Loans for First Time Home Buyers?

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Right intention.  Wrong execution.

The B.C. government announced it will help first time home buyers to cover the cost of a mortgage down payment by providing a loan of up to $37,500 that will be interest free and payment free for the first five years.

Dubbed the “B.C. Home Owner Mortgage and Equity Partnership program,” the intention of the policy is to assist prospective first time buyers who can afford the mortgage payments on a new home but are challenged to make the down payment.  

According to provincial government numbers, the program will spend around $234 million annually over three years to help an estimated 42,000 buyers.

You can learn whether you're eligible, and how it works here. 

You’ve got to give the provincial government credit.  Their announcement shows that it is paying attention to the #CodeRed crisis that younger generations face in the housing market throughout B.C. 

In 1976, it used to take around 5 years of full-time work for a young adult to save a 20 percent down payment on an average home in this province.  Now it takes over 16 years, and requires more work still in Metro Vancouver.

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So adapting policy to compensate younger Canadians for the harm inflicted on their standard of living by the housing market is an appropriate government priority, especially when the high home prices that harm young adults often make other, older members of their families wealthier.

Give the Premier and her government an A+ for good intentions. But they don’t get a passing grade for execution.

Any adequate, and sustainable, policy adaptation to the #CodeRed crisis facing younger Canada in the housing market must prioritize measures that are less likely to encourage home prices to leave earnings further behind. 

The proposed government loans do the exact opposite, because they fuel market forces that pump up the sales price and ultimately result in predominantly young people paying more for a home that would have cost less in the absence of the government’s loan program. 

The result is first time home buyers will get in more debt, while those already in the market (often our parents, grandparents or developers) will get wealthier because they can sell their home for even more.

The Bottom Line

This new program to help first time homebuyers is in contradiction with the B.C. government's stated goal of "controlling the cost of housing." 

If B.C.'s leaders want an A+ on helping first time homebuyers, they need to focus on policy that helps rein in escalations to already sky-high housing costs.

Or put another way, our leaders need to enact policy that helps to recouple home prices to earnings

Alternatives

Our evidence-informed #CodeRed framework for housing policy offers a set of principles that would do a better job recoupling homes prices to earnings, including:

  • Grow supply.  This is also a stated B.C. government objective. So far, its most significant actions have included substantial new investment in affordable rental housing ($500 million funded by the foreign buyer tax), and legislation enabling the City of Vancouver to incentivize the supply of thousands of new rental units by taxing vacant homes.  

    In addition to this, we believe B.C. should tie provincial transit and housing infrastructure investments to increased density in residential areas so that municipalities are obliged to increase supply and stabilize home prices.  This would support Mayors and Councillors to resist the NIMBY’ism (Not In My Back Yard’ism) that often prevents local politicians from changing zoning practices to add the density that is required to reduce the #CodeRed crisis.
  • Moderate demand.  The B.C. government's recent 15% tax on foreign buyers was a bold and welcome measure to moderate demand.

    In addition to this, we believe the province needs to shift toward collecting taxes more from housing wealth and less from income, because home prices are rising faster than we’d like, when incomes are not.  Just as we tax cigarettes or polution because want to reduce them, so it makes sense to think about how to use tax policy to slow the growth in home prices.  This would help moderate demand for housing, including among investors (foreign AND domestic).

    One way to shift away from income taxation in favour of taxing housing wealth more, referred to in our #CodeRed study (p. 19) would be to cut taxes for younger Canadians (say age 18 to 39) by permitting them to deduct or credit some of their rent or mortgage interest against their taxes owed.

    This would help them save better for a home and/or stretch their earnings to cover higher home costs. All young residents would benefit from this policy proposal, including those who have already bought homes in addition to those who may never own, rather than the much narrower group of people who may participate in the Premier’s loan program.

  • Better position younger Canadians to cope with higher home prices. For example, by ensuring other major costs in their lives like child care, parental leave and transit no longer cost the equivalent of mortgage-sized payments.

In sum, while I'm heartened by the Premier's good intentions to help predominantly younger British Columbians cope with high home prices, this new loan program contradicts her government's stated goal of "controlling the cost of housing." 

Accordingly, Generation Squeeze will strive to engage those good intentions by encouraging her government to refine its policy proposal to reduce the harm it will likely cause, while amplifying the positive outcomes it aims to achieve.


Dr. Paul Kershaw is a policy professor in the UBC School of Population and Public Health, and Founder of Generation Squeeze.


Showing 2 reactions

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  • commented 2017-01-13 15:41:12 -0800
    “This new program to help first time homebuyers is in contradiction with the B.C. government’s stated goal of ‘controlling the cost of housing.’” I don’t see a contradiction here. The program absolutely DOES help the BC Government to control the cost of housing. The assumption that could be inferred from this statement is that they intend to make housing more affordable for gen squeeze.

    Paul, you seem to put a degree of faith in the sincerity of the BC Government stated intentions. But a greater degree of skepticism regarding the inconsistency between stated intentions and policy might reveal something more sinister. Isn’t it more functional to take a structural approach in evaluation? In other words, doesn’t it make more sense to look first at the policy and then extrapolate the intentions. From that point of view, the role of the stated intentions could be seen as a PR campaign, not as a legitimate playbook. The apparent contradiction plays upon the assumption that the true intent is consistent with the stated intent. Cui Bono?

  • commented 2017-01-04 12:24:01 -0800
    My ears perked up when I heard about this. I may be able to take advantage of this program. BUT… #1: I will have to find a new job and move, uprooting my family, because even with the help I still can’t afford city prices and #2: what happens in 5 years when my interest rates go up AND I have to start paying back the loan? Will it break me? If I uproot my family we could go down to one income instead of two for awhile. Can we afford that? If it ends up being really rural, we’ll need two cars. Can we afford that?

    Too many questions, so let’s say we stay in the city. I’ve done the math, IF our household made exactly 6 figures ($100,000), had ONLY $300/mo. current debt payments and we match the program’s maximum loan amount for the down payment ($67,500 total), I still have to pay the mortgage insurance ($12K) and can only afford a purchase price of $570,000. The best I could do without making my one-way 1.25 hr commute even worse is a 30-40 yr old townhouse or apt. at the far southeast corner of Vancouver. And we’d still have to pay about $300/mo maintenance fee.

    We’ve been very lucky to live in a co-op for the last 10 years but frankly, I’m tired of living with 21 other decision makers. I feel like I’ve paid my dues and deserve to not have to explain myself to anyone or worry about keeping others happy. I deserve a single detached home. With a fenced yard for our dog. If I want what I feel I deserve, I have to leave our community and this city.

“Yes, Canadian governments need to make younger people a priority. I want a Canada that works for all generations."

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