The federal government has introduced a new program called the First Time Home Buyer Incentive which provides a loan subsidy to first time buyers earning less than $120,000 annually. Details of the new program are here.
How effective will it be? Let’s be clear. Unaffordability is due to a large demographic of millennials starting families and competing for an inadequate supply of homes. These homes also serve as cash machines for three levels of government through a variety of fees and taxes also driving up prices. The government’s stress test, designed to limit demand, eliminated so many buyers from the market that the Canadian economy was adversely impacted. So the Liberals introduced a “First Time Home Buyer Incentive” to return some of those buyers to the market. Except the real problem is lack of supply, acknowledged with a new, likely ineffective “housing supply challenge” program to encourage municipalities to break down barriers limiting new housing. These barriers are rooted in poor regional planning, high costs, slow approvals, and community opposition to more density, all of which require stronger measures to resolve.
The government should have introduced stronger supply measures and simply increased amortization to 30 years to more effectively address affordability. Instead, their solution is a patch on a patch and introduces a government agency (CMHC) as a significant equity participant in a private property transaction with the buyer, seller and lender, adding another level of complication and potential unintended consequences. Also, the subsidy limit will have little impact on new homes sales in a high-priced market like Greater Victoria.
That said, without an initiative to assist millennials, national sales would continue to slide, along with housing starts, jobs and the Canadian economy. The results of this new program remain to be seen.