidies for middle and upper income groups. Blanket rent controls
badly distort the rental market and it is becoming increasingly clear that the main losers are
those most in need of help." (Building on Fundamentals: Redesigning Canada's Housing
Policies (1985), The Canadian Real Estate Association, 1985, p. 18)

Although they are provincial in jurisdiction, rent controls can't be ignored as part of a feder-
al-provincial new deal for affordable housing.

While rent controls are politically attractive, they are economically disastrous and can have
a negative impact on those the controls were intended to assist. Rent controls do not dis-
tinguish between those who need assistance and those who do not. Rent controls do not
benefit the poor but the middle class by encouraging high-income earners to stay in rental
accommodation. This in turn reduces the choice of affordable rental accommodation for low-
income groups. Rent controls eliminate new supply by forcing rents below the market price
and reducing the private sector's ability to earn a fair return on investment. This results in
an outflow of investment capital for rental housing to more profitable markets. The reduced
return from investment in rental housing leads to deterioration in the quality and quantity of
existing rental stock.

There is an international body of research that supports the phasing out of rent controls
around the globe. A 1994 United Nations report suggests that while maintaining some
national or local rent regulations may be desirable from a social point of view, "rent control
should be gradually eased with the ultimate goal of covering regular building maintenance
and repair costs. This has to be accompanied by appropriate aid to low-income groups and
by protection against eviction." (1994 United Nations Economic Commission Seminar on
Renewal and Modernization of Human Settlements.) "Controls have existed for as long as
they have because they are governmentally advantageous. Controls do not work because
they address the symptom of a tight market - high prices, not the cause - insufficient sup-
ply," noted George M. Brooker in a report prepared for the Organization of Economic
Cooperation and Development in April 1986.
                                                                                                   21
                   The Canadian Real Estate Association 2003 Pre-Budget Submission
     Rent controls should be phased out in favour of shelter allowances. Shelter allowances
     would ensure that those in need of assistance would be the ones receiving it, as opposed
     to rent controls, which benefit the well off along with the needy.

        CREA calls on the federal government to take a leadership role in encouraging
        the provincial governments to phase out rent controls, in favour of shelter
        allowances and other measures that would better address the intended goal
        without the negative economic side effects.

     Homelessness

     Homelessness is a complex and visible problem. Canada has no official data on homeless-
     ness. The number of homeless depends upon the definition applied. Ottawa social policy
     consultant Barbara Murphy in her book, On The Street: How We Created Homelessness,
     estimated in the year 2000 there were between 35,000 and 40,000 homeless in Canada.
     She arrived at the estimate using the definition, "those using emergency shelters and those
     sleeping in the street." On any given night there were 10,000 using shelters in Toronto and
     Montreal, 5,000 in Vancouver and 1,000 to 2,000 each in Calgary, Edmonton, Saskatoon,
     Regina, Winnipeg, Ottawa and Halifax. Her numbers did not include those living in inade-
     quate housing.

     "Homelessness may not be sexy, but it does rivet one's attention," notes Michael Hines,
     President of the London & St. Thomas Real Estate Board which sits on the London Housing
     Advisory Council. Mr. Hines continues:
     "It is important to realize that 'homelessness' is an umbrella term, covering a range of dif-
     ferent problems. There are homeless people who, for reasons of mental health or sub-
     stance abuse, require the sort of temporary housing provided by shelters - these people
     lack the social skills to adjust to having more permanent housing. Others, who are better
     able to cope, can be more permanently accommodated through increasing the stock of
     rooming houses and other such housing. Then there are women, often with children, who
     require transitional housing in order to break the cycle of abuse or poverty. There are
     those families that are one pay cheque or car payment or appliance breakdown away from
     eviction. Finally there are the working poor."

     Different problems will require a range of solutions. The problems pose a significant chal-
     lenge. Their solution will require all orders of governments and all stakeholders making their
     own distinctive contributions. For their part, the Canadian Real Estate Association, provin-
     cial real estate associations and community-based real estate boards are committed to
     being part of the solution.




22
                       The Canadian Real Estate Association 2003 Pre-Budget Submission
The federal government is to be commended for actively contributing towards solutions
since 1999. CMHC has made research into homelessness a priority in order to acquire
much needed data. The Hon. Claudette Bradshaw has been responsible for coordinating
federal activities and programs. In December 1999, the federal government announced a
$753 million investment over three years to assist homeless people. Of the $753 million,
$305 million went to cities with a significant homelessness problem (Supporting
Communities Partnership Initiative) and $268 million for the Residential Rehabilitation
Assistance Program (RRAP).

The Supporting Communities Partnership Initiative is a $305 million allocation for cost shar-
ing with voluntary and private sector groups to cope with the problem of homelessness. This
program is directed at providing a safety net for society's worst cases. The program is
designed to support local, community-based efforts to identify priorities, plan and develop
appropriate solutions. The goal of the program is to reduce and prevent the underlying fac-
tors of homelessness, with a focus on offering long-term solutions as well as immediate
care.

Funding for the National Homelessness Initiative is set to run out in the 2003-2004 budget
year with only the remaining $16 million of this funding committed for the year. There are
currently no federal commitments to continue this program, or to increase funding to this
program. CREA supports continued federal funding for the National Homelessness Initiative.

Homelessness is a very real problem in Canada. While the causes and solutions to home-
lessness are complex, they still require a concerted effort by all orders of government.
CREA urges the federal government to continue to fund the Communities Partnership
Initiative, at sustainable annual levels, beyond current commitments to 2004.




                                                                                                23
                  The Canadian Real Estate Association 2003 Pre-Budget Submission
     IV. Tax Deferral for Investment Property

     The Canadian Real Estate Association's National Commercial Council (NCC), a divi-
     sion of more than 4,500 members who specialize in small-scale commercial real
     estate, recommends that the Income Tax Act be amended to permit capital gains taxes
     to be deferred for investment properties.

     The NCC Proposal would be most beneficial to the small private investor. The largest pool
     of potentially eligible properties is in the lower market range. It is less likely that large real
     estate corporations would find the option attractive, given the relatively large size of their
     individual holdings and their capital structure.

     A major benefit of the proposal would be stimulus to affordable housing. Many small
     investors hold rental housing. They are currently locked-in, without incentive to sell and
     invest in larger properties, or properties in different locations, because of tax consequences.
     Since few are selling, the government is not reaping tax revenue benefits. The deferral pro-
     posal could actually increase short-term tax revenues through a larger volume of transac-
     tions. Tax liabilities would be transferred to the properties acquired, and be payable upon
     eventual disposition.

     The NCC's proposal offers several advantages. It reflects some of the realities of today's
     investment climate. Individuals have increasing need for flexibility in managing their invest-
     ments.

     For the small investor, tax deferral would:

        •   Make a property more saleable by giving the seller the option of taking other
            property in lieu of a mortgage or cash;
        •   Facilitate changes in investment strategies that may be required as a result of age
            or changes in income;
        •   Increase mobility of property owners at retirement, by allowing changes in the type
            of property owned (a not insignificant consideration for an aging society);
        •   Permit the consolidation of holdings because investors can use this measure to
            organize holdings by type, or geographic location; and
        •   Raise cash by permitting an investor who cannot refinance an existing property to
            trade it for one that is easier to finance.

     At the same time, the proposal addresses some of the shortcomings of real estate as an
     asset class by virtue of its lack of liquidity, and provides it with some of the advantages now
     enjoyed by stocks and bonds.

     No other asset class lacks liquidity, and trading markets exist for stocks and bonds since
     they are so liquid. Pension funds and RRSPs trade in both markets on a tax-free basis. Real
     property is not an eligible asset for an RRSP, so it can only be traded on a taxable basis out-
     side pension funds.
24
                        The Canadian Real Estate Association 2003 Pre-Budget Submission
Why should this measure apply to investment property and not to stocks or bonds?

Real property has four characteristics that distinguish it from other asset classes:

   (a) Real property is long-lived, it has a long productive life and durability contributes
       to this longevity; when it is used for rental housing, it serves a social purpose;
   (b) Buildings and land are immobile - the asset cannot be moved;
   (c) Each piece of property is unique and value is determined by how the market
       perceives the uniqueness; and
   (d) Real property is scarce and the land under each building in a fixed commodity.

The concept is not new to the Income Tax Act. Subsections 13(4) and 44(1) allow a taxpay-
er to defer capital gains where a "former property" is involuntarily disposed of, or a "former
business property" is voluntarily disposed of, and a "replacement property" is acquired.
Subsection 14(6) provides similar treatment in respect of eligible capital property. Rental
property is excluded from the definition of "former business property."




                                                                                                 25
                  The Canadian Real Estate Association 2003 Pre-Budget Submission
     V. Why It's Time To Raise RRSP Contribution Limits

     CREA urges the government to increase RRSP annual contribution limits immediately to
     $19,000 and by $2,000 each year thereafter until reaching $27,000. Upon reaching the
     $27,000 limit, the contribution ceiling should also be adjusted annually for inflation, as the
     2000 budget did for personal income tax brackets.

     Immediately raising the RRSP contribution limit to $19,000 would ensure that all middle
     income earners in the third personal income tax bracket are treated equally. Increasing the
     contribution ceiling to $27,000 would enable RRSP contribution limits to catch up to other
     pension benefits and contributions, and improve the international competitiveness of
     Canada's tax-sheltered private retirement savings policy.

     Indexing the RRSP contribution ceiling would address the inconsistency introduced into the
     tax system when full indexation of income tax brackets was introduced in the Budget Plan
     2000. Full indexation of the contribution ceiling would end the automatic erosion in
     Canadians' ability to save for retirement due to inflation.

     Raising Contribution Limits Encourages Canadians To Save More

     The Committee is concerned with how the government can assure the highest quality of life
     for all Canadians. Increasing the maximum RRSP contribution ceiling will encourage
     Canadians to save more for their retirement years, thereby reducing what will otherwise be
     an increasingly heavy tax burden on working Canadians.

     Working Canadians' ability to support a growing proportion of the population entering retire-
     ment will come under increasing strain in the years ahead. Demographic trends show that
     the proportion of Canadians aged 65 and older will nearly double from 12.7 per cent in 2001
     to 23 per cent in 2040. The largest source of income for Canadians 65 and older was from
     government transfers, including the Canada Pension Plan. Meanwhile, the share of the
     working population will drop by six per cent, from 68.5 per cent to 62.2 per cent over the
     same period.

     Our aging population, with a doubling of elderly beneficiaries, combined with heavy reliance
     on government transfers as an income source, will strain the government's ability to main-
     tain funding levels. An even larger challenge than maintaining transfers for retirement
     income will come from funding the health care system. Health care expenditures are strong-
     ly correlated with age, with 68 per cent of total health care expenditures coming after age
     65.

     A fundamental shift in perspective is required by those who view an increase to RRSP con-
     tribution limits as a tax expenditure. RRSP contributions are an investment, not an expen-
     diture, since tax revenues foregone today will be fully recovered with interest when contri-
     butions are withdrawn. Moreover, forgone tax revenues will be recovered when the baby
     boom generation retires and federal pension and health expenditures will peak.

26
                       The Canadian Real Estate Association 2003 Pre-Budget Submission
If the tax system is to generate a healthy revenue stream in 30 years, then some senior cit-
izens in the future better have good taxable incomes or the tax burden will fall heavily on a
smaller working population. As many baby boomers are entering their peak earnings peri-
od, now is the time to encourage them to maximize their own retirement savings.

Many Canadians' retirement savings suffered a substantial setback due to the substantial
decline in the Canadian stock market. In July 2002, the S&P/TSX Composite Index was still
more than 40% below its peak of August 2000. To help assure the highest quality of life in
their retirement years, the government should encourage all working Canadians to increase
their retirement savings during their remaining working years.

Contribution Limits Are Insufficient

The vast majority of baby boomers are likely to have been unable to save for their retire-
ment while raising a family, saving for their education, buying a home, and paying their mort-
gage and taxes. After these expenses, there is little or nothing to save for retirement.

The carry-forward provision for RRSPs has not been in existence long enough for empty-
nest baby-boomers to exceed the contribution ceiling to make up for earlier years during
which they were unable make, let alone maximize, RRSP contributions.

Consider the example of a family whose sole income earner is 51 years of age in 2002.
When they began work in 1976 at age 25, they started at a salary of just over $43,000.
Presume their income increases at the rate of 2% annually so that they earn $95,000 by the
time they retire at age 65 in 2027, and that wage and price inflation amount to 2% per year.

The seven-year carry-forward provision was established in 1991 and was replaced with a
lifetime carry-forward provision in 1996. Considering contribution ceilings since 1991, their
accumulated carry-forward available would be $78,000 in 1996.

Due to the expense of raising a family, the income earner was unable to contribute to an
RRSP before 1996. In 1997, their children leave home, and make their own way in the world
so that they no longer represent a financial expense.

To make up for earlier years in which RRSP contributions were not being made, annual con-
tributions beginning in 1997 are made that exceed the contribution ceiling by drawing down
on the accumulated carry-forward until it is exhausted at age 65.

If the annual return on the RRSP is between 3% and 4%, the RRSP will be worth between
approximately $370,000 and $400,000. It is widely understood that 70% of pre-retirement
income is required to maintain a stable standard of living during retirement. However, if the
RRSP is converted to an indexed annuity upon retirement, their post-retirement standard of
living will be below that of their re-retirement years, even after adding maximum Old Age
Security and Canada Pension Plan benefits to annual income.



                                                                                                 27
                  The Canadian Real Estate Association 2003 Pre-Budget Submission
     Many aging baby boomers invested some of their RRSP in equities. In July 2002, the
     S&P/TSX Composite Index was still more than 40% below its peak of August 2000. The
     resulting decline in value for their RRSP underscores their need to save more to their RRSP
     before retiring than is permissible under the current contribution ceiling.

           Gross Income from Indexed Annuity* and Retirement Income Benefits
            As a Percentage of The Final Five Years of Pre-Retirement Income




          *Assuming inflation is 2% annually

     Life expectancy for Canadian men and women born in 1997 is 76 and 82 years of age
     respectively. Since retirees' worst fear is that of outliving their savings, it is reasonable to
     think that they will assume to live into their eighties or nineties for annuity income purposes,
     especially since healthy lifestyles are helping Canadians to live longer. Consequently,
     retirees' gross annual post-retirement income will fall well below the recommended 70% of
     pre-retirement income.

     Carry-forward provisions have not existed long enough for aging baby boomers to be able
     to exceed RRSP contribution ceilings sufficiently during their peak earning years to make up
     for foregone contributions when the expense of raising a family made it difficult to save for
     retirement. Raising the contribution ceiling would enable aging baby boomers to save more
     for retirement during those years when their capability of doing so is highest.

     Contribution Limits are Unfair

     Registered Retirement Saving Plans (RRSPs) are not a "program for the rich". A variety of
     middle-income salaried employees are adversely affected, such as nurses, plumbers, police
     officers, sales managers, and school administrators. Moreover, RRSPs play a vital role for
     over 2.4 million self-employed Canadians who must plan their own retirement without the
     luxury of a company-assisted pension plan.

     Provisions for tax-sheltered retirement earnings should benefit Canadians irrespective of
     whether they earn a salary or commission income; however, they do not. The current RRSP
     contribution ceiling disadvantages commission income earners more than those earning a
     salary income.
28
                             The Canadian Real Estate Association 2003 Pre-Budget Submission
Consider the case of a salary income earner and a commission income earner each of
which begin their career at age 25 in 1976, retire at 65 and earn the same income over their
working life. However, salaried income earners enjoy stable incomes and moderate income
growth over time, while annual incomes fluctuate for those earning commissions.




Raising a family, paying taxes and financing a home makes it difficult to contribute to their
RRSP until their children are no longer a financial burden. To make up for foregone contri-
butions, the salaried and commission income earners both contribute $13,500 a year to their
RRSP beginning at age 45. At age 50, each contributes 19,000 annually to their RRSP until
their carry-forward is exhausted, at which point they each maximize their RRSP contribu-
tions until they retire.

In this example, the commission income earner exhausts their carry-forward at age 55, while
the salary income earner can continue to exceed the contribution ceiling until age 59.




                                                                                                29
                  The Canadian Real Estate Association 2003 Pre-Budget Submission
     This puts commission income earners at a real disadvantage compared to salary income
     earners.




     RRSP Contribution Limits Have Fallen Behind

     Canada's retirement savings limits have eroded significantly since the 1970s. In 1976,
     defined benefit pension plans could provide a 70 per cent pension on earnings up to
     $85,750 - roughly equivalent to an RRSP contribution of $15,500. Since then, the cost of
     living and the average wage have increased by more than 200 per cent, as have the bene-
     fits paid from the CPP/QPP, Old Age Security and the Guaranteed Income Supplement.
     Yet, the maximum pension payable from a registered pension plan has been frozen for 25
     years. Had they been indexed, pension plans would now cover earnings up to $250,000
     and would deliver pensions that are equivalent to RRSP contributions of about $45,000 per
     annum.
                 Comparison in Growth of Canada’s Retirement                        Benefits
                                                     1976                           2002     % Increase
          Maximum CPP Retirement Pension           $ 1,900  $                        9,500      400%
     GIS/OAS Pension for Low Income Single Seniors $ 2,700  $                       11,600      330%
                    OAS Benefit                    $ 1,600  $                        5,300      230%
              RRSP Contribution Limit              $ 5,500  $                       13,500      145%
         Defined Contribution Pension Limit*       $ 7,000  $                       13,500       95%
           Defined Benefit Pension Limit*          $ 60,000 $                       60,000        0%
     * For a 35 year career




30
                              The Canadian Real Estate Association 2003 Pre-Budget Submission
Contribution Limits Are Uncompetitive

Canada’s inadequate limits for tax-sheltered private retirement savings compare
unfavourably to those in the United States and $225,000 in the United Kingdom. The cur-
rent RRSP limit of $13,500 for an individual Canadian taxpayer compares with $61,600 in
the United States and up to $87,300 in the United Kingdom.

                        International Comparison of Retirement Systems+
                                                            US         UK                    Canada
Maximum Non-Income-Tested Pension from                   $ 30,680    $ 8,830                 $ 9,465
Social Security                                                                               (CPP)
Maximum earnings fully tax-shelterable in                $ 308,000  $218,700*                $ 86,111
generous defined benefit pension plan
Maximum contribution to tax-sheltered savings plan:
- limit for individual taxpayer                          $ 61,600   $ 38,270 -               $ 13,500
                                                                                 $87,300
- reduced for member of pension plan?                            unreduced       reduced      reduced

Top marginal tax rate and the income level at                      38.6%           40%      46.4%(Ontario)
which it is first encountered                                    $472,860        $ 77,660    $103,000
                                                                  (single)
*no limit if joined plan before 1989
+
 All funds in CDN dollars



Canadians who move to the United States or the United Kingdom are able to save much
larger amounts for retirement and pay lower taxes during their working years. Internationally
mobile employees are considering these benefits in deciding where to live. Canada's retire-
ment system is uncompetitive, as highly skilled graduates are accepting offers in countries
that provide a more hospitable environment.




                                                                                                             31
                        The Canadian Real Estate Association 2003 Pre-Budget Submission
     Appendix A: Report on the Home Buyer’s Plan

     The Home Buyers' Plan (HBP)                    Highlights
     enables participants to borrow up to           • More than 1.2 million plan users have
     $20,000 from their RRSP to purchase               borrowed some $12.1 billion from their
     a first home. It effectively combines             RRSPs to purchase a home.
     two complementary goals of most                • In 2001, more than 144,000 plan users
     Canadians - saving for retirement and             borrowed some $1.5 billion.
     saving for a home.                             • The plan is estimated to have facilitated
     Introduced in 1992 after broad consul-            more than 602,000 home purchases, with
     tation, many associations and                     72,120 homes bought in 2001.
     Canada Mortgage and Housing
     Corporation supported the concept of
     borrowing from one's RRSP to invest
     in a home. First open to all buyers as         Annual Home Sales Under the Home Buyers’ Plan
     a temporary measure, the plan was
     made permanent and restricted to
     first-time buyers in 1994.
     Annual repayments of RRSPs over 15
     years is a fundamental feature of the
     plan. To date, more than $2.3 billion
     has been repaid to accounts.
     The plan has proven to be of enor-
     mous social and economic benefit.
     The rate of homeownership rose from
     62.3 per cent in 1991 to 63.2 per cent
     in the year 2000 .
     An estimated 602,294 home purchas-
     es attributed to the plan have resulted
     in almost $9.8 billion in economic
     spin-off benefits in addition to the          Approximate Cumulative Annual Home Sales Using
     major benefits arising from new home                       the Home Buyers’ Plan
     construction.
     The plan strongly encourages new
     home construction because it applies
     directly to a newly constructed home
     and stimulates the entire housing
     market by encouraging resale home
     purchases.
     The plan also encourages Canadians
     to start retirement savings earlier,
     since owning a principal residence
     represents the foundation of an over-
     all financial and retirement plan.

32
                       The Canadian Real Estate Association 2003 Pre-Budget Submission
Appendix B: Special Report on MLS® Home Sales

  Highlights
  •   Sales in the first half of 2002 were up 22% compared to sales for the same period last year.
  •   Activity is gradually returning to a normal pace after having sprinted to record heights
      earlier this year.
  •   The number of homes available for sale is slowly rising and helping improve the balance
      between supply and demand.
  •   Due to an ongoing and widespread shortage of lower and moderately priced homes and
      appreciation in property values, the national average price for existing home sales rose
      10% in the first half of the year compared to the first half of last year.
  •   Strong job growth and consumer confidence combined with low and attractive mortgage
      rates will keep housing demand stable over the rest of the year and into 2003.


Sales
• On a seasonally adjusted basis, some 233,844 homes traded
   hands over the Multiple Listing Service® (MLS®) in the first half of
         2002, representing a 22.0% increase compared to the first
half of 2001.
• Sales in the first half of 2002 were up compared to the same
   period last year in all provinces except Manitoba.
• Existing home sales reached their highest level on record for the
   first half of the year in Alberta, Manitoba, Ontario, Quebec, and
   all Atlantic provinces.                                                 Source: CREA

• The value of existing homes sales also set a new record for the
   first half, with sales worth some $40.2 billion.

New Listings
• On a seasonally adjusted basis, new listings in the first half of
  2002 were 0.5% below levels for the same period last year.
• After having slipped in the first three months of 2002, new
  listings rebounded in the second quarter and reached their
  highest level since the second quarter of 1999.
• An improving balance between supply (i.e. new listings) and
  demand (i.e. sales) is easing some of the upward pressure on
  home prices.
• However, a continuing shortage of lower and moderately priced
  homes in the face of strong housing demand suggests that                  Source: CREA
  prices will continue to rise over the rest of the year.

Average Price
• The national average MLS® home price for the first half of 2002
  rose 9.9% to $186,674 compared to the first six months of 2001,
  shattering all previous historical records.
• Average MLS® home prices reached new all-time highs in British
  Columbia, Ontario, Quebec, New Brunswick, Nova Scotia and
  Newfoundland.
• Average prices are expected to remain above year-ago levels
  over the rest of 2002 , but price increases will continue to
  diminish as the balance between listings and sales improves.             Source: CREA
                                                                                                     33
                     The Canadian Real Estate Association 2003 Pre-Budget Submission
     Economic Outlook
     Full-Time Jobs
     • In the first half of 2002, overall employment rose by 303,400
       jobs, most of which were full-time positions.                                 Full-Time Job Growth
                                                                                       Increase/Decrease
     • Full-time job growth was propelled in large part by those most            Compared to the Previous Quarter
       closely associated with move-up home buying activity
       (i.e. ages 35-44).
     • Job gains and a falling unemployment rate have helped
       strengthen consumer confidence and continues to fuel housing
       demand.
     • Full-time job growth in the first half of the year was strongest in
       British Columbia, Ontario and Quebec.
     • Job growth is expected to ease in the second half of the year
       due to the impact of softwood lumber duties on British
       Columbia's forestry sector and weaker US demand for Canadian-
                                                                               Source: Statistics Canada, CREA
       built cars and trucks.
     • Even if Canadian job growth moderates as expected, job growth
       in the first half will provide support for housing in the second half
       of the year.
     Interest Rates
     • Low mortgage interest rates continue to fuel strong housing
       demand across Canada.                                                   Bank Rate vs. Mortgage Rates
     • The recent increase in the prime lending rate will have little
       effect on home sales.
     • Variable mortgage rates, which are tied to the prime rate, are
       only one-half of a percentage point above where they stood in
       early January.
     • Short-term interest rates in the U.S. will remain low and stable
       over the rest of the year to support economic growth, which
       puts less pressure on the Bank of Canada to raise interest
       rates.
     • Mortgage rates are expected to remain low by historical                 Source: Bank of Canada
       standards, which will continue to draw home buyers to the
       housing market over the rest of the year.
     Consumer Confidence
     • Overall consumer confidence and enthusiasm about making
       major purchases now stand at their highest levels in over a
       decade!                                                                  Consumer Confidence Index
     • Willingness to make major purchases is running strong among
       first-time homebuyers (ages 25-34) and move-up buyers
       (ages 35-44) alike.
     • Consumer confidence rose in all regions except Quebec,
       where sentiment about job growth and enthusiasm about
       making major purchases recently slipped.
     • With mortgage interest rates expected to remain near current
       levels over the rest of the year, consumer confidence will
       remain strong.
     • Even should job growth slow from its break-neck pace during
                                                                               Source: Conference Board of Canada
       the first half of the year, low mortgage interest rates will
       support consumer confidence and enthusiasm about home
       buying and over the rest of the year.
34
                          The Canadian Real Estate Association 2003 Pre-Budget Submission

				
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