A federal minister says a new program first announced during the 2019 federal budget will help first-time home buyers, a claim questioned by the head of Greater Victoria builders.
Standing outside a housing project under construction in Saanich near Uptown, Jonathan Wilkinson, federal minister of fisheries, oceans and the Canadian Coast Guard, re-announced the first-time home buyer incentive, which he predicted will help middle-class families take steps towards home ownership by reducing monthly mortgage payments without increasing the amount needed to save for a down payment.
The program allocates $1.25 billion over three years to first-time home buyers with qualified annual household incomes of up to $120,000. The program would help about 100,000 homeowners save up to $286 on their monthly mortgage payments.
Wilkinson said the first-time home buyer incentive is a tool that allows would-be buyers to purchase homes in ways that are “much more sustainable” for young buyers and families.
“It is a way to enable first-time home ownership that is creative and thoughtful, and does not have the same kind of challenges that we had previously.”
The program announced during the 2019 federal budget came after the federal government had introduced the so-called mortgage stress test in 2018 to help slow down escalating real estate prices. Its critics claim that the mortgage test has made it more difficult for Canadians to enter the housing market. The British Columbia Real Estate Association, for example, argued that without the stress test, home sales in B.C. would have been about 7,500 — or 10 per cent higher — in 2018.
This context has led to suggestions that the government introduced the incentive program (which co-exists with other measures) to ease the political pain of the mortgage stress test, a claim Wilkinson rejects.
Wilkinson said everybody agrees that home ownership is a positive. “But you need to do it in a responsible way,” he said. “The stress test was introduced because we were concerned about getting to a point where people were taking out mortgages that perhaps they couldn’t afford if interest rates were up, even marginally. We also saw what happened in the United States in 2008, when we had some similar issues.”
During his opening remarks, Wilkinson cited a Canada Mortgage and Housing Corporation study from early 2017 that found Victoria was the least affordable small city in Canada, with the median house price eight times higher than median household income. Other surveys have found comparable findings.
“With the steep rise in housing prices and rental rates, there is no doubt that housing affordability is increasingly one of the most important issues on the south Island,” he said.
Casey Edge, executive director of the Victoria Residential Builders Association, questions whether the program will make any difference.
With the stress test, he said the federal government reduced the purchasing power of home buyers by 20 per cent during a period of declining interest rates, only to offer them a loan program later.
”Why not remove the stress test so people can buy the home they can afford?” he said. “HSBC offers a 10-year fixed rate at 2.99 per cent. If a buyer chooses that option, why should they qualify at the Bank of Canada’s five-year rate at 5.14 per cent? In fact there is no justification for a mortgage stress test. They have eroded affordability and now act like they are doing everyone a favour with an equity loan.”