Last year the federal government introduced its First Time Home Buyers Incentive. The idea behind the program was to provide financial assistance for families across the country to buy their first home. This was to be done with the federal government becoming an equity partner in the home by providing an interest-free load up to 10 per cent of its purchase price. The federal financing reduces the down payment for the first-time buyer and thus creates an incentive to buy a home with lower monthly mortgage payments. As an equity partner, the government is then entitled to receive a return on its investment when the home is eventually sold, within a period of 25 years. The government is therefore betting that the value of the home will increase over time (a safe bet in Canada), and its percentage of ownership will provide a return to the government greater than its initial investment. For many Canadians who would not otherwise be able to afford to purchase a home, this is a very good idea, even it means that they will return part of their ultimate sale price to the government. For the many years that a family can enjoy the benefits of their home, it is a deal that they see is well worth making. While there are some specific criteria for qualifying for the program that need to be checked out in some individual cases, three general rules are as follows: 1) that your household income is under $120,000; (2) you have sufficient cash for the minimum down payment. The current program sets this at 5 per cent of the first $500,000 of the purchase price of a new home, and 10 per cent for any amount above that, with a ceiling of 20 per cent of the home’s purchase price; (3) the total amount that you can borrow toward the home purchase is less than four times your income. For example, if your want to buy a new home for 500,00, you could receive a loan of $50,000 toward the down payment. (If you are buying home that is not new, then the amount of the load would be 5 per cent, or $25,000, on a $500,000 price.)
For prospective home buyers in Greater Vancouver, there is another important rule that needs to be noted: The maximum price for a home purchase under the incentive program is $565,000. This is huge problem for Canadians who live in the Greater Vancouver region. Last month the composite benchmark home price listed on the Multiple Listing Service by the Greater Vancouver Real Estate Board was $1,008,700. Note that each of the following benchmarks for each different property type is beyond the maximum allowable for the program: At the end of January 2020, the composite benchmarks for single detached homes was $1,431,200; for townhouses, $782,500; and condominiums, $663,200. This is a regional inequity that must be remedied soon.
When the federal government announced the program in its 2019 budget, it promised it would help 100,000 new home buyers in Canada. According to a recent report by the Western Investor, there were only 29 applications approved for Metro Vancouver since the launch of the program in September 2019. Of these, the average loan was $18,000 which represents an average home price of about $350,000. Obviously, this price range precludes the housing needs of the vast majority of home buyers in Greater Vancouver. The federal government has indicated it is looking into adjusting the maximum eligible home price for large urban areas like Vancouver. It is imperative that the government moves quickly to remedy this unfair regional differential. It must create an incentive that works for expensive real estate markets like Vancouver, and to do so without delay. There are many home seekers who are forced to sit on the sidelines while residential property prices continue to rise.