Housing affordability was centre stage when the federal government announced the new First-Time Home Buyer Incentive program as part of their 2019 budget, and it promises to be a big campaign issue this fall.
The program represents a major step towards bridging the affordability gap facing many first-time homebuyers. The introduction in recent years of the mortgage stress test created yet another hurdle to homeownership, especially for young buyers.
This new program would see the Canada Mortgage and Housing Corp. (CMHC) contribute up to 10 per cent of the purchase price of a new-build home or five per cent of the value of a home on the resale market with what is basically an interest-free loan. CMHC would receive a corresponding equity share in the home, which the homeowner must eventually pay back, but not until they sell.
To qualify, applicants must have an annual household income of less than $120,000 and be capable of producing a five per cent down payment – the minimum for a CMHC-insured mortgage. The plan is only available for homeowners buying homes valued at $505,000 or less.
More specific details of how the program will work won’t be announced until the fall, but the government has budgeted $1.25 billion over three years for the plan and estimates it could assist as many as 100,000 first-time buyers.
“The incentive is a good first step towards addressing housing affordability. Combined with adjustments to the mortgage stress test, it’s plausible we could see improvement in our industry.” – Brian Hahn, BILD Calgary Region CEO
In Calgary, local housing market experts are taking a “wait-and-see” approach and remain cautiously optimistic about the program’s potential impact.
“What’s really uncertain is what the details will be, especially with regard to payback terms,” said Ann-Marie Lurie, CREB®’s chief economist. “In Calgary, we do have product in that price range at least, but the amount of impact will depend on the payback details. Until then it’s hard to understand what the impact might be.”
BILD Calgary Region CEO Brian Hahn is of a similar opinion.
“While the budget introduced several measures to address housing affordability … operational details are not yet clear, so it’s difficult to measure immediate effects,” he said.
“The incentive is a good first step towards addressing housing affordability. Combined with adjustments to the mortgage stress test, it’s plausible we could see improvement in our industry.”
Alberta Mortgage Brokers Association (AMBA) executive director Amanda Roy agrees that more details are needed before assessing the impacts of the incentive program. She adds that while the announced affordability measures aren’t exactly what the industry wanted, it’s a start.
“It’s far too early to know what the impacts will be on the local market. We believe it will take up to two years for markets to feel the effects,” she said. “There are worries that buyers will wait until the legislation passes in September to continue shopping, which could result in a slowdown in construction in the next six months.
“It’s an interesting mechanism that they’re trying to be creative with. It isn’t what the mortgage industry community was hoping for, but they did listen to our concerns regarding housing affordability and first-time homebuyers and tried to address it in their own way.”