As British Columbia plans to roll out interest-free loans to thousands of people seeking to buy their first home, the Peel Region in Ontario is suspending a similar loan program so it can instead use the resources for much-needed social housing.
Last week, B.C. Premier Christy Clark announced her government would soon start offering interest-free loans to help first-time home buyers with their down payments in a market where skyrocketing real estate has priced many out of owning property in and around Metro Vancouver.
Under the program, the B.C. government will match down payments of up to $37,500 made by first-time buyers purchasing any home priced up to $750,000. These applicants can get only the 25-year loans – which are free of interest for the first five years – if they commit to living in the unit for those initial five years.
Critics panned the move as heaping additional risk on young families while stoking property prices at a time when Ottawa is warning of abnormally high household debt and introducing measures to cool the frothy housing sector.
In Peel, where more than a million people live in the communities of Mississauga, Brampton and Caledon, the regional government says a similar program of loans was successful in helping 681 renting households become owners over the past eight years. Those wanting to buy a property priced up to $330,000 can have a loan of up to $20,000 for a down payment. That debt is forgiven if they make that home their principal residence for the next 20 years.
Beth Storti, the manager who oversees Peel Region’s loan program, said there was not enough funding in recent years to meet demand from aspiring homeowners.
“Last year was a very, very busy year for us,” she said.
The tiny program, which has committed to lending about $8.5-million over its lifetime, is being suspended at the end of this month so that funds can be used to reduce waiting times for poorer renters applying for social housing.
Ms. Storti said B.C.’s new fund is more audacious and much larger – with up to 15,000 successful applicants expected annually over the next three years – but lessons can be drawn from this case study to the east.
Perhaps the most important, she said, was the need to educate these first-time buyers on the responsibilities – and hidden expenses – that come with owning one’s home.
After a review of the program in 2014 found some new owners were surprised by all the extra costs, the Region of Peel made all successful loan applicants attend mandatory information sessions held in co-operation with the Canada Mortgage and Housing Corp., which warned them of the risks of borrowing in this overheated market.
“You’re told that you can afford it and so you go out, put yourself out there and then something happens – so we’re really making sure people are well-informed,” Ms. Storti said.
In October, the federal government implemented new measures designed to slow the housing sector, including higher affordability thresholds that borrowers have to meet to qualify for mortgages.
A recent report from the Bank of Canada warned the proportion of the most at-risk group of borrowers (loan-to-income ratios that surpass 450 per cent) out of the total number of high-ratio mortgages is growing and rose last quarter to 39 per cent in Vancouver from 37 per cent a year earlier.
Starting next month, B.C.’s new loan program will target those applying for these high-ratio mortgages and match up to a maximum of 5 per cent of the purchase price so that they can afford a down payment.
Several economists from the University of British Columbia and Simon Fraser University criticized the program after it was announced, saying it will ask people to stretch themselves even further to achieve home ownership, a risky proposition if interest rates increase significantly in the future.
The Premier, who faces an election in May in which the lack of affordable real estate is likely to be a central issue, said the new buyers all must pass the new mortgage stress tests and B.C. does not expect them to be enough of a force to drive up prices further in Metro Vancouver.
David Hulchanski, a University of Toronto professor and expert on community planning, said Canadian politicians have wooed voters before elections with similar programs over the past century.
In 1935, prime minister R. B. Bennett, facing an election he ultimately lost as a result of his unpopular response to the Great Depression, passed the Dominion Housing Act to give loans to those buying homes.
Again in 1973, prime minister Pierre Trudeau rolled out an assisted home-ownership program ahead of an election, Dr. Hulchanski said.
He said these repayable loans offer politicians a cheaper option than building more social housing or rental supply.
“We’ve had these programs forever,” he said. “Why help somebody who is on the cusp of owning?
Source: MIKE HAGER VANCOUVER — The Globe and Mail Published Monday, Dec. 19, 2016