The federal government’s First-Time Homebuyer Incentive is proving to be flop given very little interest among homebuyers who continue to be shut out of the market and rent. However, it is seen as one of the primary reasons why housing prices are up and speculators are back in business.
Reports say that Canada Mortgage and Housing Corp. (CMHC) got roughly 3,000 applications for the program in its first three months, and the Crown agency issued some $51 million in funding in 2019, a small amount given that the government has earmarked $1.25 billion to be invested over three years.
The program has garnered interest mostly in Quebec and Alberta, where housing is considerably more affordable rather than in Ontario and British Columbia which is the epicentre of the housing affordability crisis. There were just 148 applications in Toronto, and 45 in Vancouver.
The Liberals vowed during last fall’s election to raise the effective maximum house price under the program to $789,000 from $480,000, after criticism that the limit was too low to help in Toronto and Vancouver.
The program is designed to make buying a first home more affordable. The CMHC purchases 5 or 10 per cent of a homebuyer’s home, reducing monthly mortgage payments, in exchange for an equity stake in the house that the owner has to pay out to the agency when they sell the house or the mortgage ends.
A similar program in the UK found that homebuyers used it to increase their maximum purchase price, thus driving up house prices.
The only way to effectively combat the housing affordability crisis is to rapidly ramp up construction of rental units and all kinds of homes, especially smaller homes that are preferred by first-time buyers as they are more affordable.
Meanwhile it is suspected that speculators are getting into the market expecting the program to boost the market given that the program could create a flood of buyers which will undoubtedly boost prices.
In the meantime, there is a shortage of homes for sale in the market and the impact of the mortgage stress test has waned ? the test meant people needed to save up longer for a down payment, and now they have.
With the average sale price in Toronto jumping 12.3 per cent in the past year, and sales in Vancouver accelerating by 42.4 per cent in January, many economists say Canada’s markets are returning to the overheated conditions seen in 2015 and 2016.
That worsening of affordability is expected to continue in 2020. -CINEWS